<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1998
REGISTRATION NO. 333-_____
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------------
U.S. REMODELERS, INC.
(Name of small business issuer in its charter)
-----------------
1798 75-2686765
DELAWARE (Primary Standard (I.R.S. Employer
(State of incorporation) Industrial Classification Identification No.)
Code Number)
-----------------
MURRAY H. GROSS
1341 W. MOCKINGBIRD LANE, SUITE 900E U.S. REMODELERS, INC.
DALLAS, TEXAS 75247 1341 W. MOCKINGBIRD, SUITE 900E
(214) 267-2000 DALLAS, TEXAS 75247
(Address and telephone number of (214) 267-2000
principal executive offices and (Name, address and telephone number
principal place of business) of agent for service)
-----------------
Copies to:
CHARLES D. MAGUIRE, JR., ESQ. JAKES JORDAAN, ESQ.
JACKSON WALKER L.L.P. JORDAAN & PENNINGTON, PLLC
901 MAIN STREET, SUITE 6000 300 CRESCENT COURT, SUITE 1605
DALLAS, TEXAS 75202 DALLAS, TEXAS 75201
PHONE NO. (214) 953-5850 PHONE NO. (214) 871-6550
FAX NO. (214) 953-5822 FAX NO. (214) 871-6560
-----------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-----------------
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==========================================================================================================================
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED BE REGISTERED PER SECURITY(1) OFFERING PRICE(1) FEE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units(2)............................ 1,610,000 $5.125 $ 8,251,250 $2,500.13
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, par value
$.01 per share(3).................. 1,610,000 $ 5.00 $ 8,050,000 (3)
- --------------------------------------------------------------------------------------------------------------------------
Redeemable Common Stock
Purchase Warrants(3)(9)............ 1,610,000 $0.125 $ 201,250 (3)
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, issuable
under Redeemable Common
Stock Purchase Warrants(4)(9)...... 1,610,000 $ 6.25 $10,062,500 $3,048.94
- --------------------------------------------------------------------------------------------------------------------------
Representative's Warrants(5)(9)..... 140,000 $.0007 $ 100 $ 0.03
- --------------------------------------------------------------------------------------------------------------------------
Units underlying
Representative's Warrants.......... 140,000 $ 6.15 $ 861,000 $ 260.91
- --------------------------------------------------------------------------------------------------------------------------
Common Stock included in
Units issuable under the
Representative's Warrants(6)....... 140,000 (6) (6) (6)
- --------------------------------------------------------------------------------------------------------------------------
Redeemable Common Stock Purchase
Warrants included in the Units
Issuable under the Representative's
Warrants(7)........................ 140,000 (7) (7) (7)
- --------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon
exercise of the Redeemable
Common Stock Purchase
Warrants included in the
Units issuable under the
Representative's Warrants(8)....... 140,000 $ 6.25 $ 875,000 $ 265.15
- --------------------------------------------------------------------------------------------------------------------------
Total...................................................................................................... $6,075.16
=========
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purposes of calculating the amount of the
registration fee pursuant to Rule 457 under the Securities Act of 1933, as
amended.
(2) Includes an aggregate of 1,610,000 shares of Common Stock and 1,610,000
Redeemable Common Stock Purchase Warrants (the "Warrants") to be offered to
the public in 1,610,000 units (the "Units"), and includes 210,000 Units
which may be purchased by the Underwriters to cover over-allotments, if
any.
(3) Included in the Units. No additional registration fee is required.
(4) Represents shares of Common Stock issuable upon exercise of the Warrants
registered hereby together with such additional indeterminate number of
shares as may be issued upon exercise of such Warrants by reason of the
anti-dilution provisions contained therein.
(5) Representative's Warrants to purchase up to 140,000 Units consisting of an
aggregate of 140,000 shares of Common Stock and 140,000 Warrants.
(6) Represents shares of Common Stock included in the Units issuable upon
exercise of the Representative's Warrants, together with such additional
indeterminate number of shares of Common Stock as may be issued upon
exercise of such Representative's Warrants by reason of the anti-dilution
provisions contained therein.
(7) Represents Warrants to purchase 140,000 shares of Common Stock included in
the Units issuable upon exercise of the Representative's Warrants.
(8) Represents 140,000 shares of Common Stock issuable upon exercise of the
Warrants included in the Units issuable upon exercise of the
Representative's Warrants.
(9) Pursuant to Rule 416 of the Securities Act of 1933, as amended, no separate
registration fee is required as the Common Stock underlying the Warrants is
being registered in the same registration statement.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1998
[LOGO OF U.S. REMODELERS APPEARS HERE]
U.S. REMODELERS, INC.
1,400,000 UNITS
EACH UNIT COMPRISED OF ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT
U.S. Remodelers, Inc., a Delaware corporation (the "Company"), hereby
offers 1,400,000 units (the "Units"), with each Unit consisting of one share of
common stock, $.01 par value per share (the "Common Stock"), and one Redeemable
Common Stock Purchase Warrant (the "Warrants") (the "Offering"). The Units, the
shares of Common Stock and the Warrants offered hereby are sometimes hereinafter
collectively referred to as the "Securities". The shares of Common Stock and
the Warrants included in the Units may not be traded separately until
_______________, 199__ (90 days from the date of this Prospectus), or on such
earlier date (the "Separation Date"), as may be determined by First London
Securities Corporation, as representative (the "Representative") of the
companies underwriting this Offering (the "Underwriters"). The Warrants will
not be detachable from the Units and may not be traded separately until the
Separation Date. The Company anticipates the Units will be offered to the
public at approximately $5.125 per Unit or $5.00 per share of Common Stock and
$0.125 per Warrant. Each Warrant entitles the holder thereof to purchase one
share of Common Stock at a price of $6.25 per share during the five year period
commencing on the date of this Prospectus. The Warrants are redeemable by the
Company for $.05 per Warrant on not less than 30 nor more than 60 days written
notice if the closing price of the Common Stock for seven trading days during a
10 consecutive trading day period ending not more than 15 days prior to the date
that the notice of redemption is mailed equals or exceeds $8.75 per share. Any
redemption of the Warrants during the one-year period commencing on the date of
this Prospectus shall require the written consent of the Representative. See
"Description of Securities."
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE SECURITIES OFFERED HEREBY, INCLUDING, WITHOUT LIMITATION, A
RISK THAT THIS PROSPECTUS MAY NOT BE CURRENT DURING THE EXERCISE PERIOD OF THE
WARRANTS.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
PRICE UNDERWRITING DISCOUNTS PROCEEDS TO
TO PUBLIC AND COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
Per Unit.............. $__________ $__________ $__________
- --------------------------------------------------------------------------------
Total(3).............. $__________ $__________ $__________
================================================================================
(1) Does not include compensation to the Representative in the form of (i) a 3%
non-accountable expense allowance, $60,000 of which has previously been
paid, and (ii) warrants to purchase up to 140,000 Units exercisable at 120%
of the price per Unit offered hereby (the "Representative's Warrants"). The
Representative's Warrants are exercisable for a five-year period commencing
one year from the date of closing of the Offering. In addition, the Company
has granted certain registration rights with respect to the registration of
the shares of Common Stock and the Warrants underlying the Representative's
Warrants (the "Underlying Warrants") and the shares of Common Stock issuable
upon exercise of the Underlying Warrants. The Company has agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Description of Securities -- Representative's Warrants" and
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $473,200, including the non-accountable expense allowance.
(3) The Company has granted the Underwriters a 45-day over-allotment option to
purchase up to 210,000 additional Units on the same terms and conditions as
set forth above. If all such additional Units are purchased by the
Underwriters, the total Price to Public will be $_______________, the total
Underwriting Discounts and Commissions will be $_______________ and the
total Proceeds to the Company will be $_______________. See "Underwriting."
The Securities offered by this Prospectus are being offered by the
Underwriters named herein on a "firm commitment" basis subject to prior sale,
when, as and if accepted by the Underwriters, approval of certain legal matters
by counsel for the Underwriters and certain other conditions. The Underwriters
reserve the right to withdraw, cancel or modify such offer without notice and
reject any order in whole or in part. It is expected that delivery of the
certificates representing the Securities will be made at the offices of First
London Securities Corporation, Dallas, Texas on or about ____________________,
199__.
FIRST LONDON SECURITIES CORPORATION
The Date of this Prospectus is , 1998
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the United States Securities and Exchange
Commission (the "Commission") a registration statement on Form SB-2 (the
"Registration Statement"), pursuant to the Securities Act with respect to the
Securities offered by this Prospectus. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits
thereto. THE STATEMENTS CONTAINED IN THIS PROSPECTUS AS TO THE CONTENTS OF ANY
CONTRACT OR OTHER DOCUMENT IDENTIFIED AS EXHIBITS IN THIS PROSPECTUS ARE NOT
NECESSARILY COMPLETE, AND IN EACH INSTANCE, REFERENCE IS MADE TO A COPY OF SUCH
CONTRACT OR DOCUMENT FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT, EACH
STATEMENT BEING QUALIFIED IN ANY AND ALL RESPECTS BY SUCH REFERENCE. For
information with respect to the Company and the Securities offered hereby,
reference is made to the Registration Statement and exhibits which may be
inspected without charge at the Commission's principal office at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Upon consummation of this Offering, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934 (the "Exchange
Act") and in accordance therewith will file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copies made at the public reference facilities
of the Commission at 450 Fifth Street, N.W., Washington D.C. 20549; and at its
New York Regional Office, Room 1300, 7 World Trade Center, New York, New York
10048; and at its Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at prescribed rates. The Company's Registration Statement on Form
SB-2 as well as any reports to be filed under the Exchange Act can also be
obtained electronically after the Company has filed such documents with the
Commission through a variety of databases, including among others, the
Commission's Electronic Data Gathering, Analysis And Retrieval ("EDGAR")
program, Knight-Ridder Information, Inc., Federal Filings/Dow Jones and
Lexis/Nexis. Additionally, the Commission maintains a Website (at
http://www.sec.gov) that contains such information regarding the Company.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other reports as the Company
deems appropriate or as may be required by law. Such requests may be directed
to Murray H. Gross, Chief Executive Officer, U.S. Remodelers, Inc., 1341 W.
Mockingbird Lane, Suite 900E, Dallas, Texas 75247, telephone number (214) 267-
2000.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE SECURITIES ON NASDAQ IN ACCORDANCE WITH RULE 103 OF
REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE
"UNDERWRITING."
-2-
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated herein, the
financial, business activities, management and other pertinent information
herein relates on a consolidated basis to the Company and its predecessors.
Each prospective investor is urged to read this Prospectus in its entirety and
to particularly consider the information set forth under the heading "RISK
FACTORS." Unless otherwise indicated, all Common Stock share and per share data
and information in this Prospectus (i) have been adjusted to give effect to a
10-for-one stock split of the Company's Common Stock effective June 15, 1998
effected in the form of a nine-for-one stock dividend, (ii) assume no exercise
of either the Warrants offered hereby or the Representative's Warrants, and
(iii) assume no exercise of the Underwriters' over-allotment option.
THE COMPANY
GENERAL. U.S. Remodelers, Inc. (the "Company") is engaged, through direct
consumer marketing, in the design, sale, manufacture and installation of kitchen
cabinet refacing products utilized in kitchen remodeling. Refacing is a kitchen
remodeling technique in which existing cabinetry framework is retained but all
exposed surfaces are changed. The Company presently operates in 13 major
metropolitan areas in the United States. The Company conducts a substantial
portion of its direct consumer marketing under the trademark and service mark
"CENTURY 21 Cabinet Refacing" under license agreements with TM Acquisition Corp.
("TM") and HFS Licensing Inc. ("HFS") pursuant to a master license agreement
between Century 21 Real Estate Corporation and each of TM and HFS. Both
agreements give the Company the right to market, sell and install kitchen
cabinet refacing products in specific territories under the trademark and
service mark "CENTURY 21 Cabinet Refacing." The Company also conducts its
business under the name "Facelifters." In addition to marketing, selling and
installing cabinet refacing, the Company has plans to market, sell and install
replacement kitchens and windows and other home improvement products. See
"Business."
INDUSTRY. According to industry publications, spending for kitchen
remodeling is expected to exceed $30 billion in 1998 -- an increase from $25
billion in 1997 and $18 billion in 1991 -- with approximately 4.65 million
kitchens expected to be remodeled in 1998, an 8.1% increase over 1997. Of the
expected $30 billion in kitchen remodeling spending, approximately $14.4 billion
is expected to be spent on remodeling jobs costing under $5,000 and
approximately $11.5 billion is expected to be spent on remodeling jobs costing
between $5,000 and $15,000. Based upon industry publications, the Company
believes the continued projected growth of kitchen remodeling is principally due
to three factors: (1) an expected consistent rate of existing home sales, (2)
an aging baby boomer market and (3) kitchen remodeling continues to offer the
homeowner a significantly better cost recoupment upon sale than other home
improvement projects. Households in which the homeowners are age 40 or older
account for approximately 60% of kitchen remodeling projects.
MARKET POSITIONING. The Company operates in a niche segment of the kitchen
remodeling industry known as cabinet refacing, and the Company believes that it
is the largest single seller of cabinet refacing in the United States. The
Company has sales and installation centers located in 13 of the 20 largest
metropolitan areas in the United States. The Company provides its customers with
a full range of services including in-home design, product installation, access
to third-party financing and after sale service. The Company also manufactures
almost all of the components used in its kitchen refacing business in its own
factory. The Company intends, however, to expand its existing business lines to
become a full service kitchen updating business offering not only cabinet
refacing but also replacement kitchens, focusing primarily on middle market
customers who intend to spend between $5,000 and $15,000 on updating their
kitchen.
BUSINESS STRATEGY. The Company's business objective is to become a leader
in the replacement kitchen market, primarily in the mid-range price level. To
achieve this objective, the Company intends to implement a business strategy
comprised of the following elements (see "Business -- Business Strategy"):
. Provide Superior Customer Service
. Leverage Existing Expertise and Infrastructure
. Increase Customer Penetration and Product Offerings
. Develop and Incorporate New Technology
. Implement Internet Initiatives
. Pursue Acquisition Opportunities
-3-
<PAGE>
BACKGROUND. The Company was organized on January 23, 1997 under the laws
of the State of Delaware. On January 27, 1997, the Company entered into an
interim operating agreement with AMRE, Inc. and Facelifters Home Systems, Inc.
("Facelifters"), a wholly-owned subsidiary of AMRE, Inc. (collectively, "AMRE"),
subsequent to the date that AMRE filed for protection under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11"), pursuant to which (a) the Company
leased certain operating facilities and equipment from AMRE; (b) AMRE provided
the Company with certain prospective customer lists, and (c) AMRE assigned to
the Company certain contracts which AMRE had entered into with its customers for
kitchen cabinet refacing and which AMRE was not able to complete. Prior to its
acquisition by AMRE, Inc. in April 1996, Facelifters was a kitchen remodeling
and cabinet refacing business operating predominately in the Northeastern and
Southeastern areas of the United States. On February 12, 1997, the Company
entered into an agreement with AMRE for the purchase of certain selected
operating assets related to the kitchen cabinet refacing business of AMRE (the
"Purchase Agreement"). Effective April 3, 1997, the Company consummated the
transaction contemplated by the Purchase Agreement and acquired the selected
operating assets. Effective November 23, 1997, the Company also purchased
certain assets of Reunion Home Services, Inc. and Kitchen Master, Inc.
(collectively "Reunion"), manufacturers, marketers and installers of kitchen
cabinet refacing products and kitchen cabinet doors. Similar to the Company, but
in separate transactions from those between the Company and AMRE, Reunion, prior
to completing its transaction with the Company, entered into an interim
operating agreement with AMRE, after AMRE filed for protection under Chapter 11,
with terms similar to those found in the interim operating agreement between the
Company and AMRE. Effective April 3, 1997, Reunion also acquired certain
selected operating assets of AMRE. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."
The principal executive offices of the Company are located at 1341 W.
Mockingbird Lane, Suite 900E, Dallas, Texas, 75247, telephone number (214) 267-
2000.
THE OFFERING
SECURITIES OFFERED
Units................ 1,400,000 Units, each Unit consisting of one share of
Common Stock and one Warrant to purchase one share of
Common Stock. See"Description of Securities --
Units."
Common Stock......... 1,400,000 shares, par value $.01 per share (included
in the Units). See "Description of Securities --
Common Stock."
Warrants............. 1,400,000 Warrants (included in the Units). Each
Warrant entitles the holder thereof to purchase,
after the Separation Date, one share of Common Stock
at a price of $6.25 per share, subject to certain
adjustments, until ____________________, 200__ (60
months from the date of this Prospectus). The Company
is entitled to redeem the Warrants for $.05 per
Warrant upon not less than 30 nor more than 60 days
written notice if the closing price of the Common
Stock for seven trading days during a 10 consecutive
trading day period ending not more than 15 days prior
to the date that the notice of redemption is mailed
equals or exceeds $8.75 per share. Any redemption of
the Warrants during the one-year period commencing on
the date of this Prospectus shall require the written
consent of the Representative. Warrant holders may
exercise their Warrants between the date of the
notice of redemption and the redemption date. See
"Description of Securities -- Redeemable Common Stock
Purchase Warrants."
-4-
<PAGE>
OUTSTANDING SECURITIES(1)
Securities to be
Securities Outstanding
Presently Upon Completion
Outstanding of the Offering
----------- ----------------
Units..................... -0- 1,400,000
Common Stock.............. 2,500,000 3,900,000
Series A Preferred Stock.. 80,000 80,000
Warrants.................. -0- 1,400,000
ESTIMATED NET PROCEEDS
TO COMPANY................ Approximately $5,984,300 if the 1,400,000 Units are
sold, and $6,920,637 if the over-allotment option is
fully exercised. See "Use of Proceeds. "
USE OF PROCEEDS........... To implement the Company's business strategy, for
acquisitions and for working capital purposes. See
"Use of Proceeds" and "Business."
RISK FACTORS.............. Purchasers of the Units offered hereby should
consider carefully the risk factors under the heading
"Risk Factors."
PROPOSED TRADING SYMBOLS(2) Nasdaq Boston
SmallCap Stock
Market Exchange
------ --------
Units....................... USRIU
Common Stock................ USRI
Warrants.................... USRIW
- ---------------
(1) Unless otherwise indicated herein, the information contained in this
Prospectus regarding the Company's outstanding securities does not include:
(i) 210,000 Units to be issued upon exercise of the Underwriter's over-
allotment option or the 210,000 shares of Common Stock and 210,000 Warrants
included in such Units; (ii) the 140,000 Units issuable upon exercise of the
Representative's Warrants and the 140,000 shares of Common Stock and 140,000
Underlying Warrants reserved for issuance and constituting a part of the
Units issuable upon exercise of the Representative's Warrants; or (iii) the
1,500,000 shares of Common Stock reserved for issuance under the 1998 Stock
Option Plan. See "Management," "Principal Stockholders," "Description of
Securities" and "Underwriting."
(2) The Company has made application to list the Securities on the Nasdaq
SmallCap Market and the Boston Stock Exchange. The inclusion of the
proposed trading symbols in this Prospectus Summary is not meant to imply
that a trading market may someday exist for the Securities offered hereby or
that the aforementioned symbols will be assigned to such Securities.
-5-
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table presents summary financial data of the Company on a
consolidated basis as of December 31, 1997 and June 30, 1998 and 1997,
respectively. This information has been derived from the Company's audited
financial statements for the period ended December 31, 1997, included elsewhere
in this Prospectus, and its unaudited financial statements for the periods ended
June 30, 1998 and 1997, respectively. The Company's unaudited proforma
financial information for the periods ended December 31, 1997 and June 30, 1997
reflect the acquisition of selected assets from Reunion as if it had occurred at
the beginning of the period. The unaudited proforma financial results are not
necessarily indicative of the actual results of operations that would have
occurred had the purchase actually been made at the beginning of the period, nor
is it necessarily indicative of future results of operations of the combined
enterprises. The summary financial information should be read in conjunction
with "Selected Consolidated Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements and the notes thereto appearing elsewhere in
this Prospectus. This financial information does not purport to be indicative
of the financial position or results of operations that may be obtained in the
future. See "Prospectus Summary -- Background."
<TABLE>
<CAPTION>
(Unaudited)
Proforma
(Unaudited) (Unaudited) --------------------------
Six Months Six Months Six Months
Period Ended Ended Ended Period Ended Ended
December 31, June 30, June 30, December 31, June 30,
SELECTED STATEMENT OF OPERATIONS DATA: 1997 1998 1997(1) 1997 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Contract revenues, net.................... $16,158,745 $12,896,070 $ 6,479,893 $23,395,301 $ 9,802,182
Cost of goods sold........................ 6,453,597 5,362,563 2,223,532 8,609,945 3,208,556
Operating expenses........................ 11,003,391 8,288,173 4,536,634 16,168,940 6,905,554
Loss from operations...................... (1,298,243) (754,666) (280,273) (1,383,584) (311,928)
Other expenses, net....................... 144,132 58,562 40,092 144,132 40,092
Provision for income taxes................ 5,000 -0- -0- 5,000 -0-
Net loss.................................. (1,447,375) (813,228) (320,365) (1,532,716) (352,020)
Net loss per weighted-average share of
common stock outstanding -- basic and
diluted................................... (.76) (.36) (.20) (.81) (.22)
Number of weighted-average shares of
common stock outstanding................ 1,911,040 2,476,990 1,598,210 1,911,040 1,598,210
</TABLE>
<TABLE>
<CAPTION>
June 30, June 30,
December 31, 1998 1998
SELECTED BALANCE SHEET DATA: 1997 (Unaudited) (As adjusted)(2)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Current assets........................... $ 1,981,750 $ 3,044,668 $ 9,028,968
Total assets............................. 4,708,424 5,824,083 11,808,383
Current liabilities...................... 2,190,501 3,553,603 3,553,603
Total liabilities........................ 4,297,094 6,249,654 6,249,654
Series A Preferred Stock (Redeemable).... 689,967 724,169 724,169
Stockholders' equity or (deficit)........ (278,637) (1,149,740) 4,834,560
Working capital (deficit)................ (208,751) (508,935) 5,475,365
</TABLE>
- ------------------------------
(1) The Company commenced operations on January 23, 1997. Tabular information
reflects statement of operations data for the period from inception through
June 30, 1997.
(2) Adjusted to give effect to the sale of 1,400,000 Units at an assumed initial
public offering price of $5.125 per Unit and the application of the net
proceeds therefrom. See "Use of Proceeds." No effect has been given to the
exercise of (i) the Warrants offered hereby or the Representative's
Warrants, or (ii) the Underwriters' over-allotment option. See "Description
of Securities" and "Underwriting."
-6-
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK. IN ANALYZING THE OFFERING MADE HEREBY, PROSPECTIVE INVESTORS
SHOULD CONSIDER CAREFULLY, AMONG OTHER FACTORS, THE FOLLOWING ELEMENTS OF RISK
IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS.
NEW BUSINESS ENTERPRISE. The Company's operations are subject to many of
the risks inherent in establishing a new business enterprise. The Company's
potential for success must be considered in light of the problems, expenses,
difficulties, complications and delays frequently encountered in connection with
a new business. No assurances can be given that the Company will be successful.
If the Company is not successful, any money invested in the Company may be lost.
RISKS RELATING TO GROWTH AND EXPANSION. Although the Company believes that
the net proceeds from this Offering and projected cash flow from operations will
allow the Company to achieve implementation of its business strategies, there
can be no assurance that the Company will have sufficient funds or successfully
achieve its plans to a level that will have a positive effect on its results of
operations or financial condition. The ability of the Company to execute its
growth strategy is contingent upon sufficient capital as well as other factors,
including market acceptance of the Company's products, its ability to further
increase consumer awareness of its products by advertising, its ability to
consummate acquisitions of complimentary businesses, general economic and
industry conditions, its ability to recruit, train and retain a qualified sales
staff, and other factors, many of which are beyond the control of the Company.
Even if the Company's revenues and earnings grow rapidly, such growth may
significantly strain the Company's management and its operational and technical
resources. If the Company is successful in obtaining greater market penetration
with its products, the Company will be required to deliver increasing volumes of
its products to its customers on a timely basis at a reasonable cost to the
Company. No assurance can be given that the Company can meet increased product
demand or that the Company will be able to satisfy increased production demands
on a timely and cost-effective basis. There can be no assurance that the
Company's growth strategy will be successful, and if one or more of the
component parts of the Company's growth strategy is unsuccessful, there can be
no assurance that such lack of success will not have a material adverse effect
on the Company's results of operations or financial condition. See "Use of
Proceeds" and "Business -- Business Strategy."
RISKS RELATING TO FUTURE ACQUISITIONS. One element of the Company's growth
strategy involves growth through the acquisition of other companies, assets or
product lines that would complement or expand the Company's business. The
Company's ability to grow by acquisition is dependent upon, and may be limited
by, the availability of suitable acquisition candidates and capital. Future
acquisitions by the Company could result in potentially dilutive issuances of
securities, the incurrence of debt and contingent liabilities and amortization
expenses related to goodwill and other intangible assets, which could materially
affect the Company's profitability. In addition, acquisitions involve risks
that could adversely affect the Company's operating results, including the
assimilation of the operations and personnel of acquired companies, and the
potential loss of key employees of acquired companies. There can be no
assurance that the Company will be able to consummate any acquisitions on
suitable terms. No commitments or binding agreements have been entered into to
date and there can be no assurance that acquisitions, if any, can be completed.
Other than as required by the Company's Certificate of Incorporation, Bylaws and
applicable laws, stockholders of the Company generally will not be entitled to
vote upon such acquisitions. See "Use of Proceeds" and "Business -- Business
Strategy."
MATERIAL CONTRACTS -- DEPENDENCE ON CENTURY 21 LICENSE AGREEMENT; CUSTOMER
FINANCING. In the majority of its markets, the Company markets its products
directly to consumers under license agreements with TM and HFS pursuant to a
master license agreement between Century 21 Real Estate Corporation and each of
TM and HFS. These license agreements provide for terms of 10 years ending in
2007 and give the Company the right to market, sell and install kitchen cabinet
refacing products in specific territories under the trademark and service mark
"CENTURY 21 Cabinet Refacing." In the event the license agreements were
terminated, management believes that these products could be independently
marketed by the Company in these territories; however, the cancellation of the
license agreements could have an adverse effect on the business of the Company.
See "Business."
The Company has an agreement with a financial institution which makes
financing available to the Company's customers. Approximately 75% of the
Company's customers finance their home improvement projects. There can be no
assurance that the Company can continually offer customer financing under the
agreement or provide a suitable
-7-
<PAGE>
replacement program with similar terms. Deterioration of consumer credit markets
generally will likely result in a tightening of the availability of consumer
credit and the ability of customers to obtain financing. The inability of
customers to obtain financing or the Company to provide comparable customer
financing could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
ADDITIONAL FINANCING OPPORTUNITIES. In the event the Company should
require additional financing to satisfy working capital requirements or
implement its business strategy, there can be no assurance that additional
financing will be available, or if available, that such financing will be on
favorable terms. Any such failure to secure additional financing, if needed, or
otherwise maintain adequate liquidity could have a material adverse effect upon
the financial condition and results of operations of the Company. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Business Strategy."
SUBSTANTIAL INDEBTEDNESS; DEBT SERVICE CAPABILITY. The Company has a
substantial amount of long-term and short-term debt under its credit facilities
and its capitalized leases. There can be no assurance that the operations of
the Company will generate sufficient net income to service such debt. The
Company's leverage poses substantial risk in that it could limit the Company's
ability to respond to industry changes or economic downturns, as well as its
ability to satisfy its funding needs for operations or to raise debt or equity
capital.
RECRUITING SALES AND INSTALLATION PERSONNEL. In order to fulfill the
Company's growth expectations, the Company must recruit, hire, train and retain
qualified sales and installation personnel. Historically, during periods of
strong economic growth and low unemployment, the Company experiences greater
difficulty in fulfilling its personnel needs. In particular, when new
construction and remodeling are on the rise, recruiting of independent
contractors ("Contractors") to perform the Company's installations becomes more
difficult. There can be no assurance that the Company will have sufficient
Contractors to fulfill its installation requirements. The inability of the
Company to fulfill its personnel needs could have a material adverse effect on
the Company's ability to meet its growth expectations.
SEASONALITY. The Company's business is subject to seasonal fluctuations.
Although the Company's products are sold for interior use, extreme winter
weather conditions can have an adverse effect on appointments and installations.
In addition, sales and revenues decline in the fourth quarter due to the holiday
season. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DEPENDENCE ON KEY PERSONNEL. The Company's success will depend to a large
degree on its ability to retain the services of its existing management and to
attract and retain qualified personnel as necessary in the future. To provide
for continuity of management, the Company has entered into employment agreements
with key management personnel. The loss of the services of any key management
personnel or the inability to recruit and retain qualified personnel in the
future could have a material adverse effect on the Company's business and
results of operations. The Company has purchased a key man life insurance
policy on the life of Murray H. Gross, the Company's President and Chief
Executive Officer. The policy has a death benefit of $2,000,000, with the
Company being entitled to receive $750,000 of the death benefit. The balance of
the death benefit is allocated $500,000 to a creditor of the Company and
$750,000 to a trust established by Mr. Gross. See "Management -- Executive
Compensation" and "Certain Relationships and Related Transactions."
COMPETITION. The Company operates in a highly fragmented industry.
Although the Company believes it is one of the largest enterprises engaged in
the direct marketing of in-home sales and installation of kitchen cabinet
refacing products, the Company competes with numerous contractors in each of the
territories in which it operates, with reputation, price, workmanship and
services being the principal competitive factors. The Company also competes
against retail chains, including Sears, Builders Square, Sams Warehouse Club and
other stores, which offer similar products and services through licensees. The
Company competes, to a lesser extent, with small home improvement contractors
and with large "home center" retailers such as Home Depot and Lowes. As a
result of the implementation of the Company's business strategy, the Company
anticipates that it will compete to a greater degree with large "home center"
retailers. See "Business -- Competition."
GOVERNMENT REGULATIONS. The Company's operations are subject to a Federal
Trade Commission rule which provides for a "cooling off" period for in-home
sales. This rule requires an in-home seller to inform the buyer of his right to
cancel the transaction at any time prior to midnight of the third business day
after the date of the sales
-8-
<PAGE>
transaction. Many states have (but the states in which the Company currently
conducts business have not) supplemented this rule by extending the time period
in which the buyer may cancel. Generally, the Company's activities and the
activities of its direct sellers and contractors are subject to various federal
and state laws and regulations and municipal ordinances relating to, among other
things, in-home sales, consumer financing, advertising, the licensing of home
improvement contractors, and zoning regulations. The Company has procedures
designed to comply with such laws and regulations; however, there can be no
assurance that the Company's contractual agreements or operations will not be
successfully challenged for noncompliance with such regulations and ordinances,
and if successfully challenged, that such challenge would not adversely effect
the Company's business. See "Business --Government Regulations."
THE YEAR 2000 ISSUE. The year 2000 issue is the result of computer
programs using two digits rather than four to define the applicable year. Date-
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in system failures or miscalculations, causing
disruptions of operations, including, among others, a temporary inability to
process transactions, send invoices or engage in similar normal business
activities. The Company does not believe that the year 2000 issue will have a
material effect on its network, computer systems or operations, however, it will
continue to assess the potential impact of the year 2000 issue. Any failure of
the Company to become year 2000 compliant on a timely basis could have a
material adverse effect on the Company's business, financial condition and
results of operations, including, without limitation, a complete failure or
degradation of the performance of the Company's network or other systems. To
the extent that the Company relies on external vendors and network providers
with year 2000 exposure, any failure by such third-party providers to resolve
any year 2000 issues on a timely basis or in a manner that is compatible with
the Company's systems could have a material adverse effect on the Company. The
Company is undertaking an in-depth evaluation of such providers in relation to
the year 2000 issue, and furthermore, the Company has no control over whether
its third-party providers are, or will be, year 2000 compliant. Any failure on
the part of such third-party providers to become year 2000 compliant on a timely
basis or in a manner that is compatible with the Company's systems could have a
material adverse effect on the Company. In the event the Company encounters
year 2000 problems, it would expect to take all necessary measures to address
such problems. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
BROAD DISCRETION OVER USE OF PROCEEDS. After payment of the expenses of
this Offering, the Company intends to use approximately $2,900,000 for
implementation of its business strategy (48.5% of net proceeds), $1,000,000 for
acquisitions (16.7% of net proceeds) and $2,084,300 for working capital (34.8%
of net proceeds). Management will have broad discretion in allocating and
applying such proceeds and the Company's stockholders will not have an
opportunity to review or vote upon the terms of these unspecified expenditures.
See "Use of Proceeds."
IMMEDIATE AND SUBSTANTIAL DILUTION. The purchase price of the Common Stock
included in the Units substantially exceeds the net tangible book value of the
Common Stock presently outstanding. Purchasers of the Common Stock will
experience an immediate substantial dilution in the net tangible book value per
share of the Common Stock after this Offering in the amount of $3.80 per share
or 76% of the price per share of Common Stock paid by the investors in this
Offering (assuming an offering price of $5.00 per share of Common Stock). See
"Dilution."
RETENTION OF CONTROL. The Company's officers, directors and principal
stockholders beneficially will own approximately 55% of the outstanding shares
of the Company's Common Stock at the completion of the Offering. As a result,
the officers, directors and principal stockholders of the Company will have the
ability to control the day-to-day affairs and the fundamental policies of the
Company. Voting together, such stockholders, including the officers and
directors of the Company, could possibly block any major corporate transactions,
such as a merger or sale of substantially all of the Company's assets, that
under Delaware law requires the affirmative vote of holders of a majority of the
outstanding shares of Common Stock of the Company. See "Management" and
"Principal Stockholders."
ANTI-TAKEOVER PROVISIONS. The Company's Certificate of Incorporation and
Bylaws contain provisions that may have the effect of discouraging certain
transactions involving an actual or threatened change of control of the Company.
In addition, the Board of Directors of the Company has the authority to issue up
to 100,000 shares of preferred stock in one or more series and to fix the
preferences, rights and limitations of any such series without stockholder
approval. The ability to issue preferred stock could have the effect of
discouraging unsolicited acquisition proposals or making it more difficult for a
third party to gain control of the Company, or otherwise could adversely
-9-
<PAGE>
affect the market price of the Common Stock. The Company does not currently have
any plans, arrangements, commitments or understandings to issue any additional
shares of preferred stock. See "Description of Securities."
DIVIDEND POLICY. The Company has not paid cash dividends with respect to
its Common Stock, and does not anticipate any such payments or declarations in
the foreseeable future. Any future dividends will be declared at the discretion
of the Board of Directors of the Company and will depend, among other things, on
the Company's earnings, if any, its financial requirements for future operations
and growth, restrictive covenants under the Company's credit agreements and such
other factors as the Company may then deem appropriate. Investors should not
rely on the receipt of dividends in the near future or at any time in the future
when evaluating the merits of an investment in the Securities. See "Dividend
Policy, "Description of Securities -- Preferred Stock" and "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common
Stock in the public market following the completion of the Offering could have
an adverse effect on the market price of the Common Stock. There will be
approximately 3,900,000 shares of Common Stock outstanding immediately after the
Offering. Upon completion of the Offering, all of the shares of Common Stock
offered hereby will be eligible for public sale without restrictions, except for
shares purchased by affiliates (those controlling or controlled by or under
common control with the Company and generally deemed to include officers and
directors) of the Company. The remaining approximately 2,500,000 shares of the
Company's Common Stock are "restricted securities" as that term is defined under
Rule 144 promulgated under the Securities Act. Subject to the volume and
holding period limitations of Rule 144, approximately 2,100,750 outstanding
shares of Common Stock are eligible for sale under Rule 144 after the completion
of the Offering. None of the Company's currently outstanding restricted
securities are eligible for sale under Rule 144(k). No prediction can be made
as to the effect, if any, that future sales of additional shares of Common Stock
or the availability of such shares for sale under Rule 144, other applicable
exemptions or otherwise will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock in
the public market, or the perception that such sales could occur, could
adversely affect prevailing market prices of the Common Stock. See "Principal
Stockholders" and "Shares Eligible for Future Sale."
EXERCISE OF REPRESENTATIVE'S WARRANTS. In connection with this Offering,
the Company will sell to the Representative, for nominal consideration, warrants
(the "Representative's Warrants") to purchase an aggregate of 140,000 Units.
The Representative's Warrants will be exercisable commencing one year after the
closing date of this Offering and ending five years after such date at an
exercise price of 120% of the price per Unit. The terms of the Underlying
Warrants shall be the same as those Warrants offered to the public. The holders
of the Representative's Warrants will have the opportunity to profit from a rise
in the market price of the Securities, if any, without assuming the risk of
ownership. At any time when the holders of the Representative's Warrants might
be expected to exercise them, the Company may be able to obtain additional
equity capital on terms more favorable than those provided by the
Representative's Warrants. The Company may find it more difficult to raise
additional equity capital if it should be needed for the business of the Company
while the Representative's Warrants are outstanding. To the extent that any of
the Representative's Warrants are exercised, the ownership interest of the
Company's stockholders may be diluted. The Company also has granted
registration rights to the Representative with respect to the 140,000 shares of
the Common Stock, the 140,000 Underlying Warrants and the 140,000 shares of
Common Stock issuable upon exercise of the 140,000 Underlying Warrants. See
"Description of Securities -- Representative's Warrants" and "Underwriting."
IMPACT ON MARKET OF WARRANT EXERCISE. In the event of the exercise of a
substantial number of the Warrants offered hereby, within a reasonably short
period of time after the right to exercise commences, the resulting increase in
the number of shares of Common Stock of the Company in the trading market could
substantially affect the market price of the Common Stock. See "Description of
Securities -- Redeemable Common Stock Purchase Warrants."
ADJUSTMENTS TO OUTSTANDING WARRANTS EXERCISE PRICE AND EXERCISE DATE. The
Company, in its sole discretion, may reduce the exercise price of the Warrants
offered hereby, and/or extend the time within which such Warrants may first be
exercised. Further, in the event the Company issues certain securities or makes
certain distributions to holders of its Common Stock, the exercise price of such
Warrants may be reduced. Any such price reduction in the exercise price of
outstanding Warrants will provide less money for the Company and possibly
adversely affect the market price of the Securities. See "Description of
Securities -- Redeemable Common Stock Purchase Warrants."
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<PAGE>
REDEMPTION OF WARRANTS. Any redemption of the Warrants during the one-year
period commencing on the date of this Prospectus shall require the written
consent of the Representative. Warrant holders may exercise their Warrants
between the date of the notice of redemption and the redemption date. In the
event a current prospectus is not available, the Warrants may not be exercised
and the Company will be precluded from redeeming the Warrants. If holders of the
Warrants elect not to exercise them upon notice of redemption thereof, and the
Warrants are subsequently redeemed prior to exercise, the holders thereof will
lose the benefit, if any, of the difference between the market price of the
underlying Common Stock as of such date and the exercise price of such Warrants,
as well as any possible future price appreciation in the Common Stock. As the
result of an exercise of the Warrants, existing stockholders would be diluted
and the market price of the Common Stock may be adversely affected. If a
Warrant holder fails to exercise his rights under the Warrants prior to the date
set for redemption, then the Warrant holder will be entitled to receive only the
redemption price, $0.05 per Warrant. See "Description of Securities --
Redeemable Common Stock Purchase Warrants" and "Shares Eligible for Future
Sale."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IN CONNECTION WITH THE
EXERCISE OF THE WARRANTS. The Company will be able to issue shares of its Common
Stock upon the exercise of the Warrants only if (i) there is a current
prospectus relating to the Common Stock issuable upon exercise of the Warrants
under an effective registration statement filed with the Commission and (ii)
such Common Stock is then qualified for sale or exempt therefrom under
applicable state securities laws of the jurisdiction in which the various
holders of Warrants reside. Although the Company has undertaken to use its best
efforts to maintain the effectiveness of a current prospectus covering the
Common Stock subject to the Warrants offered hereby, there can be no assurance
that the Company will be successful in doing so. After a registration statement
becomes effective, it may require continuous updating by the filing of post-
effective amendments. A post-effective amendment is required (i) when, for a
prospectus that is used more than nine months after the effective date of the
registration statement, the information contained therein (including the
certified financial statements) is as of a date more than 16 months prior to the
use of the prospectus, (ii) when facts or events have occurred which represent a
fundamental change in the information contained in the registration statement,
or (iii) when any material change occurs in the information relating to the plan
of distribution of the securities registered by such registration statement.
The Company anticipates that this Registration Statement will remain effective
for a least nine months following the date of this Prospectus, assuming a post-
effective amendment is not filed by the Company. The Company intends to qualify
the sale of the Securities in a limited number of states, although certain
exemptions under certain state securities laws may permit the Warrants to be
transferred to purchasers in states other than those in which the Warrants were
initially qualified. The Company will be prevented, however, from issuing
Common Stock upon exercise of the Warrants in those states where exemptions are
unavailable and the Company has failed to qualify the Common Stock issuable upon
exercise of the Warrants. The Company may decide not to seek, or may not be
able to obtain qualification of the issuance of such Common Stock in all of the
states in which the ultimate purchasers of the Warrants reside. In such case,
the Warrants of those purchasers will expire and have no value if such Warrants
cannot be exercised or sold. Accordingly, the market for the Warrants may be
limited because of the foregoing requirements. See "Description of Securities -
- - Redeemable Common Stock Purchase Warrants."
NO ASSURANCE OF ACTIVE PUBLIC MARKET; POSSIBLE VOLATILITY OF UNITS.
Although the Company has made application to list the Units, Common Stock and
Warrants on the Nasdaq SmallCap Market and the Boston Stock Exchange, there can
be no assurance that an active public market for the Units, Common Stock or the
Warrants will develop or be sustained after the Offering. The offering price of
the Securities offered hereby has been determined by negotiations between the
Company and the Representative. The trading price of the Securities could be
subject to wide fluctuations in response to quarter to quarter variations in
operating results, announcements of innovations or new products by the Company
or its competitors, and other events or factors. In addition, the stock market
has from time to time experienced extreme price and volume fluctuations which
affects the market price of securities of publicly traded companies and which
have often been unrelated to the operating performance of these companies.
Broad market fluctuations may adversely affect the market price of the
Securities. See "Description of Securities," "Shares Eligible for Future Sale"
and "Underwriting".
POSSIBLE APPLICABILITY OF RULES RELATING TO LOW-PRICED OR "PENNY" STOCKS:
POSSIBLE FAILURE TO QUALIFY FOR BOSTON STOCK EXCHANGE OR NASDAQ SMALLCAP MARKET
LISTING. The Commission has adopted regulations which generally define a "penny
stock" to be any equity security that has a market price (as defined) of less
than $5.00 per share, subject to certain exceptions. While the price at which
the shares of Common Stock offered to the public pursuant to this Offering will
be equal to $5.00, the Warrants offered hereby will initially be "penny stocks"
and become subject to rules that impose additional sales practice requirements
on broker/dealers who sell such securities
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<PAGE>
to persons other than established customers and accredited investors, unless the
Securities are listed on the Boston Stock Exchange. There can be no assurance
that the Company will be able to satisfy the listing criteria of the Boston
Stock Exchange or that the Common Stock or the Warrants will trade for $5.00 or
more per security after the Offering. Consequently, the "penny stock" rules may
restrict the ability of broker/dealers to sell the Company's Securities and may
affect the ability of purchasers in this Offering to sell the Company's
Securities in a secondary market.
Although the Company has applied for listing of the Securities on the
Boston Stock Exchange and the Nasdaq SmallCap Market, there can be no assurance
that such applications will be approved or that a trading market for the
Securities will develop or, if developed, will be sustained. Furthermore, there
can be no assurance that the Securities purchased by the public hereunder may be
resold at the original offering price or at any other price.
In order to qualify for initial listing on the Boston Stock Exchange, a
company must, among other things, have at least $3.0 million in total assets,
$2.0 million in tangible assets, 750,000 shares in "public float," $1.5 million
market value of "public float," and a minimum bid price for its securities of
$2.00 per share. For continued listing on the Boston Stock Exchange, a company
must maintain $1.0 million in total assets, 150,000 shares in public float, a
$500,000 market value of the public float, and $500,000 in stockholders equity.
The failure to meet these maintenance criteria in the future may result in the
discontinuance of the listing of the Common Stock and Warrants on the Boston
Stock Exchange.
In order to qualify for initial listing on the Nasdaq SmallCap Market, a
company must, among other things, have at least (i) $4,000,000 in net tangible
assets, $50.0 million market capitalization or $750,000 net income in its latest
fiscal year or two of its last three fiscal years, (ii) $5.0 million market
value of "public float," (iii) 300 "round lot" stockholders and (iv) a minimum
bid price for its securities of $4.00 per share. For continued listing on the
Nasdaq SmallCap Market, a company must maintain a $1.0 million market value of
the public float and $2.0 million in total net tangible assets. In addition,
continued inclusion requires two market-makers and a minimum bid price of $1.00
per share. The failure to meet these maintenance criteria in the future may
result in the discontinuance of the listing of the Common Stock and Warrants on
the Nasdaq SmallCap Market.
If the Company is or becomes unable to meet the listing criteria (either
initially or on a continued basis) of the Boston Stock Exchange or the Nasdaq
SmallCap Market and is never traded or becomes delisted therefrom, trading, if
any, in the Common Stock and Warrants would thereafter be conducted in the over-
the-counter market in the so-called "pink sheets" or, if then available, the
"Electronic Bulletin Board" administered by the National Association of
Securities Dealers, Inc. (the "NASD"). In such an event, the market price of
the Common Stock and the Warrants may be adversely impacted. As a result, an
investor may find it difficult to dispose of or to obtain accurate quotations as
to the market value of the Common Stock and the Warrants.
CONTINUING RELATIONSHIP WITH REPRESENTATIVE; POTENTIAL INFLUENCE. In
connection with this Offering, the Company will have certain continuing
relationships with the Representative, some of which may adversely affect the
Company's results of operations. The Company has agreed with the Representative
that (i) it will sell to the Representative Representative's Warrants (including
the grant of "piggyback" and demand registration rights), (ii) it will pay,
under certain conditions, to the Representative a warrant solicitation fee equal
to 5% of the exercise price of the Warrants exercised which are solicited by the
Representative, and (iii) for a period of two years it will use its best efforts
to cause the election to its Board of Directors one non-voting advisory designee
of the Representative. Any of the foregoing relationships may adversely impact
the Company's business, operating results or financial condition, or its ability
to raise additional capital for its business should the need arise during the
term of the above agreements. See "Use of Proceeds" and "Underwriting."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK. Management believes that
this Prospectus contains forward-looking statements, including statements
regarding, among other items, the Company's future plans and growth strategies
and anticipated trends in the industry in which the Company operates. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, many of which are beyond the
Company's control. Actual results could differ materially from these forward-
looking statements as a result of the factors described herein, including, among
others, regulatory or economic influences. In light of these risks and
uncertainties, there can be no assurance that the forward-looking information
contained in this Prospectus will in fact transpire or prove to be accurate.
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<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,400,000 Units offered hereby are estimated to be approximately $5,984,300
(based on an assumed public offering price of $5.00 per share of Common Stock
and $0.125 per Warrant) or approximately $6,920,637 if the Underwriters' over-
allotment option is exercised in full, after deducting Underwriters' discounts
and commission and estimated offering expenses. The Company intends to use the
net proceeds from the sale of the Securities offered hereby (assuming no
exercise of the Underwriters' over-allotment option) for the purposes and in the
approximate percentages as set forth in the following table:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage
Application of Proceeds(1) Dollar Amount of Net Proceeds
- -------------------------- ------------- ----------------
<S> <C> <C>
Implementation of Business Strategy (excluding acquisitions)(2)... $2,900,000 48.5%
Acquisitions...................................................... 1,000,000 16.7
Working capital(3)................................................ 2,084,300 34.8
---------- -----
Total........................................................ $5,984,300 100.0%
========== =====
</TABLE>
- ------------------------------
(1) Proceeds, if any, received upon the exercise of the Underwriters' over-
allotment option will be used for working capital and general corporate
purposes.
(2) Includes the acquisition and implementation of (i) new technology,
including, but not limited to, enhanced information and computer systems,
(ii) expansion of telemarketing operations, (iii) marketing and promotional
activities, (iv) entry into new markets and related infrastructure costs,
and (v) development of retail showrooms and sales centers. See "Business --
Business Strategy."
(3) Working capital will be increased by $3,020,637 if the Underwriters' over-
allotment option is exercised. Working capital includes, but is not limited
to, carrying additional receivables associated with increased sales, costs
for expansion of existing facilities, personnel costs related to expansion
of the Company's business and increased sales and other general and
administrative expenses. Management may also use working capital of
approximately $800,000 for the redemption of the Company's outstanding
Series A Preferred Stock and the repayment of loans to the Company by
certain stockholders in the aggregate amount of up to approximately
$1,040,000. See "Certain Relationships and Related Transactions" and
"Description of Securities -- Preferred Stock."
The Company may find it necessary or advisable to reallocate the net
proceeds within the categories described above if its assumptions regarding
present plans and future revenues and expenditures prove inaccurate. Any change
in the allocation of funds will be at the discretion of the Company's Board of
Directors. Proceeds, if any, from the exercise of the Warrants are currently
intended to be used for working capital and general corporate purposes. The
Company also reserves the right to allocate a portion of the net proceeds for
acquisitions and the payment of legal, accounting and other expenses associated
with acquisitions. No commitments or binding agreements have been entered into
by the Company for any such acquisitions. Until the proceeds of this Offering
are used for the purposes stated above, the Company may invest them temporarily
in interest-bearing securities such as certificates of deposit, United States
governmental obligations or money market funds or instruments.
DIVIDEND POLICY
The Company has not paid cash dividends with respect to its Common Stock,
and does not anticipate paying any cash dividends or other distributions on its
Common Stock in the foreseeable future. Any future dividends will be declared
at the discretion of the Board of Directors of the Company and will depend,
among other things, on the Company's earnings, if any, its financial
requirements for future operations and growth, restrictive covenants under the
Company's credit agreements and such other facts as the Company may then deem
appropriate. See "Description of Securities -- Preferred Stock."
-13-
<PAGE>
DILUTION
At June 30, 1998, the Company had a net tangible book value of
approximately ($1,298,000) or approximately ($.52) per share of Common Stock.
Net tangible book value (deficit) per share of Common Stock equals the tangible
assets of the Company, less all liabilities, divided by the total number of
shares of Common Stock outstanding, without giving effect to the possible
exercise of outstanding stock options and warrants. After giving effect to the
sale of the 1,400,000 shares of Common Stock offered hereby (at an assumed
offering price of $5.00 per share) and the 1,400,000 Warrants offered hereby (at
an assumed offering price of $0.125 per Warrant) and the receipt of the
estimated net proceeds therefrom, the proforma net tangible book value of the
Company as of June 30, 1998 would have been approximately $4,686,300 million or
approximately $1.20 per share, representing an immediate increase in net
tangible book value of $1.72 per share to existing stockholders, and an
immediate dilution in net tangible book value of $3.80 per share to purchasers
of the Securities offered hereby. The following table illustrates the resulting
dilution with respect to the Common Stock offered hereby:
<TABLE>
<S> <C> <C>
Public offering price (per share of Common Stock)(1)................... $5.00
Net tangible book value (deficit) per share as of June 30, 1998.. ($0.52)
Increase per share attributable to new investors................. 1.72
------
Proforma net tangible book value per share after the Offering(2)....... 1.20
-----
Dilution of net tangible book value per share to new investors
attributable to purchase of Common Stock by new investors......... $3.80
=====
</TABLE>
- ------------------------------
(1) Represents the anticipated public offering price per share of Common Stock
(excluding Warrants) before deduction of underwriting discounts and
commissions and estimated expenses of the Offering.
(2) Assuming no exercise of the Warrants offered hereby and the Representative's
Warrants or the exercise of the Underwriters' over-allotment option. See
"Description of Securities" and "Underwriting."
The following table sets forth the number of shares of Common Stock
purchased from the Company, the total consideration paid to the Company and the
average price per share by existing stockholders and new investors purchasing
shares of Common Stock in this Offering:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
--------------------- ------------------------ Average Price
Amount Percent Amount Percent Per Share
--------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 2,500,000 64% $1,194,234 15% $0.48
New investors............... 1,400,000 36 7,000,000 85 $5.00
--------- --- ---------- ---
Total.................... 3,900,000 100% $8,194,234 100%
========= === ========== ===
</TABLE>
The foregoing table gives effect to the sale of the shares of Common Stock
offered hereby (assuming an offering price of $5.00 per share and without giving
effect to the underwriting discount and expenses of the Offering) and does not
give effect to the exercise of the Warrants offered hereby or the exercise of
the Underwriters' over-allotment option. See "Management," "Principal
Stockholders" and "Description of Securities."
-14-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998 and is adjusted to reflect (i) the issuance and sale by the Company of
the 1,400,000 Units offered hereby and (ii) the application of the estimated net
proceeds of the Offering. This table has not been adjusted to give effect to
the exercise of the Underwriter's over-allotment option, exercise of the
Warrants offered hereby or exercise of the Representative's Warrants. The table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's consolidated
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
(Unaudited)
June 30, 1998
------------------------------------------
Actual Adjustments(1) As Adjusted
------------ -------------- ------------
<S> <C> <C> <C>
Short-term debt:
Current portion of capital lease obligation................... $ 171,074 $ -- $ 171,074
Current portion of long-term debt............................. 461,454 -- 461,454
----------- ---------- -----------
Total short-term debt...................................... $ 632,528 $ -- $ 632,528
=========== ===========
Long-term debt, net of current portion(2)....................... $ 2,696,051 $ -- $ 2,696,051
Series A Preferred Stock (Redeemable); 80,000 shares issued and
outstanding (liquidation preference of $10.00 per share)...... $ 724,169 $ -- $ 724,169
Stockholders' equity:
Preferred Stock, par value $.01 per share; 100,000 shares
authorized; 80,000 shares of Series A Preferred Stock
(Redeemable) issued and outstanding (liquidation
preference of $10.00 per share)............................ -- -- --
Common Stock, par value $.01 per share; 15,000,000 shares
authorized; 2,500,000 shares issued and outstanding;
3,900,000 shares issued and outstanding, as adjusted....... 25,000 14,000 39,000
Redeemable Common Stock Purchase Warrants; 1,400,000
issued and outstanding, as adjusted........................ -- 175,000 175,000
Additional paid-in capital.................................... 1,085,863 5,795,300 6,881,163
Retained earnings............................................. (2,260,603) -- (2,260,603)
----------- ---------- -----------
Total stockholders' equity (deficit)....................... (1,149,740) 5,984,300 4,834,560
----------- ---------- -----------
Total capitalization.......................................... $ 2,903,008 $5,984,300 $ 8,887,308
=========== ========== ===========
</TABLE>
- ------------------------------
(1) To reflect the net proceeds from the sale and issuance of 1,400,000 Units
offered hereunder. See "Description of Securities" and "Underwriting."
(2) Includes long-term debt, capital lease obligations and notes payable to
related parties. See "Certain Relationships and Related Transactions."
-15-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table presents selected financial data of the Company on a
consolidated basis as of December 31, 1997 and June 30, 1998 and 1997,
respectively. This information has been derived from the Company's audited
financial statements for the period ended December 31, 1997, included elsewhere
in this Prospectus, and its unaudited financial statements for the periods ended
June 30, 1998 and 1997, respectively. The Company's unaudited proforma
financial information for the periods ended December 31, 1997 and June 30, 1997
reflect the acquisition of selected assets from Reunion as if it had occurred at
the beginning of the period. The unaudited proforma financial results are not
necessarily indicative of the actual results of operations that would have
occurred had the purchase actually been made at the beginning of the period, nor
is it necessarily indicative of future results of operations of the combined
enterprises. The selected financial information should be read in conjunction
with "Selected Consolidated Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements and the notes thereto appearing elsewhere in
this Prospectus. This financial information does not purport to be indicative of
the financial position or results of operations that may be obtained in the
future. See "Prospectus Summary -- Background."
<TABLE>
<CAPTION>
(Unaudited)
Proforma
(Unaudited) (Unaudited) ---------------------------------
Six Months Six Months Six Months
SELECTED STATEMENT OF Period Ended Ended Ended Period Ended Ended
OPERATIONS DATA: December 31, 1997 June 30, 1998 June 30, 1997(1) December 31, 1997 June 30, 1997
----------------- ------------- ---------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Contract revenues, net.................... $ 16,158,745 $ 12,896,070 $ 6,479,893 $ 23,395,301 $ 9,802,182
Cost of goods sold........................ 6,453,597 5,362,563 2,223,532 8,609,945 3,208,556
Operating expenses........................ 11,003,391 8,288,173 4,536,634 16,168,940 6,905,554
Loss from operations...................... (1,298,243) (754,666) (280,273) (1,383,584) (311,928)
Other expenses, net....................... 144,132 58,562 40,092 144,132 40,092
Provision for income taxes................ 5,000 -- -- 5,000 --
Net loss.................................. (1,447,375) (813,228) (320,365) (1,532,716) (352,020)
Net loss per weighted-average share of
common stock outstanding -- basic and
diluted................................... (.76) (.36) (.20) (.81) (.22)
Number of weighted-average shares of
common stock outstanding................ 1,911,040 2,476,990 1,598,210 1,911,040 1,598,210
</TABLE>
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1998
SELECTED BALANCE SHEET DATA: December 31, 1997 (Unaudited) (As adjusted)(2)
----------------- ------------- ----------------
<S> <C> <C> <C>
Current assets......................... $ 1,981,750 $ 3,044,668 $ 9,028,968
Total assets........................... 4,708,424 5,824,083 11,808,383
Current liabilities.................... 2,190,501 3,553,603 3,553,603
Total liabilities...................... 4,297,094 6,249,654 6,249,654
Series A Preferred Stock (Redeemable).. 689,967 724,169 724,169
Stockholders' equity or (deficit)...... (278,637) (1,149,740) 4,834,560
Working capital (deficit).............. (208,751) (508,935) 5,475,365
</TABLE>
- ------------------------------
(1) The Company commenced operations on January 23, 1997. Tabular information
reflects statement of operations data for the period from inception through
June 30, 1997.
(2) Adjusted to give effect to the sale of 1,400,000 Units at an assumed initial
public offering price of $5.125 per Unit and the application of the net
proceeds therefrom. See "Use of Proceeds." No effect has been given to the
exercise of (i) the Warrants offered hereby or the Representative's
Warrants, or (ii) the Underwriters' over-allotment option. See
"Description of Securities" and "Underwriting."
-16-
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information of the Company for the
period ended December 31, 1997 has been derived from the audited consolidated
financial statements of the Company for the period ended December 31, 1997 and
the audited combined statement of net assets acquired and liabilities assumed at
November 23, 1997 and the combined statement of operations related to the net
assets acquired and liabilities assumed for the period ended November 23, 1997
of Reunion Home Services, Inc. and Kitchen Masters, Inc. (collectively
"Reunion"), all included herein. The unaudited pro forma financial information
for the Company reflects the acquisition of Reunion as if it had taken place on
January 23, 1997. On November 23, 1997, the Company acquired certain assets of
Reunion. The Company effected the purchase through the issuance of 37,148 shares
of common stock valued at $125,405 and 80,000 shares of Redeemable Preferred
Stock with a fair value of $683,300. The acquisition was accounted for as a
purchase and accordingly, the purchased assets and liabilities have been
recorded at their estimated fair value at the date of acquisition. The
information set forth below should be read in conjunction with the other
information contained in Selected Consolidated Financial Information of the
Company, the Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company, the consolidated financial statements of
the Company and the combined statement of net assets acquired and liabilities
assumed at November 23, 1997 of Reunion and the combined statement of operations
related to the net assets acquired and liabilities assumed for the period ended
November 23, 1997 and Notes thereto included elsewhere in this Prospectus. This
information is unaudited and does not purport to represent the actual operating
results had the acquisition of Reunion taken place on January 23, 1997 nor does
it purport to be indicative of the results that would be obtained in the future.
<TABLE>
<CAPTION>
Period Ended December 31, 1997 Period Ended June 30, 1997
---------------------------------------------- -------------------------------------------------
Historical Reunion Historical Reunion
U.S. Remodelers Operations Acquired Combined U.S. Remodelers Operations Acquired Combined
--------------- ------------------- ---------- --------------- ------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues, net............ $16,158,745 $ 7,236,556 $23,395,301 $ 6,479,893 $ 3,322,289 $ 9,802,182
Cost of goods sold....... 6,453,597 2,156,348 8,609,945 2,223,532 985,024 3,208,556
Operating expenses....... 11,003,391 5,165,549 16,168,940 4,536,634 2,368,920 6,905,554
Loss from operations..... (1,298,243) (85,341) (1,383,584) (280,273) (31,655) (311,928)
Other expenses (income),
net.................... 144,132 -- 144,132 40,092 -- 40,092
Income taxes.......... 5,000 -- 5,000 -- -- --
----------- ---------- ----------- ---------- ---------- ----------
Net (loss)............ (1,447,375) (85,341) (1,532,716) (320,365) (31,655) (352,020)
=========== ========== =========== ========== ========== ==========
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the financial condition and
results of operations of the Company and should be read in conjunction with the
financial statements of the Company and the related notes thereto included
elsewhere in this Prospectus.
This section includes forward-looking statements which reflect Management's
current views with respect to future operating performance and ongoing cash
requirements. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or those anticipated. Factors that could cause or contribute
to such differences include, but are not specifically limited to: the Company's
ability to generate a sufficient quantity of prospective customer leads; the
Company's ability to retain its sales staffing levels; the Company's ability to
recruit subcontractors to complete installations of the sales orders; change in
economic conditions of various markets served by the Company; the Company's
ability to effectively manage growth and expand its product offering to include
other home improvement products. Readers are cautioned not to place undue
reliance on these forward-looking statements.
OVERVIEW
The Company is engaged, through direct consumer marketing, in the design,
sale, manufacture and installation of kitchen cabinet refacing products utilized
in kitchen remodeling. The Company presently operates in 13 geographic markets
in the United States. The Company conducts a substantial portion of its direct
consumer marketing under the trademark and service mark "CENTURY 21 Cabinet
Refacing." The Company also markets under the name "Facelifters/TM/".
The Company was organized on January 23, 1997 under the laws of the State
of Delaware. On January 27, 1997, the Company entered into an interim operating
agreement with AMRE, Inc. and Facelifters Home Systems, Inc. ("Facelifters"), a
wholly-owned subsidiary of AMRE, Inc. (collectively, "AMRE"), subsequent to the
date that AMRE filed for protection under Chapter 11 of the United States
Bankruptcy Code ("Chapter 11"), pursuant to which (a) the Company leased certain
operating facilities and equipment from AMRE; (b) AMRE provided the Company with
certain prospective customer lists, and (c) AMRE assigned to the Company certain
contracts which AMRE had entered into with its customers for kitchen cabinet
refacing and which AMRE was not able to complete. Prior to its acquisition by
AMRE, Inc. in April 1996, Facelifters was a kitchen remodeling and cabinet
refacing business operating predominately in the Northeastern and Southeastern
areas of the United States. On February 12, 1997, the Company entered into an
agreement with AMRE for the purchase of certain selected operating assets
related to the kitchen cabinet refacing business of AMRE (the "Purchase
Agreement"). Effective April 3, 1997, the Company consummated the transaction
contemplated by the Purchase Agreement and acquired the selected operating
assets. Effective November 23, 1997, the Company also purchased certain assets
of Reunion Home Services, Inc. and Kitchen Master, Inc. (collectively
"Reunion"), manufacturers, marketers and installers of kitchen cabinet refacing
products and kitchen cabinet doors. Similar to the Company, but in separate
transactions from those between the Company and AMRE, Reunion, prior to
completing its transaction with the Company, entered into an interim operating
agreement with AMRE, after AMRE filed for protection under Chapter 11, with
terms similar to those found in the interim operating agreement between the
Company and AMRE. Effective April 3, 1997, Reunion also acquired certain
selected operating assets of AMRE.
The Company recognizes revenue upon completion of each home improvement
contract. In the Company's customary installation cycle, new sales orders are
generally completed in approximately 60 days from the date of sale.
Approximately 75% of the Company's customers finance their home improvement
project with third party lenders. Ordinarily, in connection with sales that are
financed, the Company receives payment approximately five to 10 days after the
completion of installation.
The Company manufactures new cabinet doors, drawer fronts, counter tops,
and replacement cabinets. In connection with the purchase of assets from
Reunion, the Company's manufacturing operations were disrupted in December 1997
and in the first quarter of 1998 as a result of integrating the newly acquired
manufacturing equipment into the Company's Charles City, Virginia manufacturing
facility. The disruption was greater than the Company originally anticipated
and as a result, contract revenues were adversely effected in December 1997 and
in January and February of 1998.
-17-
<PAGE>
To assist in understanding the Company's operating results, the following
table indicates the percentage relationship of various income and expense items
included in the Statement of Operations for the three-month and six-month
periods ended June 30, 1998, the three-month period ended June 30, 1997, from
January 23 through June 30, 1997, and from January 23, 1997 through December 31,
1997. The business of the Company is characterized by the need to continuously
generate prospective customer leads, and in that respect, marketing and selling
expenses constitute a substantial portion of the overall expenses of the
Company.
<TABLE>
<CAPTION>
Three-month period Six-month January 23, 1997 January 23, 1997
---------------------------------- period ended through through
June 30, June 30, June 30 June 30, December 31,
1998 1997 1998 1997 1997
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Contract revenue............... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............. 42.5 36.2 41.6 34.3 39.9
Gross profit................... 57.5 63.8 58.4 65.7 60.1
Operating expenses:
Branch operating............. 5.8 5.5 6.5 5.7 5.9
Sales and marketing.......... 42.8 48.4 46.1 49.0 46.7
License fees................. 1.5 1.9 1.5 1.5 1.5
General and administrative... 9.6 13.7 10.2 13.8 14.0
Operating loss................. (2.2) (5.3) (5.9) (4.3) (8.0)
Other income (expense), net.... (.9) (.9) (.4) (.6) (1.0)
Loss before income taxes....... (3.1) (6.2) (6.3) (4.9) (9.0)
Income tax..................... - - - - -
Net loss....................... (3.1) (6.2) (6.3) (4.9) (9.0)
</TABLE>
RESULTS OF OPERATIONS
COMPARISON OF THREE-MONTH PERIOD ENDED JUNE 30, 1998 TO THREE-MONTH
PERIOD ENDED JUNE 30, 1997. New sales orders were approximately $7,800,000
during the three-month period ended June 30, 1998 as compared to $4,002,000 in
the same period in 1997. The increase in new sales orders is primarily due to
growth in the number of markets served by the Company (principally resulting
from the purchase of the Reunion assets), and improved sales efficiencies in the
comparative operating markets.
Contract revenues were $7,009,000 as compared to $4,236,000 in the prior
year period. The increase in contract revenues reflects the higher level of new
sales orders and production backlog at the beginning of the period. The number
of installations increased 66% over the prior year, and average selling price,
which is affected not only by price levels but also by the mix and size of jobs
installed, declined approximately 1% from the prior year period. However, during
the current period the Company was unable to complete new sales orders within
its customary installation cycle. The Company, which utilizes subcontractors to
complete installations, has experienced difficulty in hiring a sufficient
quantity of subcontractors. Management attributes the subcontractor shortage to
the strong economic conditions and low unemployment levels in the markets in
which the Company operates. The Company has made improvements in the number of
its subcontractors and is continuing in its recruiting efforts. Additionally,
the Company was required to increase its manufacturing employee base to meet the
increased demands. The Company was successful in achieving its desired
manufacturing staffing during the period, however production volume during the
period fell short of demands. See "Risk Factors -- Recruiting Sales and
Installation Personnel."
Backlog as of June 30, 1998 was approximately $5,671,000 as compared to
$4,904,000 at March 31, 1998 and $3,168,000 at June 30, 1997.
-18-
<PAGE>
(In Millions)
Period ended June 30,
---------------------
1998 1997
---- ----
Net New Sales Orders $7.8 $4.0
Contract Revenues (installed sales) $7.0 $4.2
Ending Production Backlog $5.7 $3.2
Gross profit was approximately $4,029,000 or 57.5% of contract revenues as
compared to $2,703,000 or 63.8% of contract revenues in the prior year period.
The decline in gross profit margin is primarily due to the combination of
increased manufacturing and installation labor costs. As noted above, the
Company utilizes subcontractors to complete installations. The Company has
experienced increases in subcontractor labor rates resulting from competitive
pressures and the shortage of subcontractors. In addition, the Company's
manufacturing costs increased due to lower material yields and higher labor
costs from overtime rates.
Branch operating expenses increased from $234,000 or 5.5% of contract
revenues in the prior year period to $403,000 or 5.8% in the current year.
Branch operating expenses, which include costs associated with each of the
Company's local branch facilities including rent, telecommunications, branch
administration and supplies, are primarily fixed in nature. The increase in
branch operating expenses in dollar terms is principally due to the growth of
the Company's operations as compared to the prior year period.
The business of the Company is characterized by the need to continuously
generate prospective customer leads, and in this respect, marketing and selling
expenses constitute a substantial portion of the overall expense of the Company.
In the Company's normal operating cycle, marketing costs, which are expensed as
incurred, can precede the installation of sales orders by up to three months
depending upon the type of marketing media as well as the cycle time of
production. Consequently, during periods of increasing backlog, marketing
expenses as a percentage of contract revenues will be higher. Marketing
expenses were 25.0% of contract revenues and 22.5% of new sales orders in the
period ended June 30, 1998, and were 30.2% and 32.0% respectively in the prior
year period. Marketing expenses as a percentage of both contract revenues and
new sales orders declined from the prior year due to improvements in lead
generation and sales efficiencies.
Sales expenses, which consist primarily of commissions, sales manager
salaries, travel and recruiting expenses, were $1,250,000 or 17.8% of contract
revenues in the period ended June 30, 1998, as compared to $772,000 or 18.2% of
contract revenues in the same period last year. The increase in sales expenses
in dollar terms is largely the result of commissions on higher revenues and the
growth of the Company operations.
License fees decreased from 1.9% of contract revenues in the prior year
period to 1.5% in the current period. The decrease in license fees as a
percentage of contract revenues is due to the mix of the Company's business sold
under the license agreements with Century 21 Real Estate Corporation and related
entities as compared to that sold under the Facelifters brand name.
General and administrative expenses were approximately $669,000 or 9.6% of
contract revenues as compared to $580,000 or 13.7% of contact revenues in the
prior year period. The increase in general and administrative expenses in
dollar terms is due to the growth of the Company's infrastructure over the prior
year. Although the Company expects to continue its efforts in the overall
expansion of its business base, it will continue to emphasize control of
operating expenses and reduction of these expenses as a percentage of revenue.
COMPARISON OF SIX-MONTH PERIOD ENDED JUNE 30, 1998 TO JANUARY 23, 1997
THROUGH JUNE 30, 1997. The Company commenced operations on January 23, 1997 and,
as a result, the period from January 23, 1997 through June 30, 1997 is a shorter
period compared to the six-month period ended June 30, 1998. In addition to the
length of the different periods, the period ended June 30, 1997 reflects the
start up of the Company's operations. As a result, comparisons of the results
of operations for the period ended June 30, 1998 to the period ended June 30,
1997 may be less meaningful than comparisons in future periods.
New sales orders were approximately $14,806,000 during the six-month period
ended June 30, 1998 as compared to $9,834,000 in the prior year period. Of the
$9,834,000 in new sales orders in the period ended June 30, 1997, the Company
received an assignment of $3,556,000 of sales contracts from AMRE and generated
$6,278,000
-19-
<PAGE>
of new sales orders. The increase in new sales orders generated by the Company
is due to growth in the number of markets served by the Company (principally
resulting from the purchase of the Reunion assets), and improved sales staffing
and sales efficiencies in the comparative operating markets, as well as the
shorter prior year period.
Contract revenues were $12,896,000 as compared to $6,480,000 in the prior
year period. The increase in contract revenues reflects the higher level of new
sales orders and production backlog at the beginning of the period as well as
the shorter installation period in 1997. The number of installations increased
95% over the prior year, and the average selling price, which is affected not
only by price levels but also by the mix and size of jobs installed, increased
approximately 1% over the prior year period. However, in the six-month period
ended June 30, 1998, the Company was unable to complete new sales orders within
its customary installation cycle due to manufacturing delays associated with the
purchase of the Reunion assets, and shortages of subcontractors to complete
installations. The Company, which utilizes subcontractors to complete
installations, has experienced difficulty in hiring a sufficient quantity of
subcontractors. Management attributes the subcontractor shortage to the strong
economic conditions and low unemployment levels in the markets in which the
Company operates. However, the Company has made improvements in the number of
its subcontractors and is continuing in its recruiting efforts. Additionally,
the Company was required to increase its manufacturing employee base to meet the
increased demands. The Company was successful in achieving its desired
manufacturing staffing during the period, however production volume during the
period fell short of demands.
Backlog as of June 30, 1998 was approximately $5,671,000 as compared to
$3,599,000 at December 31, 1997 and $3,168,000 at June 30, 1997.
(In Millions)
---------------------
Period ended June 30,
1998 1997
---- ----
Net New Sales Orders and Assigned Contracts $14.8 $9.8
Contract Revenues (installed sales) $12.9 $6.5
Ending Production Backlog $ 5.7 $3.2
Gross profit was approximately $7,534,000 or 58.4% of contract revenues as
compared to $4,256,000 or 65.7% of contract revenues in the prior year period.
The decline in gross profit margin is due to the combination of increased
manufacturing and installation labor costs. As noted above, the Company
utilizes subcontractors to complete installations. The Company has experienced
increases in subcontractor labor rates resulting from competitive pressures and
the shortage of subcontractors. In addition, the Company's manufacturing costs
increased due to difficulties with the start up of manufacturing operations with
the newly acquired assets from Reunion, lower material yields and higher labor
costs from overtime rates.
Branch operating expenses increased from $371,000 or 5.7% of contract
revenues in the prior year period to $835,000 or 6.5% in the current year.
Branch operating expenses, which include costs associated with each of the
Company's local branch facilities including rent, telecommunications, branch
administration and supplies, are primarily fixed in nature. The increase in
branch operating expenses in dollar terms is principally due to the growth of
the Company's operations as compared to the prior year period.
The business of the Company is characterized by the need to continuously
generate prospective customer leads, and in this respect, marketing and selling
expenses constitute a substantial portion of the overall expense of the Company.
In the Company's normal operating cycle, marketing costs, which are expensed as
incurred, can precede the installation of sales orders by up to three months
depending upon the type of marketing media as well as the cycle time of
production. Consequently, during periods of increasing backlog, marketing
expenses as a percentage of contract revenues will be higher. Marketing
expenses were 27.4% of contract revenues and 23.8% of Company generated new
sales orders in the period ended June 30, 1998, and were 30.2% and 30.9%
respectively in the prior year period. The decline in marketing expenses as a
percentage of both contract revenues and new sales orders was due to
improvements in lead generation and sales closing efficiencies. In addition, in
the period ended June 30, 1997 the Company received an assignment of sales
contracts from AMRE. Under the terms of the agreement with AMRE, the Company
was required to pay a marketing fee equal to 4% of the contract price of the
sales orders completed. If the Company were to have generated these sales
orders at its marketing rate, marketing costs in the prior year period would
have been significantly higher.
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Sales expenses, which consist primarily of commissions, sales manager
salaries, travel and recruiting expenses, were $2,412,000 or 18.7% of contract
revenues in the period ended June 30, 1998, as compared to $1,219,000 or 18.8%
of contract revenues in the prior year period. The increase in sales expenses
in dollar terms is due to commissions on higher revenues, increased recruiting
expenses, and growth in the operations.
General and administrative expenses were approximately $1,315,000 or 10.2%
of contract revenues as compared to $893,000 or 13.8% of contact revenues in the
prior year period. The increase in general and administrative expenses in
dollar terms is due to the growth of the Company's infrastructure over the prior
year. Although the Company expects to continue its efforts in the overall
expansion of its business base, it will continue to emphasize control of
operating expenses and reduction of these expenses as a percentage of revenue.
Other income (expense) consists primarily of interest expense associated
with the Company's debt and capital leases partially offset by income derived
from its arrangement with its third party lender who provides financing for
certain of the Company's customers.
The Company has not provided a tax benefit related to the pre-tax loss.
The Company was unable to generate sufficient contract revenues
commensurate with its increased infrastructure and higher production costs
resulting in an increase in the net loss as compared to the prior year period.
Contract revenues were not only effected by the seasonal lower levels of new
sales orders in December through February, but also by unsatisfactory sales
performance in certain of its markets (principally in the first quarter) and
increased cycle times of production as previously stated. Management believes
that had the Company maintained its normal installation cycle time in the second
quarter of 1998, the Company would have generated a net profit in the second
quarter. However, management is continuing to evaluate the viability of certain
of its markets in which it operates and closed two under performing markets in
August 1998. Additionally, the Company is currently planning the expansion of
its product offering to include replacement windows.
PERIOD JANUARY 27, 1997 THROUGH DECEMBER 31, 1997. During the period, new
sales orders were approximately $19,900,000 of which $3,556,000 were
attributable to contracts assigned by AMRE and $16,344,000 were generated by the
Company. Contract revenues for the period were approximately $16,159,000.
Backlog as of December 31, 1997 was approximately $3,800,000.
Branch operating expenses were approximately $946,000 or 5.9% of contract
revenues for the period ended December 31, 1997. Branch operating expenses are
primarily fixed in nature and include costs associated with each of the
Company's local branch facilities including rent, telecommunications, branch
administration and supplies.
Marketing and selling expenses were approximately $7,546,000 or 46.7% of
contract revenues for the period, but were 39.7% of new sales orders for the
period. Marketing costs are expensed as incurred. In the Company's normal
operating cycle, marketing costs can precede the completion of installation of
sales orders by up to three months depending upon the type of marketing media as
well as the cycle time of production. Consequently, during periods of
increasing backlog, marketing expenses will be a high percentage of contract
revenues.
In addition, marketing and selling expenses as a percentage of contract
revenues is significantly affected by the Company's sales closing rate
performance (the ratio of sales to leads generated) which results from the sales
level and the investment in marketing and fixed selling expenses. Selling
expenses primarily consists of commission, bonus, sales management salaries,
training and recruiting expenses and sales personnel benefit costs.
Consequently, during periods of low sales closing rates, marketing and selling
expenses will be a higher percentage of contract revenues. During the first six
months of operations, as compared to the remainder of the period, sales closing
rates were lower as the Company recruited and trained its sales staff.
License fees were approximately $238,000 or 1.5% of contract revenues. The
Company conducts a substantial portion of its direct consumer marketing under
license agreements with TM and HFS pursuant to a master license agreement
between Century 21 Real Estate Corporation and each of TM and HFS. The license
agreements provide the Company with the right to market, sell and install
kitchen cabinet refacing products in specific territories under the trademark
and service mark "CENTURY 21 Cabinet Refacing." The license agreements provide
for license fees to the licensor equal to 2% of the associated contract revenues
in 1997, and 2% to 6% over the remainder of the term of the agreement subject to
certain adjustments based upon contract revenue levels and minimum fees in
certain
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of its territories. See "Risk Factors -- Material Contracts --Dependence on
Century 21 License Agreement; Customer Financing."
General and administrative expenses were approximately $2,273,000 or 14% of
contract revenues. The Company attributes the high percentage of contract
revenues to its first year of operations.
Other income (expense) consists primarily of interest expense associated
with the Company's rent and capital leases.
Income tax expense was $5,000 for the period ended December 31, 1997. The
Company has provided a valuation allowance to reflect the uncertainties
associated with the ultimate realization of its deferred tax asset, in
accordance with SAS No. 109, "Accounting for Income Taxes." A valuation
allowance is required when it is more likely than not that the deferred tax
asset will not be realized. Principally, since this is the Company's first year
of operation and it has no historical taxable income record, there can be no
assurance that the deferred tax asset will ultimately be realized.
LIQUIDITY AND CAPITAL RESOURCES
The Company financed its liquidity needs in 1997 primarily from the
proceeds of its initial sale of Common Stock and loans from its stockholders,
which in the aggregate was $2,140,000. Net cash used in operations was
approximately $1,475,000 for the period ended December 31, 1997.
In the period ended June 30, 1998 net cash used in operations was
approximately $426,000. During 1998 the Company received $350,000 in proceeds
from the issuance of promissory notes to certain of the Company's stockholders
(the "Short-Term Notes"). In April 1998, the Company received a $700,000
secured term loan from a financial institution. The proceeds of the term loan
were used to retire the Short-Term Notes and the balance was used for working
capital purposes. In addition, in June 1998, the Company entered into a $1.0
million secured revolving credit facility with the same financial institution.
The Company borrowed approximately $246,000 against the revolving credit
facility in June 1998, and at June 30, 1998, based on the terms of the
agreement, the Company had additional borrowing capacity of approximately
$484,000. Borrowings and required payments under the revolving credit facility
are based upon an asset formula involving accounts receivable and inventory.
Both loans are secured by substantially all of the assets of the Company.
Approximately $850,000 of the obligation to a financial institution has been
guaranteed by Murray H. Gross, President and Chief Executive Officer of the
Company. This guaranty amount will be reduced if the Company meets certain
financial performance objectives. Certain stockholders of the Company have
entered into an agreement with Mr. Gross indemnifying him against amounts paid
as a result of such guaranty in an amount in excess of his pro rata stock
ownership in the Company. See "Certain Relationships and Related Transactions."
During the period ended December 31, 1997, capital expenditures, which
included the acquisition of selected assets from Facelifters, as well as capital
leases, totaled approximately $1,983,000. Effective as of November 23, 1997,
the Company acquired certain assets of Reunion. The Company effected the
purchase of the Reunion assets through the issuance of 371,480 shares of Common
Stock and 80,000 shares of redeemable preferred stock. Capital expenditures,
which included a capital lease for certain telemarketing telecommunications
equipment, totaled approximately $254,000 in the period ended June 30, 1998.
Capital expenditures for 1998 are expected to approximate $400,000 primarily
related to manufacturing equipment and information technology systems.
At June 30, 1998, the Company had cash of approximately $557,000 and a
negative working capital of $509,000. The Company expects significant increases
in the amount of new sales orders and contract revenues for the remainder of the
calendar year, and consequently the Company expects to generate cash from its
existing operations in the second half of 1998. Based upon current financial
resources, including existing lines of credit and anticipated funds from
operations, the Company believes that it will have sufficient reserves to meet
its anticipated working capital needs for the business as currently conducted.
However, the Company anticipates that it will need additional working capital to
fund its business strategy including expansion into the full service kitchen
remodeling business and has therefore undertaken the Offering. Upon
consummation of the Offering, the Company believes that it will have sufficient
reserves to meet its anticipated working capital needs. However, no assurance
can be given that the Company will successfully complete the Offering or any
financing transaction or otherwise maintain adequate liquidity,
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and any such failure could have a material adverse effect on the Company's
overall financial condition. See "Risk Factors -- Risks Relating to Growth and
Expansion."
YEAR 2000
The year 2000 date change is believed to affect virtually all computers and
organizations. The Company has undertaken a comprehensive review of its
information systems including its main computer hardware and software, its
personal computers hardware and software and associated peripheral devices, its
telemarketing telecommunications systems and general telecommunication systems.
In addition, the Company has held discussions with certain of its software
suppliers with respect to the year 2000 date change. While the Company has not
completed its detailed review, as a preliminary assessment, the Company believes
that it will not be required to modify or replace significant portions of its
software and any such modifications or replacements are, or will be, readily
available. The Company anticipates it will complete its detailed review by the
end of the fourth quarter of 1998.
The Company is planning to conduct a comprehensive review of its
manufacturing equipment, as well as other equipment and communication systems
for potential year 2000 issues. In addition, the Company is planning to hold
further discussions with its significant suppliers, shippers and other external
business partners. The Company had completed a cursory review of it
manufacturing equipment in the first quarter of 1998 and had determined that the
year 2000 date change would not pose any operational problems. This second
phase review is also expected to be completed by the end of the fourth quarter
of 1998.
The Company does not expect the costs associated with the year 2000
compliance to have a material effect on its financial position or its results of
operations. There can be no assurance until the year 2000, however, that all of
the Company's systems, and the systems of its suppliers, shippers and other
business partners will function adequately. See "Risk Factors -- The Year 2000
Issue."
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BUSINESS
GENERAL
The Company is engaged, through direct consumer marketing, in the design,
sales, manufacture and installation of kitchen cabinet refacing products
utilized in kitchen remodeling. The Company presently operates in 13 major
metropolitan areas markets in the United States. The Company conducts a
substantial portion of its direct consumer marketing under the trademark and
service mark "CENTURY 21 Cabinet Refacing" under license agreements with TM and
HFS pursuant to a master license agreement between Century 21 Real Estate
Corporation and each of TM and HFS. The license agreements with TM and HFS
provide for terms of 10 years ending in 2007. Both agreements give the Company
the right to market, sell and install kitchen cabinet refacing products in
specific territories under the trademark and service mark "CENTURY 21 Cabinet
Refacing." The license agreements provide for license fees to the licensor
equal to 2% of the associated contract revenues in 1997, and 2% to 6% over the
remainder of the term of the agreement subject to certain adjustments based upon
contract revenue levels and minimum fees in certain of its territories. The
Company also conducts its business under the name "Facelifters." In addition to
marketing, selling and installing cabinet refacing, the Company has plans to
market, sell and install replacement kitchens and windows and other home
improvement products. See "Risk Factors -- Material Contracts -- Dependence on
Century 21 License Agreement; Customer Financing."
The Company's principal marketing activities are conducted through
telemarketing and television advertising. A telemarketing solicitation is made
to homeowners whose demographic profile and homes fall within certain criteria,
including age and income of the homeowner, home value, age of home and length of
residency. The Company's telemarketing personnel conduct "outbound"
telemarketing to generate customer leads and answer "in-bound" inquiries
generated by advertising activities to schedule in-home sales presentations for
the Company's cabinet refacing products.
Refacing is a kitchen remodeling technique in which existing cabinetry
framework is retained but all exposed surfaces are changed. Under the Company's
cabinet refacing system, doors, drawers, and drawer fronts are replaced, and all
exposed cabinet surfaces are covered with matching laminate. In addition,
matching valances and molding, replacement sinks, faucets, counter tops, cabinet
drawer boxes, additional replacement cabinets, space organizers, lazy susans and
slide-out shelving can be provided by the Company. The Company provides
homeowners with a wide selection of styles and colors to renovate their kitchens
at a lower cost and more quickly and conveniently than through traditional
remodeling methods. Installation is usually completed within three to five days
as compared to between two to four weeks for traditional remodeling methods, and
is usually commenced within approximately 60 days after an agreement is entered
into between the Company and its customer.
INDUSTRY OVERVIEW
According to industry publications, spending for kitchen remodeling is
expected to exceed $30 billion in 1998 -- an increase from $25 billion in 1997
and $18 billion in 1991 -- with approximately 4.65 million kitchens expected to
be remodeled in 1998, an 8.1% increase over 1997. Of the expected $30 billion
in kitchen remodeling spending, approximately $14.4 billion is expected to be
spent on remodeling jobs costing under $5,000 and approximately $11.5 billion
is expected to be spent on remodeling jobs costing between $5,000 and $15,000.
Based upon industry publications, the Company believes that the continued
projected growth of kitchen remodeling is principally due to three factors: (1)
an expected consistent rate of existing home sales, (2) an aging baby boomer
market and (3) kitchen remodeling continues to offer the homeowner a
significantly better cost recoupment upon sale than other home improvement
projects. Households in which the homeowners are age 40 or older account for
approximately 60% of kitchen remodeling projects.
MARKET POSITIONING
The Company operates in a niche segment of the kitchen remodeling industry
known as cabinet refacing, and the Company believes that it is the largest
single seller of cabinet refacing in the United States. The Company has sales
and installation centers located in 13 of the 20 largest metropolitan areas in
the United States. The Company provides its customers with a full range of
services including in-home design, product installation, access to third-party
financing and after sale service. The Company also manufactures almost all of
the components used in its kitchen refacing business in its own factory.
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The Company intends, however, to expand its existing business lines to
become a full service kitchen updating business offering not only cabinet
refacing but also replacement kitchens, focusing primarily on middle market
customers who intend to spend between $5,000 and $15,000 on updating their
kitchen. The Company believes that a significant market opportunity exists in
the kitchen replacement business for middle market consumers. The middle market
kitchen updating business is presently serviced by small home improvement
contractors who typically do not offer in-home design or access to financing, or
large "home center" retailers such as Home Depot or Lowes, which retailers do
not offer in-home design, installation or after sale service. The Company
believes that Sears, through its Great Indoors prototype retail operation, has
recognized this significant market opportunity and is test marketing kitchen
updating to the middle market consumer. The Company believes that by leveraging
its marketing and sales expertise it can become the leading full service kitchen
updating enterprise focused upon middle market customers which is a significant
market segment.
BUSINESS STRATEGY
The Company's business objective is to become a leader in the replacement
kitchen market primarily in the mid-range price level. To achieve this
objective, the Company's strategy is as follows:
. PROVIDE SUPERIOR CUSTOMER SERVICE. The Company believes that its
emphasis on providing a full range of services will provide it with an
advantage in its pursuit of middle market consumers seeking to update
their kitchen. The ability of the Company to provide in-home design,
product installation, access to third-party financing and its after
sale service distinguishes the Company from its principal competitors.
. LEVERAGE EXISTING EXPERTISE AND INFRASTRUCTURE. The Company plans to
leverage its existing marketing and sales expertise as well as its
existing warehousing, installation, distribution and financing
capabilities to broaden its offerings to include replacement kitchens
and related products and to increase the volume of kitchen cabinet
refacing sales.
. INCREASE CUSTOMER PENETRATION AND PRODUCT OFFERINGS. The Company
believes that by building a base of satisfied kitchen remodeling
customers, the Company will be able to build a database of customers
that will be targets for other remodeling products. By building this
database and using its sales and marketing expertise to maintain
closer contact with its customers the Company believes it will be able
to lower its current marketing costs and provide additional remodeling
products to existing customers. This will permit the Company to
increase its "share of the customer" as well as its "share of the
market." The Company also intends to develop a "do-it-yourself"
cabinet refacing kit.
. USE OF NEW TECHNOLOGY. The Company intends to enhance its in-home
design capabilities by acquiring new, state of the art computer
software and hardware. Available technology, including digital
cameras, CAD/CAM design software and laptop computers will ultimately
permit the Company's in-home sales personnel to provide computer
imaging of the desired updated kitchen features to the customer while
in the customer's home.
. INTERNET INITIATIVE. The Company intends to pursue development of an
Internet site for the purpose of (i) permitting customers to do
preliminary in-home design by viewing the Company's products and in
turn allowing them to electronically place orders with the Company for
its "do-it-yourself" cabinet refacing kits; (ii) affording customers
the opportunity to obtain credit pre-approval; (iii) generating
customer leads for the Company's sales force; (iv) establishing a
listing of employment opportunities; and (v) creating a general
information site for the Company's customers and investors.
. PURSUE ACQUISITION OPPORTUNITIES. The Company intends to selectively
explore the acquisition of related or complimentary businesses.
DIRECT MARKETING AND SALES
The Company's principal marketing activities are conducted through
telemarketing and television advertising. A telemarketing solicitation is made
to homeowners whose demographic profiles and homes fall within certain criteria,
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including age and income of the homeowner, home value, age of home and length of
residency. To maintain the efficiency of its marketing, the Company uses its
internally developed computer software to monitor responses and sales. The
Company's telemarketing personnel follow prepared scripts, conduct outbound
telemarketing, answer in-bound inquiries generated by advertising activities and
schedule in-home sales presentations.
Direct sellers are used as sales representatives. Direct sellers utilize
the Company's in-home sales presentation and sales kit, which includes a
presentation book, photos, video materials, sample products and other sales
materials. Most sales result from the initial in-home presentation. Results of
in-home presentations are tabulated on a daily basis. Such information provides
data upon which the Company may evaluate each direct seller's performance with
respect to sales as it relates to a percentage of in-home presentations,
cancellation rates and average dollar amounts of sales and commissions earned.
Generally, within one week after a sales agreement is entered into, the
customer's kitchen is measured pursuant to the Company's specified procedures.
Measurements are entered on systematized forms to facilitate manufacturing at
which time the order is forwarded to the Company's manufacturing facility in
Charles City, Virginia. Products are usually ready for shipment within three
weeks after receipt of an order. If necessary, replacement or service parts are
usually shipped within five working days after the Company receives a request.
Installation, which generally occurs approximately 60 days after the agreement
is signed, is performed by Contractors skilled in cabinet refacing and kitchen
cabinet installation and is usually completed within three to five days.
PURCHASING, MATERIAL AND INSTALLATION
KITCHEN CABINET REFACING, CUSTOM COUNTERTOPS AND CABINETS. The Company
manufactures laminated cabinet fronts, countertops, and cabinets which are faced
with high pressure laminate or thermofoil in its manufacturing facility in
Charles City, Virginia. The Company has acquired "state of the art" equipment
enabling the Company to manufacture thermofoil cabinet doors and drawer fronts.
Raw materials used in the manufacturing and installation process are purchased
from several suppliers at prices which are negotiated periodically. Management
believes such materials are available from numerous suppliers at competitive
prices.
INSTALLATIONS. Except for some warranty and other service work,
Contractors perform all of the Company's installations. Contractors employ
their own crafts persons and are required to maintain their own vehicles,
equipment, tools, licenses, workers compensation coverage and general liability
insurance. Contractors assume full financial risk in their performance of an
installation and enter into a written agreement with the Company upon meeting
the Company's qualifications. Contractors obtain a work order, which specifies
all work to be performed pursuant to the sales agreement, and materials at the
Company's branch office. Installations are generally completed within three to
five work days, at which time the Contractor obtains a certificate of completion
from the customer and returns all documentation and excess materials to the
Company. The Contractor is paid by the Company upon satisfactory completion of
each job, at which time the Company receives an invoice for services from the
Contractor and a customer signed completion certificate. Fees for each
installation are paid to the Contractor by the Company, based upon an amount
negotiated between the Company and the Contractor. When new construction and
remodeling is on the rise, recruiting of contractors becomes more challenging.
The Company believes it can stay competitive in its recruiting efforts and that
there are an adequate number of qualified contractors available to the Company
to satisfy anticipated needs.
CONSUMER LOAN FINANCING AND NEW BUSINESS SEGMENT
The Company's customers pay for their home improvement products and
services upon completion of the work. Payments are made in cash, on MasterCard,
Visa or Discovery cards, or by third party financing, primarily a revolving
unsecured line of credit, arranged by the Company. Third party financing pays
for approximately 75% of the Company's business. In most third-party lender
transactions, the customer executes a revolving credit agreement with the lender
and the lender pays the Company on completion of the installation. In some of
these transactions, the third-party lender discounts the contract price to the
Company to offset the lenders credit risk. The Company's risk is limited to its
normal representations and warranties regarding material and workmanship. See
"Risk Factors -- Material Contracts -- Dependence on Century 21 License
Agreement; Customer Financing."
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EMPLOYEES
At September 1, 1998, the Company either employed or had representing its
products, on a full or part-time basis, approximately 400 associates, including
200 telemarketing, 80 direct sellers, 55 manufacturing employees, and 65
management and administrative personnel. In addition, the Company has working
arrangements with approximately 105 independent contracting companies. The
Company believes that labor relations with its employees have been good in the
past and does not expect this assessment to change.
WARRANTIES
The Company provides each customer with a 12-month limited warranty
covering defective materials and workmanship and an extended limited warranty of
between two to five years on its materials. The Company requires its
Contractors to correct defective workmanship for a 12-month period. To date,
the Company has not experienced significant warranty claims.
COMPETITION
The Company operates in a highly fragmented industry. Although the Company
believes it is one of the largest enterprises engaged in the direct marketing of
in-home sales and installation of kitchen cabinet refacing products, the Company
competes with numerous contractors in each of the territories in which it
operates, with reputation, price, workmanship and services being the principal
competitive factors. The Company also competes against retail chains, including
Sears, Builders Square, Sams Warehouse Club and other stores, which offer
similar products and services through licensees. Although they don't offer the
same complement of services, the Company also competes, less directly, with
small home improvement contractors who typically do not offer in home design or
access to financing and with large "home center" retailers such as Home Depot
and Lowes who do not offer in-home design, installation or after sale service.
It is anticipated that the Company will compete to a greater extent with "home
centers" retailers upon implementation of its business strategy. See "Risk
Factors -- Competition."
SEASONALITY
The Company's business is subject to seasonal fluctuations and extreme
winter weather conditions. In addition, recruiting of Contractors to perform
the Company's installation becomes more difficult when new construction and
remodeling is on the rise. See "Risk Factors -- Seasonality."
GOVERNMENT REGULATIONS
Generally, the Company's activities and the activities of its direct
sellers and Contractors are subject to various federal and state laws and
regulations and municipal ordinances relating to, among other things, in-home
sales, consumer financing, advertising, the licensing of home improvement
contractors, and zoning regulations. The Company's operations are also subject
to a Federal Trade Commission rule which provides for a "cooling off" period for
in-home sales. This rule requires an in-home seller to inform the buyer of his
right to cancel the transaction at any time prior to midnight of the third
business day after the date of the sales transaction. Many states have (but the
states in which the Company currently conducts retail business have not)
supplemented this rule by extending the time period in which the buyer may
cancel. The Company has procedures designed to comply with such laws and
regulations. See "Risk Factors -- Government Regulations."
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PROPERTIES
All of the Company's facilities are leased, and in most cases, management
expects that leases currently in effect will be renewed or replaced by other
leases of a similar nature and term. At September 1, 1998, the Company had
under lease 13 sales offices, two telemarketing facilities and its corporate
headquarters. The Company's manufacturing facility at Charles City, Virginia is
under a capital lease with a 15-year lease term and an option to purchase the
property at the end of the lease term for nominal consideration. Pursuant to
the terms of this lease, the Company also has a right of first refusal to
purchase certain adjacent land. All of the Company's leases, other than the
Charles City, Virginia facility, are for terms of five years or less.
The Company's leased properties are:
LOCATION SQUARE FEET PURPOSE
-------- ----------- -------
Dallas, TX 5,570 Corporate Headquarters
Baltimore, MD 3,900 Sales office and warehouse
Boston, MA 4,400 Sales office and warehouse
Chicago, IL 6,349 Sales office and warehouse
Dallas, TX 4,021 Sales office and warehouse
Cinnaminson, NJ 3,600 Sales office and warehouse
Denver, CO 2,912 Sales office and warehouse
Detroit MI 5,240 Sales office and warehouse
Lanham, MD 3,500 Sales office and warehouse
Long Island, NY 6,500 Sales office and warehouse
Los Angeles, CA 10,378 Sales office and warehouse
Minneapolis, MN 4,762 Sales office and warehouse
College Point, NY 7,480 Sales office and warehouse
Phoenix, AZ 5,025 Sales office and warehouse
Boca Raton, FL 6,710 Telemarketing
Fort Lauderdale, FL 4,560 Telemarketing
Charles City, VA 71,810 Manufacturing
LEGAL PROCEEDINGS
The Company may, from time to time, become involved in lawsuits in the
ordinary course of business. There are no lawsuits currently pending or
threatened against the Company.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names, current ages and positions of the executive officers and
directors of the Company are:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David A. Moore 42 Chairman of the Board and Director
Murray H. Gross 60 President and Chief Executive Officer and Director
Peter T. Bulger 39 Vice President and Chief Operating Officer
Steven S. Gross 35 Vice President -- Marketing
Malcolm R. Harris 52 Vice President -- Operations
Robert A. DeFronzo 43 Chief Financial Officer, Secretary and Treasurer
David A. Yoho 70 Director
Gregory Kiernan 41 Director
Marc W. Beresin 63 Director
Ronald I. Wagner 52 Director
Charles D. Maguire, Jr. 40 Director
</TABLE>
The Company may employ such additional management personnel as the Board of
Directors of the Company deems necessary. The Company has not identified nor
reached an agreement or understanding with any other individuals to serve in
such management positions, but does not anticipate any difficulty in employing
qualified individuals.
Directors of the Company are elected by the stockholders at each annual
meeting and serve until the next annual meeting of stockholders or until their
successors are duly elected and qualified. Officers are elected to serve,
subject to the discretion of the Board of Directors, until their successors are
appointed or their earlier resignation or removal from office.
The business experience, principal occupations and employment of each of
the directors and executive officers of the Company during at least the past
five years, together with their periods of service as directors and executive
officers of the Company are set forth below.
DAVID A. MOORE has served as Chairman of the Board and as a director of the
Company since shortly after its inception in January 1997. Mr. Moore is Chairman
and Chief Executive Officer of Garden State Brickface, Windows and Siding, Inc.,
a leading New York City area commercial and residential remodeling company. Mr.
Moore is also Chairman of Paradigm Direct, Inc., a direct marketing services
company. In addition, Mr. Moore is a member of the Board of Directors of Lumen
Technologies, Inc., a New York Stock Exchange listed company, Bolle, Inc., a
Nasdaq listed company. He is also Chairman of Sonostar Ventures, L.L.C., a
private consulting and investment firm. Mr. Moore holds a BA degree from Amherst
College, Magna Cum Laude, and an MBA degree from Harvard University.
MURRAY H. GROSS has been President, Chief Executive Officer, and Director
since he founded the Company in January 1997. He has been in the home
improvement industry for over 38 years. In 1963, Mr. Gross founded Busy Beaver
Remodelers, a subsidiary of Busy Beaver Home Centers, a Pittsburgh, Pennsylvania
home center chain. He served as Executive Vice President at Busy Beaver
Remodelers from 1963 until 1979 and as President from 1979 until 1981. From
August 1981 to September 1983, Mr. Gross was employed at Home Craftsman Company
in Dallas, Texas; and from September 1983 to January 1987, he served as
Executive Vice President, Chief Operating Officer and Director. Mr. Gross
joined Facelifters in April 1987 as Vice President and Director. He became
President and Chief Operating Officer in January 1990. Facelifters was acquired
by AMRE in April 1996 where Mr. Gross was a Vice President and Director. During
the period that Mr. Gross served as an officer and director of AMRE, AMRE
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sought protection under federal bankruptcy laws. Mr. Gross attended the
University of Pittsburgh from 1957 to 1960. Mr. Gross is the father of Steven S.
Gross.
PETER T. BULGER has been Vice President of Sales since the Company was
founded in January 1997. He has been in the home improvement industry for over
16 years. Mr. Bulger began his sales management career with a division of
Reynolds Aluminum where he became a Branch Manager in 1984. In November 1991,
he joined Facelifters as a Sales Representative and in March 1992, he became a
Branch Sales Manager. Mr. Bulger was promoted to Regional Sales Manager in June
1993, and in December 1993, he was promoted to Vice President of Sales. He held
that position until Facelifters was acquired by AMRE in April 1996. At that
time, he became Vice President Sales of the Cabinet Division, a position he held
until January 1997. Mr. Bulger earned a B.S. degree in 1982 from Russell Sage
College, Troy, New York.
STEVEN S. GROSS has been Vice President of Marketing since the Company was
founded in January 1997. He has been in the home improvement industry for over
15 years. Mr. Gross began his career at Home Craftsman Company in 1985 as
Director of Telemarketing. In 1987, he took a position as a salesperson with
Diamond Window Systems. Mr. Gross joined Facelifters in 1989 to become Director
of Marketing. In April 1993, he was promoted to Vice President of Marketing.
After the acquisition of Facelifters by AMRE in April 1996, Mr. Gross became
Director of Telemarketing. Steven Gross is the son of Murray Gross.
MALCOLM R. "MAC" HARRIS has been Vice President of Operations since the
Company's founding in January 1997. He has been in the home improvement
industry for nearly 30 years. Mr. Harris began his career in 1970 with Keller
Industries in Miami, Florida and until 1978 served as General Manager of the
manufacturing facility in Butler, Missouri. From 1979 through 1984, Mr. Harris
was Supervisor for Noranda Building Products of Cleveland, Ohio. He joined Home
Craftsman Company in Dallas, Texas in November 1984 as General Manager of
Manufacturing and worked there through March 1987. From April 1987 to May 1988,
Mr. Harris relocated to Millen, Georgia to work for Remington Building Products.
He joined Facelifters Home Systems in May 1988 to become Plant Manager, Mr.
Harris was promoted to Vice President of Manufacturing in January 1990; and in
January 1993, he was promoted to Vice President of Operations. In April 1996
when Facelifters was acquired by AMRE, Mr. Harris continued in his same capacity
until January 1997. Mr. Harris attended Stephen F. Austin College, Nacogdoches,
Texas.
ROBERT A. DEFRONZO joined the Company in December 1997 after the
acquisition of Reunion Home Services, Inc. where he was Chief Financial Officer.
He has been in the home improvement industry since 1990. Mr. DeFronzo began his
career in 1976 as an auditor. In 1979, he joined General Instrument Corporation
as Components Group Financial Analyst and held several financial positions
during his tenure. In January 1989, after a leveraged buyout of the Clare
Division of General Instrument Corp., Mr. DeFronzo became Treasurer and
Assistant Controller of C. P. Clare Corporation. In November 1990, he joined
AMRE as Cabinet Division Controller. Mr. DeFronzo was promoted in 1992 to
Corporate Controller and remained in that capacity until January 1997. He
became Chief Financial Officer of Reunion Home Services, Inc. at its inception
in January 1997. Mr. DeFronzo holds an accounting degree from Illinois State
University and an MBA in Finance from Roosevelt University, Chicago, Illinois.
DAVID A. YOHO has served as a director of the Company since shortly after
its inception in January 1997. Mr. Yoho is a motivational consultant to most
Fortune 500 companies, an award winning lecturer and best selling author. He is
President of Dave Yoho Associates, a major consulting firm active in
turnarounds, mergers and acquisitions. He holds multiple degrees from Temple
University.
GREGORY KIERNAN has served as a director of the Company since shortly
after its inception in January 1997. Mr. Kiernan is President and Chief
Executive Officer of Sonostar Ventures, L.L.C. Mr. Kiernan previously spent 15
years on Wall Street with Lehman Brothers, Salomon Brothers, and at Paine
Webber, where he served as a Managing Director. Mr. Kiernan was previously an
attorney with Cravath, Swaine and Moore, and holds a BA degree from Amherst
College, Magna Cum Laude, Phi Beta Kappa, and a J.D. degree from Harvard Law
School.
MARC W. BERESIN has served as a director of the Company since shortly
after its inception in January 1997. Mr. Beresin is a private investor who was a
major entrepreneur in the home improvement business for 20 years. Mr. Beresin
was President and chief marketing officer of Eljo Products, Inc. and Magne Seal
Doors, Inc., companies that manufactured and marketed custom residential steel
replacement doors. Mr. Beresin was also employed by the Consumer Plastics
Division of Mobil Oil in marketing intensive positions such as New Product
Development Manager and Group Marketing Manager. Mr. Beresin holds a bachelors
degree from Wharton School, University of Pennsylvania.
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<PAGE>
RONALD I. WAGNER has served as a director of the Company since September
1997. Mr. Wagner has been in the home improvement industry for 25 years. In
1975, Mr. Wagner founded Save-A-Kitchen and in 1980, Mr. Wagner founded a
related company, Cabinet Magic, both kitchen cabinet refacing companies. In
1988, following the sale of the operations to AMRE, Inc., Mr. Wagner joined that
company as President - Cabinet Division and Senior Vice President. Mr. Wagner
was promoted to Chairman and Chief Executive Officer in 1990, and remained in
this capacity until his retirement in December 1995. In January 1997, Mr.
Wagner came out of retirement and founded Reunion Home Services where he served
as Chairman and Chief Executive Officer until November 1997 when Reunion's
assets were acquired by the Company.
CHARLES D. MAGUIRE, JR. has served on the Board of Directors since May 1998
and is a partner in the Dallas, Texas office of the law firm of Jackson Walker
L.L.P. Mr. Maguire has practiced with Jackson Walker L.L.P. since 1983. See
"Legal Matters."
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth, for the years
indicated, all cash compensation paid, distributed or accrued for services,
including salary and bonus amounts, rendered in all capacities for the Company
to its Chief Executive Officer and all other executive officers who received or
are entitled to receive remuneration in excess of $100,000 during the referenced
periods. Remuneration received during calendar year 1997 represents the period
beginning January 23, 1997 and ending December 31, 1997. All other compensation
related tables required to be reported have been omitted as there has been no
applicable compensation awarded to, earned by or paid to any of the Company's
executive officers in any fiscal year to be covered by such tables. See "--
Employment Agreements."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------
Other Annual
Name/Title Year Salary/Bonus Compensation(1)
- ---------- ---- ------------ ---------------
<S> <C> <C> <C>
Murray H. Gross, President and Chief 1997 $184,865
Executive Officer
Peter T. Bulger, Vice President and Chief 1997 $138,706
Operating Officer
Steven S. Gross, Vice President -- Marketing 1997 $ 92,511
Malcolm R. Harris, Vice President -- 1997 $ 81,607
Operations
Robert A. DeFronzo, Chief Financial Officer, 1997 $ -0-
Secretary and Treasurer
</TABLE>
- -----------------------------
(1) The referenced individuals received personal benefits in addition to salary
and bonuses. The aggregate amount of such personal benefits, however, did
not exceed the lessor of $50,000 or 10% of their total annual salary and
bonus.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of Murray H. Gross, Peter
T. Bulger, Steven S. Gross, Malcolm R. Harris and Robert A. DeFronzo.
The Company's employment agreement with Murray H. Gross is for a one year
initial term with an annual salary of $200,000; provided, that 30 days prior to
the first anniversary of the employment agreement, and each anniversary
thereafter, the employment agreement will automatically be extended for an
additional year unless the Company notifies Mr. Gross of its intent not to
extend the agreement. In the event that Mr. Gross' employment agreement is
terminated by the Company for cause or by Mr. Gross without good reason (as
defined therein), Mr. Gross will not be entitled to severance pay. In the event
the Company terminates Mr. Gross without cause (as defined therein), Mr. Gross
will be entitled to severance pay equal to one year's salary. Notwithstanding
the foregoing, if Mr. Gross' employment with the Company is terminated following
a change in control of the Company (as defined therein) (i) by the Company for
any reason within five years of such change in control or (ii) by Mr. Gross
within one year of such change in control, then Mr. Gross is entitled to
severance pay equal to one year's salary. Mr. Gross is entitled to receive
bonuses and other incentive compensation made generally available to the
executive employees of the Company.
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<PAGE>
The Company's employment agreement with Peter T. Bulger is for a one year
initial term with an annual salary of $150,000; provided, that 30 days prior to
the first anniversary of the employment agreement, and each anniversary
thereafter, the employment agreement will automatically be extended for an
additional year unless the Company notifies Mr. Bulger of its intent not to
extend the agreement. In the event that Mr. Bulger's employment agreement is
terminated by the Company for cause or by Mr. Bulger without good reason (as
defined therein), Mr. Bulger will not be entitled to severance pay. In the
event the Company terminates Mr. Bulger without cause (as defined therein), Mr.
Bulger will be entitled to severance pay equal to one year's salary.
Notwithstanding the foregoing, if Mr. Bulger's employment with the Company is
terminated following a change in control of the Company (as defined therein) by
the Company for any reason within five years of such change in control, then Mr.
Bulger is entitled to severance pay equal to one year's salary. Mr. Bulger is
entitled to receive bonuses and other incentive compensation made generally
available to the executive employees of the Company.
The Company's employment agreement with Steven S. Gross is for a one year
initial term with an annual salary of $100,000; provided, that 30 days prior to
the first anniversary of the employment agreement, and each anniversary
thereafter, the employment agreement will automatically be extended for an
additional year unless the Company notifies Mr. Gross of its intent not to
extend the agreement. In the event that Mr. Gross' employment agreement is
terminated by the Company for cause or by Mr. Gross without good reason (as
defined therein), Mr. Gross will not be entitled to severance pay. In the event
the Company terminates Mr. Gross without cause (as defined therein), Mr. Gross
will be entitled to severance pay equal to one year's salary. Notwithstanding
the foregoing, if Mr. Gross' employment with the Company is terminated following
a change in control of the Company (as defined therein) by the Company for any
reason within five years of such change in control, then Mr. Gross is entitled
to severance pay equal to one year's salary. Mr. Gross is entitled to receive
bonuses and other incentive compensation made generally available to the
executive employees of the Company.
The Company's employment agreement with Malcolm R. Harris is for a one year
initial term with an annual salary of $90,000; provided, that 30 days prior to
the first anniversary of the employment agreement, and each anniversary
thereafter, the employment agreement will automatically be extended for an
additional year unless the Company notifies Mr. Harris of its intent not to
extend the agreement. In the event that Mr. Harris' employment agreement is
terminated by the Company for cause or by Mr. Harris without good reason (as
defined therein), Mr. Harris will not be entitled to severance pay. In the
event the Company terminates Mr. Harris without cause (as defined therein), Mr.
Harris will be entitled to severance pay equal to six month's salary.
Notwithstanding the foregoing, if Mr. Harris' employment with the Company is
terminated following a change in control of the Company (as defined therein) by
the Company for any reason within five years of such change in control, then
Malcolm Harris is entitled to severance pay equal to his annual salary. Mr.
Harris is entitled to receive bonuses and other incentive compensation made
generally available to the executive employees of the Company.
The Company's employment agreement with Robert A. DeFronzo is for a one
year initial term with an annual salary of $100,000; provided, that 30 days
prior to the first anniversary of the employment agreement, and each anniversary
thereafter, the employment agreement will automatically be extended for an
additional year unless the Company notifies Mr. DeFronzo of its intent not to
extend the agreement. In the event that Mr. DeFronzo's employment agreement is
terminated by the Company for cause or by Mr. DeFronzo without good reason (as
defined therein), Mr. DeFronzo will not be entitled to severance pay. In the
event the Company terminates Mr. DeFronzo without cause (as defined therein),
Mr. DeFronzo will be entitled to severance pay equal to six month's salary.
Notwithstanding the foregoing, if Mr. DeFronzo's employment with the Company is
terminated following a change in control of the Company (as defined therein) by
the Company for any reason within five years of such change in control, then Mr.
DeFronzo is entitled to severance pay equal to his annual salary. Mr. DeFronzo
is entitled to receive bonuses and other incentive compensation made generally
available to the executive employees of the Company.
STOCK OPTION PLAN
In May 1998, the Board of Directors adopted, and the stockholders of the
Company approved the 1998 Stock Option Plan (the "1998 Plan"). The purpose of
the 1998 Plan is to provide employees, directors and advisors with additional
incentives by increasing the proprietary interest in the Company. The aggregate
number of shares of Common Stock with respect to which options may be granted is
250,000 which amount may be increased in the discretion of the Board of
Directors to an amount not to exceed 10% of the total outstanding shares of the
Company, from time to time, provided, however, the aggregate number of shares of
Common Stock with respect to which options may be granted may in no event,
exceed 1,500,000 shares.
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<PAGE>
The 1998 Plan provides for the grant of incentive stock options ("ISOs") as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, and
nonqualified stock options ("NSOs") (collectively ISOs and NSOs are referred to
as "Awards"). The 1998 Plan will be administered by the Company's full Board of
Directors, although the 1998 Plan may be administered by a committee of not less
than two members of the Board of Directors (the "Committee"). The Board of
Directors or, if established, the Committee has, subject to the terms of the
1998 Plan, the sole authority to grant Awards under the 1998 Plan, to construe
and interpret the 1998 Plan to make all other determinations to take any and all
actions necessary and advisable for the administration of the 1998 Plan. All of
the Company's full-time, salaried employees, members of the Board of Directors
and certain advisors are eligible to receive Awards under the 1998 Plan.
Options will be exercisable during the period specified in each Option Agreement
and will generally be exercisable in installments pursuant to a vesting schedule
to be designed by the Board of Directors or the Committee. The provisions of
Option Agreements may provide for acceleration of exercisability in the event of
certain events including certain reorganizations and changes in control of the
Company. No option will remain exercisable later than 10 years after the date
of grant. The exercise prices for ISOs granted under the 1998 Plan may be no
less than the fair market value of the Common Stock on the date of grant. The
exercise prices of NSOs are set by the Board of Directors or the Committee.
Each non-employee director of the Company shall automatically be granted a NSO
to purchase 1,000 shares of Common Stock upon initial election or appointment to
the Board of Directors, and will be granted a NSO to purchase 1,000 shares of
Common Stock on the date of each subsequent annual meeting of the Board of
Directors.
No options have been granted under the 1998 Plan as of the date of this
Prospectus.
COMPENSATION OF DIRECTORS
No cash compensation has been paid by the Company to its directors prior to
this Offering. Directors are reimbursed for their ordinary and necessary
expenses incurred in attending meetings of the Board of Directors or a committee
thereof. See "-- Stock Option Plan."
COMMITTEES
The Board of Directors intends to establish three committees: an Audit
Committee, a Compensation Committee and a Nominating Committee. Each of these
committees shall have one or more members who serve at the discretion of the
Board of Directors. The Audit Committee shall be responsible for reviewing the
Company's financial statements, audit reports, internal financial controls and
the services performed by the Company's independent public accountants, and for
making recommendations with respect to those matters to the Board of Directors.
The Compensation Committee shall be responsible for reviewing and making
recommendations to the Board of Directors with respect to compensation of
executive officers, other compensation matters and awards under the Company's
stock option plan. The Nominating Committee shall be responsible for developing
a strategy and criteria for new board members and making recommendations to the
Board of Directors that the selection of future board members should be based
upon.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS' AGREEMENT
The Company and each of the holders of the Company's Common Stock have
entered into a Stockholders' Agreement (the "Stockholders' Agreement") providing
restrictions on the transfer or sale of such stockholders' shares. The
Stockholders' Agreement provides that a holder of Common Stock must give the
Company and other holders of Common Stock the right of first refusal in the
event such holder receives a bona fide offer for the purchase of all, or any
part thereof, of his shares of Common Stock. The Stockholders' Agreement also
provides that the Company and holders of Common Stock shall have the right to
acquire the Common Stock from (i) a deceased holder of Common Stock, (ii) a
deceased spouse of a holder of Common Stock, and (iii) a former spouse of a
holder of Common Stock upon a divorce. During the term of the Stockholders'
Agreement, each holder of Common Stock has agreed to vote all of his shares in a
manner to ensure (a) that the Board of Directors will not consist of more than
seven directors and (b) that (i) three designees of About Face Limited, (ii) two
designees of Sonostar Ventures L.L.C., the Kiernan Family Trust (the "Kiernan
Trust") and Garden State Brickface Windows and Siding, Inc. ("Garden State"),
collectively, (iii) one designee of the David A. Yoho Revocable Trust, dated
January 19, 1995 (the "Yoho Trust"), and (iv) one individual designated by the
Board of Directors are elected to the Board of Directors of the Company. The
Stockholders' Agreement also provides that the Company shall have the option to
purchase any or all of the Common Stock from certain management investors (each
a "Management Investor") at purchase price equal to 120% of the book value per
share after the second anniversary of the Stockholders' Agreement.
Alternatively, each Management Investor also has the option to require the
Company to purchase any or all of his Common Stock at purchase price equal to
110% of the book value per share after the second anniversary of the
Stockholders' Agreement. The Stockholders' Agreement will terminate: (i) upon a
written agreement of the holders of at least 70% of the Common Stock subject to
the Stockholders' Agreement, (ii) upon the dissolution, bankruptcy or insolvency
of the Company, (iii) at such time as there is only one holder of Common Stock,
or (iv) immediately prior to the consummation of a public offering of the Common
Stock registered with the Commission.
ISSUANCE OF PREFERRED STOCK
Effective November 23, 1997, the Company entered into an agreement to
acquire certain assets of Reunion. The Company effected the purchase through the
issuance of 371,480 shares of Common Stock valued at $125,405 to Ronald I.
Wagner and 80,000 shares of Series A Preferred Stock valued at $683,300 to
Kitchen Masters, Inc. Ronald I. Wagner is a director of the Company. See
"Prospectus Summary -- Background."
STOCKHOLDERS NOTES
On January 23, 1997, the Company's Board of Directors authorized and
approved the issuance of an aggregate of $2,092,500 in convertible promissory
notes (the "Convertible Notes"). The Convertible Notes were to mature on March
31, 2002 and the interest rate on the outstanding principal was 6.1% simple
interest. The Convertible Notes provided that the principal could be converted
into Common Stock at a conversion price of $5.88 per share at the election of
the Board of Directors or upon the consummation of an underwritten public
offering. On March 24, 1997, the Board of Directors authorized and approved a
conversion of the Convertible Notes into Common Stock for an aggregate
consideration of $1,052,500. As a result, the Company converted $150,000,
$225,000, $125,000 and $150,000 of principal on the Convertible Notes held by
each of About Face Limited, Sonostar Ventures L.L.C., Kiernan Trust and Yoho
Trust, respectively, and, after giving effect to the 10 for 1 stock split,
issued 255,000, 382,500, 212,500 and 255,000 shares of Common Stock to About
Face Limited, Sonostar Ventures L.L.C., Kiernan Trust and Yoho Trust,
respectively. In addition, the Company replaced the Convertible Notes with
promissory notes (the "Promissory Notes") which are not convertible into shares
of Common Stock. The Promissory Notes provide for simple interest at the rate
of 10% per annum and that cash payments of interest are to be made in equal
semi-annual payments on each October 1 and April 1, until March 31, 2002, upon
which date the principal, together with all accrued but unpaid interest thereon,
shall mature and be due and payable. As of June 30, 1998, the outstanding
principle on all of the Promissory Notes was $1,040,000 and the outstanding
balance on the Promissory Notes held by each of About Face Limited, Sonostar
Ventures L.L.C., Kiernan Trust and Yoho Trust was $150,000, $225,000, $125,000
and $150,000, respectively. Additionally, the Company has separate outstanding
indebtedness to Murray H. Gross in the amount of $50,000.
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<PAGE>
In January 1998, the Company received $350,000 in proceeds from the
issuance of promissory notes to certain of the Company's stockholders (the
"Short-Term Notes"). A portion of the proceeds from the $700,000 secured
promissory term note referenced in the paragraph below were used to retire the
Short-Term Notes.
FINOVA FINANCING
Effective June 5, 1998, the Company entered into a loan and security
agreement with FINOVA Capital Corporation ("FINOVA") whereby the Company may
borrow up to $1,000,000 on a revolving basis. The obligation also incorporates
an existing term loan in the original principal amount not to exceed $700,000,
which is evidenced by a secured promissory term note executed by the Company on
April 6, 1998. The Short-Term Notes referenced in the preceding paragraph were
retired using a portion of the proceeds from the secured promissory term note.
Approximately $850,000 of the obligation to FINOVA has been guaranteed by Murray
H. Gross, President and Chief Executive Officer of the Company. This guaranty
amount will be reduced if the Company meets certain financial performance
objectives. Certain stockholders of the Company have entered into an agreement
with Mr. Gross indemnifying him against amounts paid as a result of such
guaranty in an amount in excess of his pro rata stock ownership in the Company.
OTHER BUSINESS RELATIONSHIPS
None of the officers of the Company are engaged in other businesses. Some
of the directors of the Company are engaged in other businesses and either
individually or through partnerships and corporations in which they have an
interest, hold an office or serve on the board of directors. Certain conflicts
of interest may arise between the Company and its directors. Some of the
directors have other business interest to which they devote a major or
significant portion of their time.
The Company will attempt to resolve any such conflicts of interest in favor
of the Company. The officers and directors of the Company are accountable to it
and its stockholders as fiduciaries, which requires that such officers and
directors exercise good faith and integrity in handling the Company's affairs.
A stockholder of the Company may be able to institute legal action on behalf of
the Company or on behalf of itself and all similarly situated stockholders of
the Company to recover damages or for other relief in cases of the resolution of
conflicts in any manner prejudicial to the Company.
All future transactions between the Company and its officers, directors and
5% stockholders will be on terms no less favorable than could be obtained from
independent, third parties and will be approved by a majority of the
independent, disinterested directors of the Company.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of September 1, 1998
regarding the beneficial ownership of Common Stock of (i) each person or group
known by the Company to beneficially own 5% or more of the outstanding shares of
the Common Stock, (ii) each of the directors and executive officers of the
Company, and (iii) all executive officers and directors of the Company as a
group. Unless otherwise noted, the persons named below have sole voting and
investment power with respect to the shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
Shares of Common Percentage of Shares Percentage of Shares
Stock Beneficially of Common Stock of Common Stock
Owned Prior to and Beneficially Owned Beneficially Owned
Name of Beneficial Owner(1) After the Offering Prior to the Offering After the Offering
- --------------------------- ------------------ --------------------- ------------------
<S> <C> <C> <C>
About Face Limited................................. 381,300 15.3 9.8
Murray H. Gross(2)................................. 381,300 15.3 9.8
Peter T. Bulger.................................... 169,200 6.8 4.3
Steven S. Gross(3)................................. 147,950 5.9 3.8
Malcolm R. Harris.................................. 63,550 2.5 1.6
Kiernan Family Trust(4)............................ 212,500 8.5 5.4
Sonostar Ventures, L.L.C.(5)....................... 382,500 15.3 9.8
Gregory Kiernan(5)................................. 382,500 15.3 9.8
David A. Moore(6).................................. 477,500 19.1 12.2
David A. Yoho Revocable Trust dated January 19,
1995 or any successor trustee(7).................. 255,000 10.2 6.5
Marc Honigsfeld Revocable Living Trust dated
March 27, 1996.................................... 170,000 6.8 4.4
Lynne Tarnopol..................................... 170,000 6.8 4.4
Ronald I. Wagner................................... 371,480 14.9 9.5
Marc W. Beresin.................................... 42,500 1.7 1.1
Robert A. DeFronzo................................. 27,770 1.1 *
Charles D. Maguire, Jr. ........................... - * *
Directors and Officers as a group (11 persons)(8).. 2,138,750 85.6 54.8
</TABLE>
- --------------------------------
* Less than 1%.
(1) Unless otherwise indicated, each person named in the table has sole voting
and investment power with respect to the shares beneficially owned. Also,
unless otherwise indicated, the address of the beneficial owner identified
below is: c/o U.S. Remodelers, Inc., 1341 W. Mockingbird Lane, Suite 900E,
Dallas, Texas 75247.
(2) Includes 381,300 shares of Common Stock held by About Face Limited, a family
limited partnership in which Murray H. Gross is the president of the general
partner.
(3) On July 16, 1998, Mr. Gross transferred his 147,950 shares of Common Stock
to the Gross Family Trust.
(4) Gregory Kiernan is grantor of this irrevocable trust. Mr. Kiernan is
neither a trustee nor a beneficiary of the trust. Mr. Kiernan disclaims any
beneficial interest in the Common Stock held by the Trust.
(5) Includes 382,500 shares of Common Stock held by Sonostar Ventures L.L.C. of
which Mr. Kiernan is a partner.
(6) Includes 382,500 shares of Common Stock held by Sonostar Ventures L.L.C. of
which Mr. Moore is a partner and 85,000 shares of Common Stock held by
Garden State Brickface, Windows and Siding, Inc. of which Mr. Moore is
Chairman and Chief Executive Officer.
(7) Includes 255,000 shares of Common Stock held by the David A. Yoho Revocable
Trust dated 1/19/95 of which Mr. Yoho is the trustee.
(8) Includes 381,300 shares of Common Stock held by About Face Limited, a family
limited partnership in which Murray H. Gross is the president of the general
partner, 382,500 shares of Common Stock held by Sonostar Ventures L.L.C. of
which each of Mr. Moore and Mr. Kiernan is a partner, 255,000 shares of
Common Stock held by the David A. Yoho Revocable Trust dated 1/19/95 of
which Mr. Yoho is the trustee and 85,000 shares held by Garden State
Brickface, Windows and Siding, Inc. of which Mr. Moore is Chairman and Chief
Executive Officer.
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<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The Certificate of Incorporation of the Company authorizes the issuance of
15,000,000 shares of Common Stock, and 100,000 shares of preferred stock, par
value $.01 per share (the "Preferred Stock"), 80,000 shares of which have been
designated as Series A Preferred Stock (the "Series A Preferred Stock"). As of
September 1, 1998, 2,500,000 shares of Common Stock were issued and outstanding
and 80,000 shares of Series A Preferred Stock were issued and outstanding.
As provided in the Certificate of Incorporation, no stockholder is entitled
to preemptive rights or cumulative voting rights. The Board also has the
authority to fix or alter the powers, designations, preferences and relative,
participating, optional or other special rights of all classes of the capital
stock of the Company.
UNITS
The Units offered hereby consist of one share of Common Stock and one
Warrant to purchase one share of Common Stock. See "-- Common Stock" and "--
Redeemable Common Stock Purchase Warrants."
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held of
record for the election of directors on all other matters submitted to the
stockholders. There are no cumulative voting or preemptive rights attributable
to any shares of Common Stock. The Common Stock does not have any conversion
rights and is not subject to redemption. After dividends have been declared and
set aside for payment or paid on any series of preferred stock, each holder of
Common Stock is entitled to receive and to share equally in, when, as and if
declared by the Board of Directors, dividends per share, out of the funds
legally available therefore, in such amounts as the Board may from time to time
fix and determine. Upon liquidation, dissolution or winding up of the affairs
of the Company, whether voluntary of involuntary, after there has been paid or
set apart for the holders of any series of preferred stock having a preference
over the Common Stock, the holders of Common Stock are entitled to receive and
to share equally in all of the assets of the Company available for distribution
to the stockholders. All outstanding shares of Common Stock are fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors has designated 80,000 shares of Preferred Stock as
Series A Preferred Stock. The holders of Series A Preferred Stock have no
voting rights other than those expressly provided in the Certificate of
Incorporation or by applicable law. The holders of Series A Preferred Stock are
also entitled to receive dividends at the rate of $1.00 per annum commencing on
November 30, 1997, payable when and as declared by the Board of Directors, out
of funds at the time legally available therefor; provided however, that if all
of the outstanding shares of Series A Preferred Stock are redeemed in full by
the Company prior to June 30, 1999, no dividends will accrue on the Series A
Preferred Stock. The dividends on the Series A Preferred Stock are cumulative
and become due semiannually in arrears as of the last day of June and December
of each calender year, the first being due and payable on June 30, 1999.
Interest on accrued and unpaid dividends bear interest at annual rate of 10%.
The dividends on the Series A Preferred Stock are senior in right of dividend
payments to any other class or Series of Preferred Stock or Common Stock of the
Company unless the holders of at least two-thirds of the outstanding shares of
Series A Preferred Stock expressly consent to the contrary. In addition,
dividends on the Series A Preferred Stock must be paid prior to the purchase or
redemption of any class or series of stock ranking junior to the Series A
Preferred Stock and the Series A Preferred Stock shall have preference over
Common Stock in the event of any liquidation or winding up of the Company. The
Company may redeem all or a part of the Series A Preferred Stock outstanding at
any time; however, commencing on June 30, 1999, and on the last day of December
and June thereafter, the Company must redeem the lesser of 8,000 shares of
Series A Preferred Stock or the remaining shares of Series A Preferred Stock
outstanding at a price per share of $10.00 plus any accrued and unpaid
dividends. The Company may also convert and exchange all of the Series A
Preferred Stock into a promissory note payable to the holder of the shares of
Series A Preferred Stock in the original principal amount of the redemption
value of the outstanding shares, plus any accrued but unpaid dividends. The
promissory note shall bear interest at the rate of 10% percent interest
compounded annually. All outstanding shares of Series A Preferred Stock are
fully paid and nonassessable.
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<PAGE>
The Board of Directors may, without further action by the Company's
stockholders, authorize, from time to time, the issuance of up to 20,000 shares
of Preferred Stock in series and may, at the time of issuance, determine the
powers, rights, preferences and limitations of any such series. Satisfaction of
any dividend preferences on outstanding shares of Series A Preferred Stock or
any other issuance of Preferred Stock would reduce the amount of funds available
for the payment of dividends on Common Stock. Holders of Preferred Stock would
be entitled to receive a preference payment in the event of any liquidation,
dissolution or winding up of the Company before any payment is made to the
holders of Common Stock. Although there is no current intention to do so, the
Board of Directors may, without stockholder approval, issue shares of a class or
series of Preferred Stock with voting and conversion rights which could
adversely affect the voting power or dividend rights of the holders of Common
Stock and may have the effect of delaying, deferring or preventing a change in
control of the Company.
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
The Warrants will be issued in registered form pursuant to an agreement
dated the date of this Prospectus (the "Warrant Agreement") between the Company
and _________________________________, a ___________ corporation, as the Warrant
Agent (the "Warrant Agent"). The following discussion of certain terms and
provisions of the Warrants is qualified in its entirety by reference to the
Warrant Agreement. A form of the certificate representing the Warrants which
form a part of the Warrant Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
Each of the Warrants entitles the registered holder to purchase one share
of Common Stock. The Warrants are exercisable at a price equal to $6.25 (which
exercise price has been arbitrarily determined by the Company and the
Representative) subject to certain adjustments. The Warrants are entitled to
the benefit of adjustments in their exercise prices and in the number of shares
of Common Stock or other securities deliverable upon the exercise thereof in the
event of a stock dividend, stock split, reclassification, reorganization,
consolidation or merger.
The Warrants may be exercised at any time after the Separation Date and
continuing thereafter until the close of five years from the date hereof, unless
such period is extended by the Company. After the expiration date, Warrant
holders shall have no further rights. Warrants may be exercised by surrendering
the certificate evidencing such Warrant, with the form of election to purchase
on the reverse side of such certificate properly completed and executed,
together with payment of the exercise price and any transfer tax, to the Warrant
Agent. If less than all of the Warrants evidenced by a warrant certificate are
exercised, a new certificate will be issued for the remaining number of
Warrants. Payment of the exercise price may be made by cash, bank draft or
official bank or certified check equal to the exercise price.
Warrant holders do not have any voting or any other rights as stockholders
of the Company. The Company has the right from the date hereof to redeem the
Warrants, at a price of $.05 per Warrant, by written notice to the registered
holders thereof, mailed not less than 30 nor more than 60 days prior to the
proposed date of redemption (the "Redemption Date"). The Company may exercise
this right only if the closing price for the Common Stock for seven trading days
during a ten consecutive trading day period ending no more than 15 days prior to
the date that the notice of redemption is given, equals or exceeds $8.75 per
share, subject to adjustment. If the Company exercises its right to call
Warrants for redemption, such Warrants may still be exercised until the close of
business on the day immediately preceding the Redemption Date. If any Warrant
called for redemption is not exercised by such time, it will cease to be
exercisable, and the holder thereof will be entitled only to the repurchase
price. Notice of redemption will be mailed to all holders of Warrants of record
at least 30 days, but not more than 60 days, before the Redemption Date. The
foregoing notwithstanding, the Company may not call the Warrants at any time
that a current registration statement under the Securities Act is not then in
effect. Any redemption of the Warrants during the one-year period commencing on
the date of this Prospectus shall require the written consent of the
Representative. The Company has agreed to pay the Representative upon the
exercise or redemption of the Warrants a fee equal to 5% of the gross proceeds
received by the Company from the exercise of the Warrants actually solicited by
the Representative and 5% of the aggregate redemption price for Warrants
redeemed. Such fee will be paid to the Representative or its designee no sooner
than 12 months after the effective date of this Offering.
The Warrant Agreement permits the Company and the Warrant Agent without the
consent of Warrant holders, to supplement or amend the Warrant Agreement in
order to cure any ambiguity, manifest error or other mistake, or to address
other matters or questions arising thereafter that the Company and the Warrant
Agent deem necessary or desirable and that do not adversely affect the interest
of any Warrant holder. The Company and the Warrant Agent
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<PAGE>
may also supplement or amend the Warrant Agreement in any other respect with the
written consent of holders of not less than a majority in the number of Warrants
then outstanding; however, no such supplement or amendment may (i) make any
modification of the terms upon which the Warrants are exercisable or may be
redeemed; or (ii) reduce the percentage interest of the holders of the Warrants
without the consent of each Warrant holder affected thereby.
In order for the holder to exercise a Warrant, there must be an effective
registration statement, with a current prospectus on file with the Commission
covering the shares of Common Stock underlying the Warrants, and the issuance of
such shares to the holder must be registered, qualified or exempt under the laws
of the state in which the holder resides. If required, the Company will file a
new registration statement with the Commission with respect to the securities
underlying the Warrants prior to the exercise of such Warrants and will deliver
a prospectus with respect to such securities to all holders thereof as required
by Section 10(a)(3) of the Act. See "Risk Factors -- Current Prospectus and
State Blue Sky Registration in Connection with the Exercise of the Warrants."
REPRESENTATIVE'S WARRANTS
At the closing of this Offering, the Company will issue to the
Representative or its designees, for nominal consideration, Representative's
Warrants to purchase up to 140,000 Units. The Representative's Warrants are
exercisable for a five-year period commencing one year from the closing date of
this Offering at a purchase price of 120% of the initial public offering price
of the Units. The Representative's warrants may not be sold, transferred,
assigned or otherwise disposed of except under certain limited circumstances.
In addition, the Company has granted to the Representative certain registration
rights with respect to registration of the shares of Common Stock and the
Underlying Warrants constituting the Units issuable upon exercise of the
Representative's Warrants and the shares of Common Stock issuable upon exercise
of the Underlying Warrants. The Company has agreed to indemnify the Underwriter
against certain liabilities arising under the Securities Act. See "Risk Factors
- -- Exercise of Representative's Warrants" and "Underwriting."
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
The Company's Certification of Incorporation and Bylaws provide that any
action required or permitted to be taken by the stockholders of the Company may
be taken only at a duly called annual or special meeting of stockholders or by a
written consent 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 that special meetings of stockholders may be called only by the
Chairman of the Board, the President or the Board of Directors of the Company.
These provisions could have the effect of delaying until the next stockholders'
meeting stockholder actions which are favored by the holders of a majority of
the outstanding voting securities of the Company. The Company's Certificate of
Incorporation also does not allow for cumulative voting for directors or for any
other purpose. Under cumulative voting, a minority stockholder holding a
sufficient percentage of a class of shares might be able to ensure the election
of one or more directors. These and other provisions contained in the
Certificate of Incorporation and the Company's Bylaws could delay or discourage
certain types of transactions involving an actual or potential change in control
of the Company or its management (including transactions in which stockholders
might otherwise receive a premium for their shares over the then current prices)
and may limit the ability of stockholders to remove current management of the
Company or approve transactions that stockholders may deem to be in their best
interests and, therefore, could adversely affect the price of the Company's
Common Stock.
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("DGCL"). In general, Section 203 of the DGCL prohibits
a publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock. This provision could delay, discourage or prohibit
transactions not approved in advance by the Board of Directors, such as takeover
attempts that might result in a premium over the market price of the Common
Stock.
-39-
<PAGE>
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Certificate of Incorporation of the Company provides that a director of
the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, except as
limited by the DGCL. If the DGCL is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the Company, in addition to the limitation on personal liability
described above, shall be limited to the fullest extent permitted by the amended
DGCL. Further, any repeal or modification of such provision of the Certificate
of Incorporation by the stockholders of the Company shall be prospective only,
and shall not adversely affect any limitation on the personal liability of a
director of the Company existing at the time of such repeal or modification.
The Bylaws of the Company provide that the Company will indemnify its directors
to the fullest extent permitted by the DGCL and may, if and to the extent
authorized by the Board of Directors, so indemnify its officers and any other
person whom it has the power to indemnify against liability, reasonable expense
or other matter whatsoever.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Units, Common Stock and Warrants
is __________________________________________________________, a ______________
corporation.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
the completion of the Offering could have an adverse effect on the market price
of the Common Stock. Upon completion of the Offering, there will be
approximately 3,900,000 (4,110,000 shares if the Underwriters' over-allotment
option is exercised in full) shares of Common Stock outstanding. The
Securities offered hereby will be eligible for public sale without restriction,
except for shares purchased by affiliates of the Company (those controlling or
controlled by or under common control with the Company and generally deemed to
include officers and directors). Of the 3,900,000 shares of Common Stock to be
outstanding after the Offering, 2,500,000 shares will be deemed "restricted
securities," as that term is defined under Rule 144 promulgated under the
Securities Act. Additionally, there will be outstanding as of the closing of
the Offering, Warrants to purchase an aggregate 1,400,000 shares of Common Stock
(1,610,000 Warrants if the Underwriters' over-allotment option is exercised in
full). See "Description of Securities."
Effective April 29, 1997, the Commission adopted amendments to Rule 144 to
shorten the holding period for restricted securities, generally being those
securities purchased in unregistered private placements. As a result of these
amendments, and subject to satisfaction of certain other conditions, a person,
including an affiliate of the Company (or persons whose shares are aggregated
into such affiliate), who has owned restricted shares of Common Stock
beneficially for at least one year is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of one percent of
the total number of outstanding shares of the same class or the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
sale. Subject to the volume and holding period limitations of Rule 144 and the
lock-up agreements described below, approximately 2,100,750 outstanding shares
of Common Stock are eligible for sale under Rule 144 after the completion of the
Offering. Holders of approximately 2,478,750 shares of Common Stock, including
officers, directors and holders of greater than 5% of the Common Stock of the
Company, will agree to "lock-up" their shares of Common Stock for periods
ranging from 12 to 24 months after the completion of the Offering. A person who
has not been an affiliate of the Company for at least the three months
immediately preceding the sale and who has beneficially owned shares of Common
Stock for at least two years is entitled to sell such shares under Rule 144(k)
without regard to any of the limitations described above. As of the
commencement of the Offering, no restricted shares of Common Stock would be
eligible for sale under the provisions of Rule 144(k). See "-- Lock-Up
Agreements."
The possibility that substantial amounts of Common Stock may be sold in the
public market may adversely affect the prevailing market price for the Common
Stock and could impair the Company's ability to raise capital through the sale
of its equity securities.
REGISTRATION RIGHTS
The holders of the Representative's Warrants have been granted registration
rights to require the Company, at the Company's expense, to register under the
Securities Act the 140,000 Units issuable upon exercise of the
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<PAGE>
Representative's Warrants including the 140,000 shares of Common Stock and the
140,000 Underlying Warrants, including the 140,000 shares of Common Stock
issuable upon exercise of the Underlying Warrants comprising the Units. See
"Underwriting." Any exercise of such registration rights by the holders of these
securities may hinder the Company's efforts to obtain future financing and may
have an adverse effect on the market price of the Common Stock. See "Risk
Factors -- Exercise of Representative's Warrants; -- Continuing Relationship
with Representative; Potential Influence."
LOCK-UP AGREEMENTS
Each of the Company's officers and directors have agreed to enter into
Lock-Up Agreements with the Representative for the purpose of restricting their
ability to sell the shares of Common Stock beneficially held by them for a
period of 24 months from the closing date of the Offering. Those stockholders
holding greater than five percent of the Company's outstanding Common Stock
before the Offering have also agreed to enter into similar lock-up arrangements
for a period of 12 months following the closing date of the Offering.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriter(s) named below, for whom First London Securities Corporation is
acting as the Representative, have severally agreed to purchase from the Company
an aggregate of 1,400,000 Units. The number of Units which each Underwriter has
agreed to purchase is set forth opposite its name.
Number of Units
---------------
First London Securities Corporation........ ----------
----------------------------- ............. ----------
----------------------------- ............. ----------
----------------------------- ............. ----------
----------------------------- ............. ----------
Total.................................
The Securities are offered by the Underwriters subject to prior sale, when,
as and if delivered to and accepted by the Underwriters and subject to approval
of certain legal matters by counsel and certain other conditions. The
Underwriters are committed to purchase all Securities offered by this
Prospectus, if any are purchased.
The Company has been advised that the Underwriters propose initially to
offer the Securities offered hereby to the public at the offering price set
forth on the cover page of this Prospectus. The Representative has advised the
Company that the Underwriters propose to offer the Securities through members of
the NASD, and may allow a concession, in their discretion, to certain dealers
who are members of the NASD and who agree to sell the Securities in conformity
with the NASD Conduct Rules. Such concessions shall not exceed the amount of
the underwriting discount that the Underwriters are to receive.
The Company has granted to the Representative an option, exercisable for 45
days from the date of this Prospectus, to purchase up to an additional 210,000
Units at the public offering price less the underwriting discount set forth on
the cover page of this Prospectus (the "Over-Allotment Option"). The
Representative may exercise the Over-Allotment Option solely to cover over-
allotments in the sale of the Securities being offered by this Prospectus.
Officers and directors of the Company may introduce the Representative to
persons to consider the Offering and purchase Securities either through the
Representative, other Underwriters, or through participating dealers. In this
connection, officers and directors will not receive any commissions or any other
compensation. As of September __, 1998, no plans, proposals, arrangements or
understandings have been made. Furthermore, no reservations of shares have been
implemented. However, in the future, such plans, proposals, arrangements or
understandings may be made and such reservations of shares may be implemented.
The Company has agreed to pay the Representative a commission of 10% of the
gross proceeds of the Offering (the "Underwriting Discount"), including the
gross proceeds from the sale of the Over-Allotment Option, if
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<PAGE>
exercised. In addition, the Company has agreed to pay to the Representative a
non-accountable expense allowance of three percent (3%) of the gross proceeds of
this Offering, including proceeds from any Securities purchased pursuant to the
Over-Allotment Option, of which $60,000 has been paid to date. The
Representative's expenses in excess of the non-accountable expense allowance
will be paid by the Representative. The Company has agreed to pay the
Representative upon the exercise or redemption of the Warrants a fee equal to 5%
of the gross proceeds received by the Company from the exercise of the Warrants
solicited by the Representative and 5% of the aggregate redemption price for
Warrants redeemed. Such fee will be paid to the Representative or its designees
no sooner than 12 months after the effective date of this Offering. The
Representative has informed the Company that they do not expect sales to
discretionary accounts to exceed 5% of the total number of Securities offered by
the Company hereby. Additionally, the Representative shall have the right for
two years to nominate an Advisory Director to the Company's Board of Directors.
The Advisory Director will have the same privileges as a normal director
including equal compensation, but will not have the right to vote on Board
issues. See "Risk Factors -- Continued Relationship with Representative;
Potential Influence."
Prior to this Offering, there has been no public market for the Securities.
Consequently, the initial public offering price for the Securities, and the
terms of the Warrants (including the exercise price of the Warrants), have been
determined by negotiation between the Company and the Representative. Among the
factors considered in determining the public offering price were the history of,
and the prospect for, the Company's business, an assessment of the Company's
management, its past and present operations, the Company's development and the
general condition of the securities market at the time of this Offering. The
initial public offering price does not necessarily bear any relationship to the
Company's assets, book value, earnings or other established criteria of value.
Such price is subject to change as a result of market conditions and other
factors, and no assurance can be given that a public market for the Common Stock
or Warrants will develop after the close of this Offering, or if a public market
in fact develops, that such public market will be sustained, or that the Common
Stock or Warrants can be resold at any time at the offering or any other price.
See "Risk Factors."
At the closing of this Offering, the Company will issue to the
Representative or its designee, for nominal consideration, Representative's
Warrants to purchase up to 140,000 Units. The Representative's Warrants will be
exercisable for a five-year period commencing one year from the closing date of
this Offering at a purchase price of 120% of the initial public offering price
of the Units, subject to adjustment. The Representative's Warrants will not be
transferable, except (i) to officers of the Representative, other Underwriters,
and officers and partners thereof; (ii) by will; or (iii) by operation of law.
The Representative's Warrants contain provisions providing for appropriate
adjustment in the event of any merger, consolidation, recapitalization,
reclassification, stock dividend, stock split or similar transaction. The
Representative's Warrants contain net issuance provisions permitting the holders
thereof to elect to exercise the Representative's Warrants in whole or in part
and instruct the Company to withhold from the securities issuable upon exercise,
a number of securities, valued at the current fair market value on the date of
exercise, to pay the exercise price. Such net exercise provision has the effect
of requiring the Company to issue shares of Common Stock without a corresponding
increase in capital. A net exercise of the Representative's Warrants will have
the same dilutive effect on the interests of the Company's stockholders as will
a cash exercise. The Representative's Warrants do not entitle the holders
thereof to any rights as a stockholder of the Company until such
Representative's Warrants are exercised and shares of Common Stock are purchased
thereunder.
The Company has granted to the holders of the Representative's Warrants
certain rights with respect to registration of the Common Stock, the Underlying
Warrants and the Common Stock issuable upon exercise of the Underlying Warrants
(the "Registrable Securities") under the Securities Act. For a period of five
years commencing one year following the date of this Prospectus, the holders
representing more than 50% of the Registrable Securities may require the Company
at the Company's sole expense to prepare and file one registration statement
under the Securities Act with respect to the Registrable Securities. For a
period of five years commencing one year following the date of this Prospectus,
the holders representing more than 50% of the Registrable Securities also have
the right at the Representative's or holders' expense to require the Company to
prepare and file one registration statement with respect to the Registrable
Securities. In addition, subject to certain limitations, in the event the
Company proposes to register any of its securities under the Securities Act
during the seven-year period following the date of this Prospectus, the holders
of the Registrable Securities are entitled to notice of such registration and
may elect to include the Registrable Securities held by them in such
registration statement at the sole expense of the Company.
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<PAGE>
The Company has agreed to indemnify the Underwriters against any costs or
liabilities incurred by the Underwriters by reasons of misstatements or
omissions to state material facts in connection with the statements made in the
Registration Statement and the Prospectus. The Underwriters have in turn agreed
to indemnify the Company against any liabilities by reason of misstatements or
omissions to state material facts in connection with the statements made in the
Prospectus, based on information relating to the Underwriters and furnished in
writing by the Underwriters. To the extent that this section may purport to
provide exculpation from possible liability arising from the federal securities
laws, in the opinion of the Commission, such indemnification is contrary to
public policy and therefore unenforceable.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to
copies of each such agreement which are filed as exhibits to the Registration
Statement. See "Available Information."
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Company by Jackson Walker LLP, Dallas, Texas. Certain legal matters in
connection with the sale of the Securities offered hereby will be passed on for
the Underwriters by Jordaan & Pennington, PLLC, Dallas, Texas. Charles D.
Maguire, Jr., a partner with Jackson Walker L.L.P. is also a director of the
Company. Mr. Maguire does not beneficially own any shares of the Company's
Common Stock or other securities of the Company.
EXPERTS
The consolidated financial statements of U.S. Remodelers, Inc. at December
31, 1997 and for the period then ended and the combined statement of net assets
acquired and liabilities assumed of Reunion Home Services, Inc. and Kitchen
Masters, Inc. (collectively "Reunion") at November 23, 1997 and the combined
statement of operations related to the net assets acquired and liabilities
assumed for the period ended November 23, 1997 appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon, appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
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<PAGE>
U.S. REMODELERS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
INDEX TO FINANCIAL STATEMENTS F-1
U.S. Remodelers, Inc.
Report of Ernst & Young LLP,Independent Auditors F-2
Consolidated Balance Sheet
as of December 31, 1997 F-3
Consolidated Statement of Operations
for the period ended December 31, 1997 F-4
Consolidated Statement of Stockholders' Deficit
for the period ended December 31, 1997 F-5
Consolidated Statement of Cash Flows
for the period ended December 31, 1997 F-6
Notes to Consolidated Financial Statements F-7
U.S. Remodelers, Inc.
Consolidated Balance Sheets
as of June 30, 1998 (unaudited) and December 31, 1997 F-18
Consolidated Statements of Operations
for three months ended June 30, 1998 and 1997 (unaudited) F-19
Consolidated Statements of Operations
for six months ended June 30, 1998 and the
period ended June 30, 1997 (unaudited) F-20
Consolidated Statements of Cash Flows
for the three months ended June 30, 1998 and 1997 (unaudited) F-21
Consolidated Statements of Cash Flows
for the six months ended June 30, 1998 and the period ended
June 30, 1997 (unaudited) F-22
Consolidated Statement of Stockholders' Deficit F-23
Notes to Consolidated Financial Statements (unaudited) F-24
Reunion Home Services, Inc. and Kitchen Masters, Inc. (Reunion)
Report of Ernst & Young LLP, Independent Auditors F-27
Combined Statement of Net Assets Acquired and Liabilities Assumed (Reunion)
as of November 23, 1997 F-28
Combined Statement of Operations Related to the Net Assets Acquired
and Liabilities Assumed (Reunion) as of November 23, 1997 F-29
Notes to Combined Statement of Net Assets Acquired and Liabilities
Assumed and Statement of Operations Related to the Net Assets
Acquired and Liabilities Assumed (Reunion) F-30
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
U.S. Remodelers, Inc.
We have audited the accompanying consolidated balance sheet of U.S. Remodelers,
Inc. as of December 31, 1997, and the related consolidated statements of
operations, stockholders' deficit and cash flows for the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of U.S. Remodelers,
Inc., at December 31, 1997, and the results of its operations and its cash flows
for the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
March 20, 1998,
except for Note 16,
as to which the date is
June 11, 1998
F-2
<PAGE>
U.S. REMODELERS, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 257,850
Accounts receivable, net of allowance for doubtful accounts of $79,715 518,593
Inventory 885,160
Prepaid expenses 320,147
-----------
Total current assets 1,981,750
Property, plant and equipment, net 2,628,374
Other assets 98,300
-----------
Total assets $ 4,708,424
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,352,396
Accrued wages, commissions and bonuses 304,436
Current portion of long-term debt 170,818
Current portion of capital lease obligations 88,771
Other accrued liabilities 274,080
-----------
Total current liabilities 2,190,501
Long-term debt, net of current portion 180,818
Long-term capital lease obligations, net of current portion 835,775
Notes payable - related parties 1,090,000
Commitments and contingencies
Redeemable preferred stock: $.01 par value, 80,000 shares issued and
outstanding, liquidation value $10 per share 689,967
Stockholders' deficit:
Preferred stock: $.01 par value, 100,000 shares authorized, 80,000 redeemable
preferred shares outstanding -
Common stock, $.01 par value: 15,000,000 shares authorized, 2,476,480
shares issued, 2,472,230 shares outstanding 24,765
Additional capital 1,146,473
Accumulated deficit (1,447,375)
Treasury stock - 4,250 shares (2,500)
-----------
Total stockholders' deficit (278,637)
-----------
Total liabilities and stockholders' deficit $ 4,708,424
===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
U.S. REMODELERS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Period ended December 31, 1997
Contract revenue $16,158,745
Cost of goods sold 6,453,597
-----------
Gross profit 9,705,148
Operating expenses:
Branch operating 946,125
Sales and marketing 7,545,777
License fees 238,307
General and administrative 2,273,182
-----------
Net operating loss (1,298,243)
Other expenses, net (144,132)
-----------
Loss before income taxes (1,442,375)
Income taxes 5,000
-----------
Net loss $(1,447,375)
===========
Net loss per common share - basic and diluted $(0.76)
===========
Weighted average shares outstanding 1,911,040
===========
See accompanying notes.
F-4
<PAGE>
U.S. REMODELERS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock Total
------------------- Paid-In Accumulated ------------------ Stockholders'
Shares Amount Capital Deficit Shares Amount Deficit
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 23, 1997 -- $ -- $ -- $ -- -- $ -- $ --
(inception)
Issuance of common stock 2,105,000 21,050 1,031,450 -- -- -- 1,052,500
Issuance of common stock,
Reunion asset acquisition 371,480 3,715 121,690 -- -- -- 125,405
Purchase of treasury stock -- -- -- -- 4,250 (2,500) (2,500)
Accretion on redeemable
preferred stock -- -- (6,667) -- -- -- (6,667)
Net loss -- -- -- (1,447,375) -- -- (1,447,375)
---------------------------------------------------------------------------------
Balance at December 31, 1997 2,476,480 $24,765 $1,146,473 $(1,447,375) 4,250 $(2,500) $ (278,637)
=================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
U.S. REMODELERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Period ended December 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,447,375)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 189,219
Provision for doubtful accounts 79,715
Changes in operating assets and liabilities:
Accounts receivable (260,509)
Inventory (437,222)
Prepaid expenses (223,120)
Accounts payable 674,304
Other assets and liabilities (49,829)
-----------
Net cash used in operating activities (1,474,817)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Facelifter assets (1,481,690)
Purchase of Reunion assets, net of cash acquired (486,611)
Capital expenditures (501,466)
Proceeds from sale of property, plant and equipment 22,700
-----------
Net cash used in investing activities (2,447,067)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings of long-term debt 1,231,029
Borrowings from related parties 1,090,000
Preferred stock issuance 683,300
Proceeds from issuance of common stock, net of treasury stock 1,175,405
-----------
Net cash provided by financing activities 4,179,734
-----------
Net increase in cash 257,850
Cash and cash equivalents at beginning of period -
-----------
Cash and cash equivalents at end of period $ 257,850
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 128,446
===========
See accompanying notes.
F-6
<PAGE>
U.S. REMODELERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
U.S. Remodelers, Inc. (the Company) is engaged, through direct consumer
marketing, in the design, sale, manufacture, and installation of kitchen cabinet
refacing products utilized in kitchen remodeling. The Company operates in 13
geographic markets in the United States under the names Century 21 Home
Improvements, Century 21 Cabinet Refacing, and Facelifters. The consolidated
financial statements include the accounts of U.S. Remodelers, Inc. and its
wholly owned subsidiary. All significant intercompany accounts and transactions
are eliminated in consolidation.
As described in Note 3, on January 23, 1997, the Company commenced business
under the laws of the state of Delaware. Effective April 3, 1997, the Company
purchased selected assets of Facelifters Home Systems, Inc. (Facelifters), a
wholly owned subsidiary of AMRE, Inc. (AMRE), after AMRE filed for federal
bankruptcy protection under Chapter 11 of the United States Bankruptcy Code.
Facelifters was a kitchen remodeling and cabinet refacing business which was
acquired by AMRE in April 1996. Effective November 23, 1997, the Company
acquired certain assets of Reunion Home Services, Inc. and Kitchen Masters, Inc.
(collectively, Reunion). Reunion was a marketer and installer of kitchen cabinet
refacing products, as well as a manufacturer of kitchen cabinet doors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in bank accounts, money market funds,
and certificates of deposit with maturities of 90 days or less.
ACCOUNTS RECEIVABLE
Accounts receivable consist of amounts due from individuals, credit card
sponsors and financial institutions. Because of the diverse customer base, there
are no concentrations of credit risk. The Company provides for estimated losses
of uncollectable accounts.
INVENTORY
Inventory (consisting principally of raw materials) is carried at the lower of
cost (first-in, first-out) or market.
F-7
<PAGE>
U.S. REMODELERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost less accumulated depreciation.
Depreciation is computed over the estimated useful lives of the related assets
by using the straight-line method of depreciation. Maintenance and repairs are
expensed when incurred; renewals and betterments are capitalized.
REVENUE RECOGNITION
Revenue is recognized upon completion of each home improvement contract. Costs
of goods sold represent the costs of direct materials and labor associated with
installations and manufacturing overhead associated with the production of
cabinet fronts and countertops.
MARKETING
The Company's marketing consists predominantly of telemarketing and is
supplemented by television and other direct consumer marketing media. The
Company expenses all marketing costs as incurred.
INCOME TAXES
The Company accounts for income taxes under the liability method. Deferred
income taxes are provided for temporary differences between the tax basis of
assets and liabilities and their basis for financial reporting purposes.
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per share is based on the income (loss) available to
common stockholders and the weighted average number of shares outstanding during
the period. Diluted earnings (loss) per share includes the effect of dilutive
common stock equivalents except when those equivalents would be antidilutive.
F-8
<PAGE>
U.S. REMODELERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, the disclosure of contingent assets and liabilities, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments approximate fair
value.
3. ACQUISITION
As discussed above, effective April 3, 1997, the Company purchased selected
assets from Facelifters for approximately $834,000 (see Note 1). The Company
effected the purchase through a cash payment of approximately $352,000 and the
assumption of $482,000 in debt related to certain of these assets. In addition,
the Company assumed a capital lease from Facelifters, for a manufacturing
facility of approximately $740,000.
On November 23, 1997, the Company acquired certain assets of Reunion Home
Services, Inc. and Kitchen Masters, Inc. (collectively Reunion). The Company
effected the purchase through the issuance of 37,148 shares of common stock
valued at $125,405 and 80,000 shares of Redeemable Preferred Stock with a fair
value of $683,300. The acquisition was accounted for as a purchase and
accordingly, the purchased assets and liabilities have been recorded at their
estimated fair value at the date of acquisition. The results of operations of
the acquired business have been included in the financial statements since the
date of acquisition.
The following unaudited pro forma information shows the results of the Company's
operations as though the purchase of Reunion had been made at the beginning of
the period (sales of $23.4 million, net loss of $1.5 million and loss per common
share of $0.81). The unaudited pro forma results are not necessarily indicative
of the actual results of operations that would have occurred had the purchase
actually been made at the beginning of the period, nor is it necessarily
indicative of future results of operations of the combined enterprise.
F-9
<PAGE>
U.S. REMODELERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVENTORY
Inventories at December 31, 1997 consisted of the following:
Raw materials $578,213
Work-in-progress 306,947
--------
$885,160
========
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
DECEMBER 31 DEPRECIATION
1997 LIVES
-------------------------
Land $ 50,000 -
Buildings and improvements 690,135 39 years
Machinery and equipment 1,583,167 3-7 years
Furniture and fixtures 484,258 5-7 years
Leasehold improvements 5,262 3 years
----------
2,812,822
Less accumulated depreciation 184,448
----------
$2,628,374
==========
F-10
<PAGE>
U.S. REMODELERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT
At December 31, 1997, long-term debt consisted of the following:
8.2% Secured note payable due to Central Fidelity National
Bank in monthly payments of principal and interest of
$10,411 through November, 1998 and a final payment of
$9,195 in December, 1998 $118,495
6.0% Secured note payable due to Industrial Development
Authority of Charles City County in monthly payments of
principal and interest of $4,998 through April, 2002 228,395
Other 4,746
--------
351,636
Less current portion 170,818
--------
$180,818
========
Notes payable to Central Fidelity National Bank and Industrial Development
Authority of Charles City County are collateralized by certain machinery and
equipment.
Maturities of the notes payable during the next five years are as follows:
1998 $170,818
1999 50,511
2000 53,627
2001 56,933
2002 19,747
--------
$351,636
========
F-11
<PAGE>
U.S. REMODELERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CAPITAL LEASES
At December 31, 1997 obligations under capital leases consisted of the
following:
Land and building $709,474
Machinery and equipment 178,514
Office furniture and equipment 36,558
--------
$924,546
========
Future minimum lease payments under these leases are as follows:
1998 $ 159,731
1999 159,731
2000 151,781
2001 140,651
2002 116,198
Thereafter 565,760
----------
Total minimum lease payments 1,293,852
Interest discount amount (369,306)
----------
Total present value of minimum lease payments 924,546
Less current portion 88,771
----------
Long-term portion $ 835,775
==========
Capital leases generally contain a bargain purchase option payable at the end of
the lease. The leases mature at various dates between July 2000 and February
2009, and are collateralized by assets under the leases having a gross book
value of $971,011 and accumulated depreciation of $34,391 at December 31, 1997.
8. NOTES PAYABLE - RELATED PARTIES
The Company received loans in the aggregate amount of $1,090,000 pursuant to
promissory notes from certain executive officers and stockholders. The unsecured
notes payable are due on March 31, 2002, with interest payable semi-annually at
10% each first day of April and October. Interest expense, including $26,000 of
accrued interest, was approximately $78,000 for the period ended December 31,
1997. In January 1998, the Company received additional funds of $350,000
pursuant to promissory notes from certain stockholders which mature March 31,
1999.
F-12
<PAGE>
U.S. REMODELERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company operates principally in leased facilities and, in most cases,
management expects that leases currently in effect will be renewed or replaced
by other leases of a similar nature and term. Escalation charges imposed by
lease agreements are not significant.
Rent expense recognized under operating leases was approximately $587,000 for
the period ended December 31, 1997. Commitments for future minimum rental
payments required under operating leases with terms in excess of one year for
the years ending December 31 are as follows:
1998 $ 576,000
1999 435,000
2000 300,000
2001 119,000
2002 105,000
Thereafter 84,000
----------
Total minimum lease payments $1,619,000
==========
REVOLVING CREDIT AGREEMENT
The Company has an agreement with a financial institution which makes financing
available to the Company's customers. The agreement provides the financial
institution with the right of first refusal on all of the Company's customer
credit applications. The customer executes a Revolving Credit Agreement with the
lender and the lender pays the Company on completion of the installation. The
Company's risk under the agreement is limited to its normal representations and
warranties regarding material and workmanship.
PURCHASE COMMITMENT
The Company has an agreement with a provider of long distance communication
services for 36 months ending February 2000. The agreement provides for certain
minimum monthly usage fees whether or not the Company's actual usage exceeds
these minimums. During the period ended December 31, 1997, in no month did these
minimums exceed the Company's actual usage. Management does not expect that the
minimums will exceed the Company's usage during the term of the agreement.
F-13
<PAGE>
U.S. REMODELERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LITIGATION
The Company is subject to various legal proceedings and claims that arise in the
ordinary course of business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position or results of operations of the Company.
10. REDEEMABLE PREFERRED STOCK
In connection with the acquisition of the Reunion assets (see Note 3), the
Company issued 80,000 shares of Series A Preferred Stock ("Redeemable Preferred
Stock") with a redemption price of $10 per share. Holders of the Redeemable
Preferred Stock have no voting rights. The Redeemable Preferred Stock was
recorded at fair value on the date of issuance. The excess of the liquidation
value over the carrying value is being accreted by periodic charges to
stockholders' equity through June 30, 1999.
In preference to shares of common stock, dividends on the Redeemable Preferred
Stock at an annual rate of $1 per share are cumulative from the date of issuance
and are payable semi-annually each last day of June and December in arrears
(commencing June 30, 1999, when and as declared by the Company's Board of
Directors) except that no dividends shall be payable if the Redeemable Preferred
Stock is redeemed prior to June 30, 1999.
The Redeemable Preferred Stock is redeemable at the option of the Company at any
time, in whole or in part. The Company must redeem 8,000 shares each June and
December commencing June 30, 1999, together with accrued and unpaid dividends.
In the event the Company were to consummate the sale of its common stock
pursuant to public offering under the Securities Act of 1933 in which the
Company was to receive net proceeds of $7.5 million, the Company must redeem all
outstanding shares of the Redeemable Preferred Stock.
F-14
<PAGE>
U.S. REMODELERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES
The provision for income taxes for the period ended December 31, 1997 consists
of $5,000 of current state income taxes.
The components of the Company's net deferred tax asset at December 31, 1997 are
as follows:
Net operating loss carryforward $ 381,595
Reserve for doubtful accounts 31,192
Other accruals 95,473
---------
508,260
Valuation allowance (508,260)
---------
Net deferred tax asset $ -
=========
The Company has provided a valuation allowance to reflect the uncertainties
associated with the ultimate realization of its deferred tax asset, in
accordance with SFAS No. 109, "Accounting for Income Taxes." A valuation
allowance is required when it is more likely than not that the deferred tax
asset will not be realized. Principally, since this is the Company's first year
of operation and it has no historical taxable income record, there can be no
assurance that the deferred tax asset will ultimately be realized.
The provision for income taxes differs from the provision for income taxes at
the statutory federal tax rate for the following reasons:
Statutory federal income tax benefit $(492,674)
State income taxes, net of federal tax benefit 3,300
Valuation allowance on deferred tax assets 508,260
Other (13,886)
---------
$ 5,000
=========
As of December 31, 1997, the Company has a net operating loss carryforward of
$1,122,338 which expires in the year 2012.
F-15
<PAGE>
U.S. REMODELERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. LICENSE FEES
The Company conducts a substantial proportion of its direct consumer marketing
under license agreements with TM Acquisition Corp. and Century 21 Real Estate
Corporation, subsidiaries of HFS Incorporated (collectively Licensor). The
license agreements provide for a term of 10 years ending March 31, 2007 and
gives the Company the right to market, sell, and install kitchen cabinet
refacing in specific territories under the names CENTURY 21 Home Improvements or
CENTURY 21 Cabinet Refacing. The license agreements may be terminated by the
Company upon 90 days written notice. The license agreements may be terminated by
the Licensor if the Company is negligent in the performance of it services,
becomes insolvent or bankrupt, fails to comply with any material provisions of
the license agreements, or fails to meet certain minimum revenues. In the event
Licensor were to cancel its license agreements, the Company believes that these
products could be independently marketed by the Company in these territories;
however, the cancellation of the license agreements could have an adverse effect
on the business of the Company.
The License agreements provide for license fees to HFS Incorporated equal to 2%
of the associated contract revenues in 1997, and 2% to 6% of contract revenues
over the remainder of the term of the agreement subject to certain adjustments
based upon contract revenue levels and minimum fees in certain of its
territories. License fees pursuant to the license agreements were $238,307 for
the period ended December 31, 1997.
13. OTHER EXPENSES, NET
Other expenses, net consists of the following for the period ended December 31,
1997:
Interest expense $(147,872)
Other income 3,740
---------
$(144,132)
=========
14. EMPLOYEE SAVINGS PLAN
The Company maintains an employee savings plan (the Plan), under which qualified
participants make contributions by salary reduction pursuant to section 401(k)
of the Internal Revenue Code. At the discretion of the Board of Directors, the
Company contributes up to a maximum of 6% of base salary. Employee contributions
vest immediately, while Company contributions fully vest after five years. The
Company made no contributions to the Plan in 1997.
F-16
<PAGE>
U.S. REMODELERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. LOSS PER SHARE
The following table sets forth the computation of loss per share (which includes
the effects of accretion on the Redeemable Preferred Stock):
Loss applicable to common stockholders $1,454,042
Weighted average shares outstanding 1,911,040
Loss per common share - basic and diluted $ 0.76
The Company has no dilutive common stock equivalents.
16. SUBSEQUENT EVENTS
In April 1998, the Company received a $700,000 term loan from a financial
institution collateralized by certain equipment. The agreement provides for a
seven year amortization and interest payable monthly, at 2.125% percentage
points above the Prime Rate. In addition, the Company also received from the
same financial institution a commitment to provide a revolving credit facility
up to $1,000,000. Based upon the terms of the commitment the Company's available
borrowing base under the revolving facility would have been approximately
$700,000 as of March 31, 1998. In addition, the Company has engaged First London
Securities Corporation with respect to an anticipated financing transaction by
the Company, involving debt and equity, which is intended to provide the Company
with sufficient cash to meet the Company's anticipated future working capital
needs.
In June 1998, the stockholders approved an increase in the authorized shares of
common stock of the Company from 1,000,000 shares to 15,000,000 shares.
Concurrent with the increase in the number of authorized shares, the Board of
Directors authorized a ten-for-one stock split effected in the form of a nine-
for-one stock dividend. Shareholder's equity has been restated to give
retroactive recognition to the stock split for all periods presented by
reclassifying from additional capital to common stock the par value of the
additional shares arising from the split. In addition, all references in the
financial statements to number of shares and per share amounts of the Company's
common stock have been restated.
F-17
<PAGE>
U. S. REMODELERS, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 556,832 $ 257,850
Accounts receivable, net of allowance for
doubtful accounts of $99,325 and $79,715 811,586 518,593
Inventory 1,093,726 885,160
Prepaid expenses 582,524 320,147
----------- -----------
Total current assets 3,044,668 1,981,750
Property, plant and equipment, net 2,688,098 2,628,374
Other assets 91,317 98,300
----------- -----------
Total assets $ 5,824,083 $ 4,708,424
----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 2,113,461 $ 1,352,396
Accrued wages, commissions and bonuses 434,522 304,436
Current portion of long-term debt 461,454 170,818
Current portion of capital lease obligations 171,074 88,771
Other accrued liabilities 373,092 274,080
----------- -----------
Total current liabilities 3,553,603 2,190,501
Long-term debt, net of current portion 737,916 180,818
Long-term capital lease obligations, net of
current portion 868,135 835,775
Notes payable - related parties 1,090,000 1,090,000
Commitments and contingencies
Redeemable preferred stock - $.01 par value;
80,000 shares issued and outstanding,
liquidation value $10 per share 724,169 689,967
Stockholders' deficit:
Preferred stock - $.01 par value, 100,000
shares authorized; 80,000 Redeemable
preferred shares outstanding -- --
Common stock - $.01 par value; 15,000,000 shares authorized;
2,500,000 shares issued and outstanding at June 30, 1998; and
2,476,480 shares issued and 2,472,230 shares
outstanding at December 31, 1997 25,000 24,765
Additional capital 1,085,863 1,146,473
Accumulated deficit (2,260,603) (1,447,375)
Treasury stock - 4,250 shares -- (2,500)
----------- -----------
Total stockholders' deficit (1,149,740) (278,637)
----------- -----------
Total liabilities and stockholder's deficit $ 5,824,083 $ 4,708,424
=========== ===========
</TABLE>
See accompanying notes.
F-18
<PAGE>
U. S. REMODELERS, INC.
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended
----------------------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Contract revenue $ 7,009,402 $ 4,236,205
Cost of goods sold 2,980,595 1,515,494
----------- -----------
Gross profit 4,028,807 2,702,711
Operating expenses:
Branch operating 403,490 233,918
Sales and marketing 3,001,618 2,051,463
License fees 107,032 80,420
General and administrative 669,153 579,625
----------- -----------
Net operating loss (152,486) (224,715)
Other income (expenses), net (64,610) (37,002)
----------- -----------
Loss before income taxes (217,096) (261,717)
Income taxes -- --
----------- -----------
Net loss $ (217,096) $ (261,717)
=========== ===========
Net loss per common share - basic and diluted $ (0.10) $ (0.12)
=========== ===========
Weighted average shares outstanding 2,481,690 2,105,000
=========== ===========
</TABLE>
See accompanying notes.
F-19
<PAGE>
U. S. REMODELERS, INC.
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Year to Date Period Ended
-----------------------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Contract revenue $ 12,896,070 $ 6,479,893
Cost of goods sold 5,362,563 2,223,532
------------ ------------
Gross profit 7,533,507 4,256,361
Operating expenses:
Branch operating 835,360 370,558
Sales and marketing 5,942,810 3,174,513
License fees 194,529 98,143
General and administrative 1,315,474 893,420
------------ ------------
Net operating loss (754,666) (280,273)
Other income (expense), net (58,562) (40,092)
------------ ------------
Loss before income taxes (813,228) (320 365
Income taxes -- --
------------ ------------
Net loss $ (813,228) $ (320,365)
============ ============
Net loss per common share - basic and diluted (0.36) (0.20)
============ ============
Weighted average shares outstanding 2,476,990 1,598,210
============ ============
</TABLE>
See accompanying notes.
F-20
<PAGE>
U. S. REMODELERS, INC.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended
----------------------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (217,096) $ (261,717)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 98,202 27,772
Provision for doubtful accounts 54,000 65,000
Changes in operating assets and liabilities:
Accounts receivable 48,182 308,193
Inventory (148,737) (177,864)
Prepaid expenses (237,089) 382,672
Accounts payable 147,252 86,714
Other assets and liabilities (178,828) (66,662)
----------- -----------
Net cash provided by (used in) operating activities (434,114) 364,108
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Facelifters assets -- (1,481,690)
Capital expenditures (28,475) (182,829)
----------- -----------
Net cash used in investing activities (28,475) (1,664,519)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of long-term debt 863,446 1,366,025
Net borrowings from related parties (350,000) --
Proceeds from issuance of common stock 16,329 --
----------- -----------
Net cash provided by financing activities 529,775 1,366,025
----------- -----------
Net increase in cash 67,186 65,614
Cash and cash equivalents at beginning of
period 489,646 532,233
----------- -----------
Cash and cash equivalents at end of period $ 556,832 $ 597,847
=========== ===========
</TABLE>
See accompanying notes.
F-21
<PAGE>
U. S. REMODELERS, INC.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Year to Date Period Ended
----------------------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (813,228) $ (320,365)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation 194,261 27,772
Provision for doubtful accounts 69,000 65,000
Changes in operating assets and liabilities:
Accounts receivable (361,993) (812,783)
Inventory (208,566) (549,378)
Prepaid expenses (262,377) (353,204)
Accounts payable 761,065 441,111
Other assets and liabilities 196,079 249,975
----------- -----------
Net cash provided by (used in operating activities (425,759) (1,251,872)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Facelifters assets -- (1,481,690)
Capital expenditures (253,985) (189,616)
----------- -----------
Net cash used in investing activities (253,985) (1,671,306)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of long-term debt 962,397 1,366,025
Net borrowings from related parties -- 1,102,500
Proceeds from issuance of common stock 16,329 1,052,500
----------- -----------
Net cash provided by financing activities 978,726 3,521,025
----------- -----------
Net increase in cash 298,982 597,847
Cash and cash equivalents at beginning of
period 257,850 --
----------- -----------
Cash and cash equivalents at end of period $ 556,832 $ 597,847
=========== ===========
</TABLE>
See accompanying notes.
F-22
<PAGE>
U. S. REMODELERS, INC.
Consolidated Statement of Stockholders' Deficit
(unaudited)
<TABLE>
<CAPTION>
Total
Common Stock Additional Accumulated Treasury Stock Stockholders'
Shares Amount Capital Deficit Shares Amount Deficit
------ ------ ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 2,476,480 $ 24,765 $ 1,146,473 $(1,447,375) 4,250 $ (2,500) $ (278,637)
Accrued dividends -
Redeemable Preferred Stock -- -- (20,001) -- -- -- (20,001)
Accretion on Preferred Stock -- -- (16,396) -- -- -- (16,396)
Net loss -- -- -- (596,132) -- -- (596,132)
----------- ----------- ----------- ----------- --------- ----------- -----------
Balance, March 31, 1998 2,476,480 $ 24,765 $ 1,110,076 $(2,043,507) 4,250 $ (2,500) $ (911,166)
----------- ----------- ----------- ----------- --------- ----------- -----------
Accrued dividends - Redeemable
Preferred Stock -- -- (20,001) -- -- -- $ (20,001)
Accretion on Preferred Stock -- -- (17,806) -- -- -- (17,806)
Issuance of Common Stock 23,520 235 13,594 -- (4,250) 2,500 16,329
Net loss -- -- -- (217,096) -- -- (217,096)
----------- ----------- ----------- ----------- --------- ----------- -----------
Balance, June 30, 1998 2,500,000 $ 25,000 $ 1,085,863 $(2,260,603) -- -- $(1,149,740)
----------- ----------- ----------- ----------- --------- ----------- -----------
</TABLE>
See accompanying notes.
F-23
<PAGE>
U. S. REMODELERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1: UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Basis of presentation- The accompanying consolidated financial statements
of U.S. Remodelers, Inc. and its subsidiary (the "Company") as of June 30, 1998
and for the three-month and six-month period ended June 30, 1998, the three-
month period ended June 30, 1997, and the period January 23, 1997 through June
30, 1997 are unaudited; however, in the opinion of management, these interim
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position,
results of operations and cash flows. These financial statements should be read
in conjunction with the audited consolidated annual financial statements and
related notes for the period ended December 31, 1997.
U. S. Remodelers, Inc. (the "Company") is engaged, through direct consumer
marketing, in the design, sales, manufacture and installation of kitchen cabinet
refacing products utilized in kitchen remodeling. The Company operates in 14
geographic markets in the United States under the trademark and service mark
"CENTURY 21 Cabinet Refacing" and the name "Facelifters/TM/." The consolidated
financial statements include the accounts of U. S. Remodelers, Inc. and its
subsidiary. All significant intercompany accounts and transactions are
eliminated in consolidation.
On January 23, 1997, the Company commenced business under the laws of the
State of Delaware. Effective April 3, 1997, the Company purchased selected
assets of Facelifters Home Systems, Inc. ("Facelifters"), a wholly owned
subsidiary of AMRE, Inc. ("AMRE") after AMRE filed for federal bankruptcy
protection under Chapter 11 of the United States Bankruptcy Code. Facelifters
was a kitchen remodeling and cabinet refacing business which was acquired by
AMRE in April 1996. Effective November 23, 1997, the Company acquired certain
assets of Reunion Home Services, Inc. and Kitchen Masters, Inc. (collectively
"Reunion"). Reunion was a marketer and installer of kitchen cabinet refacing
products, as well as a manufacturer of kitchen cabinet doors.
NOTE 2: DEBT AND CREDIT FACILITIES
In January 1998 the Company received $350,000 in proceeds from the issuance
of promissory notes to certain of the Company's stockholders (the "Short-Term
Notes"). In April 1998, the Company received a $700,000 secured term loan ("Term
Loan") from a financial institution. A portion of the proceeds from the Term
Loan was used to retire the Short-Term Notes. In June 1998, the Company entered
into a credit agreement with the same financial institution that incorporated
the Term Loan and also provided for a revolving credit facility ("Revolving
Facility") up to $1.0 million. At June 30, 1998 the Company had outstanding
borrowings under the Revolving Facility of approximately $246,000, and based
upon the terms of the agreement, had an additional borrowing capacity of
$484,000.
Principal payments under the Term Loan consist of twenty-three equal
monthly payments of $8,333 through March 1, 2000 and a final payment of $508,333
on April 1, 2000. Borrowings and required payments under the Revolving Facility
are based upon an asset formula involving accounts receivable and inventory. The
initial term of the Revolving Facility is for a period of two years and is
automatically renewable for successive periods of one year, unless earlier
terminated under the provisions of the agreement.
Interest on both the Term Loan and Revolving Facility is payable monthly at
2.125 percentage points above the Prime Rate. However, under the provisions of
the agreement, the interest rate will be reduced to 1.50 percentage points above
the Prime Rate following the first anniversary if certain financial goals have
been achieved.
The credit agreement contains certain negative covenants. Among others,
these negative covenants require the Company to receive prior written consent
from the lender before the Company guarantees or incurs any additional
indebtedness in excess of designated amounts, declares or pays any dividend on
its common stock, merges or consolidates with any entity, or makes capital
expenditures in excess of designated amounts in any annual period.
F-24
<PAGE>
U. S. REMODELERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 2: DEBT AND CREDIT FACILITIES (CONTINUED)
The Term Loan and the Revolving Facility are secured by substantially all
of the assets of the Company. In addition, a limited personal guarantee of Mr.
Murray Gross, President and Chief Executive Officer of the Company secure these
obligations.
NOTE 3: COMMITMENTS AND CONTINGENCIES
Revolving Credit Agreement - The Company has an agreement with a financial
institution which makes financing available to the Company's customers. The
agreement provides the financial institution with the right of first refusal on
all of the Company's customer credit applications. The customer executes a
Revolving Credit Agreement with the lender and the lender pays the Company on
completion of the installation. The Company's risk under the agreement is
limited to its normal representations and warranties regarding material and
workmanship.
Purchase Commitment - The Company has an agreement with a provider of long
distance communication services for 36 months ending February 2000. The
agreement provides for certain minimum monthly usage fees whether or not the
Company's actual usage exceeds these minimums. During the period ended June 30,
1998, in no month did these minimums exceed the Company's actual usage.
Management does not expect that the minimums will exceed the Company's usage
during the term of the agreement.
Litigation - The Company is subject to various legal proceedings and claims
that arise in the ordinary course of business. In the opinion of management,
the amount of ultimate liability with respect to these actions will not
materially affect the financial position or results of operations of the
Company.
Employment Agreements - The Company has employment agreements with certain
of its officers. The agreements are for a one year period and automatically
extend for and additional year unless terminated by the officer or the Company.
The agreements generally provide for annual salaries and for salary continuation
for a specified number of months under certain circumstances, including a change
in control of the Company.
NOTE 4: INCOME TAXES
At December 31, 1997 the Company provided a valuation allowance to reflect
the uncertainties associated with the ultimate realization of its deferred tax
asset, in accordance with SFAS No. 109, "Accounting for Income Taxes." A
valuation allowance is required when it is more likely than not that the
deferred tax asset will not be realized. Principally, since the period ended
December 31,1997 was the Company's first year of operation and it had no
historical taxable income, there can be no assurance that the deferred tax
assets would ultimately be realized. No tax benefit has been provided for the
pre-tax loss of the current period ended June 30, 1998.
NOTE 5: CAPITALIZATION
In June 1998, the stockholders approved an increase in the authorized
shares of common stock of the Company from 1,000,000 shares to 15,000,000
shares. Concurrent with the increase in the number of authorized shares, the
Board of Directors authorized a ten-for-one stock split effected in the form of
a nine-for-one stock dividend. Shareholder's equity has been restated to give
retroactive recognition to the stock split for all periods presented by
reclassifying from additional capital to common stock the par value of the
additional shares arising from the split. In addition, all references in the
financial statements to number of shares and per share amounts of the Company's
common stock have been restated.
In June 1998, the Board of Directors adopted, and the stockholders
approved, the 1998 Stock Option Plan (the "Plan"). The aggregate number of
shares of common stock with respect to which options may be granted is 250,000
which amount may be increased in the discretion of the Board of Directors to
amount not to exceed 10% of
F-25
<PAGE>
U. S. REMODELERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 5: CAPITALIZATION (CONTINUED)
the total outstanding shares of the Company, provided however, the aggregate
number of shares of common stock with respect to which options may granted may
in no event exceed 1,500,000 shares. The Plan provides for the grant of
incentive stock options ("ISOs) as defined in Section 422 of the Internal
Revenue Code of 1986, as amended, and nonqualified stock options ("NSOs). No
options have been granted under the Plan.
NOTE 6: LOSS PER SHARE
The following table sets forth the computation of loss per share:
<TABLE>
<CAPTION>
Three Month Six Month
Period Ended Period Ended
June 30, June 30, January 23, 1997
--------------------- ------------ through
1998 1997 1998 June 30, 1997
--------- --------- ------------ ----------------
<S> <C> <C> <C> <C>
Weighted Average
Shares
Outstanding 2,481,690 2,105,000 2,476,990 1,598,210
========= ========= ========= =========
Loss applicable to common stockholders:
Net loss (217,096) (261,717) (813,228) (320,365)
Accretion on preferred stock (17,806) - (34,202) -
Accrued preferred stock dividends (20,001) - (40,002) -
--------- --------- --------- ---------
Loss to common stockholders (254,903) (261,717) (887,432) (320,365)
========= ========= ========= =========
</TABLE>
The Company has no dilutive common stock equivalents.
F-26
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Reunion Home Services, Inc. and Kitchen Masters, Inc.
We have audited the accompanying combined statement of net assets acquired and
liabilities assumed of Reunion Home Services, Inc. and Kitchen Masters, Inc.
(collectively "Reunion") as of November 23, 1997, and the related combined
statement of operations related to the net assets acquired and liabilities
assumed for the period ended November 23, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined statement of net assets acquired and liabilities
assumed at November 23, 1997 and the related combined statement of operations
related to the net assets acquired and liabilities assumed for the period ended
November 23, 1997, referred to in the first paragraph above presents fairly, in
all material respects, the financial position and results of operations of
Reunion, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
August 5, 1998
F-27
<PAGE>
REUNION HOME SERVICES, INC. AND KITCHEN MASTERS, INC.
Combined Statement of Net Assets Acquired and Liabilities Assumed
November 23, 1997
ASSETS
Cash and cash equivalents $ 322,094
Accounts receivable, net of allowance for
doubtful accounts of $58,534 337,799
Inventory 447,938
Prepaid expenses 97,027
Property, plant and equipment, net 638,439
Other assets 38,488
----------
Total assets $1,881,785
----------
LIABILITIES
Accounts payable $ 676,859
Accrued wages, commissions and bonuses 430,320
Note Payable 7,092
Other accrued liabilities 149,429
Capital lease obligations 38,062
----------
Total liabilities assumed $1,301,762
----------
Net Assets Acquired $ 580,023
==========
See accompanying notes.
F-28
<PAGE>
REUNION HOME SERVICES, INC. AND KITCHEN MASTERS, INC.
Combined Statement of Operations Related to the Net Assets Acquired
and Liabilities Assumed
January 21,1997
through
November 23, 1997
-----------------
Contract revenue $ 7,236,556
Cost of goods sold 2,156,348
-----------
Gross profit 5,080,208
-----------
Operating expenses:
Branch operating 971,601
Sales and marketing 4,050,893
License fees 143,055
-----------
Net loss $ (85,341)
===========
See accompanying notes.
F-29
<PAGE>
REUNION HOME SERVICES, INC. AND KITCHEN MASTERS, INC.
NOTES TO COMBINED STATEMENT OF NET ASSETS ACQUIRED
AND LIABILITIES ASSUMED AND STATEMENT OF OPERATIONS
NOVEMBER 23, 1997
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
Reunion Home Services, Inc. and Kitchen Masters, Inc. (collectively, the
"Company") is engaged, through direct consumer marketing, in the design, sales,
manufacture and installation of kitchen cabinet refacing products utilized in
kitchen remodeling. The Company operates in certain geographic markets in the
United States under the name "Century 21 Cabinet Refacing".
The Company commenced business on January 21, 1997. Effective April 3, 1997, the
Company purchased selected assets of AMRE, Inc. ("AMRE") after AMRE filed for
federal bankruptcy protection under Chapter 11 of the United States Bankruptcy
Code.
Effective November 23, 1997, the Company sold certain net assets to U.S.
Remodelers, Inc., a company engaged in the kitchen cabinet refacing business.
The Statement of Net Assets Acquired and Liabilities Assumed as of November 23,
1997 represents only those net assets acquired and liabilities assumed by U.S.
Remodelers, Inc., and likewise, the Statement of Operations Related to the Net
Assets Acquired and Liabilities Assumed for the period January 21, 1997 through
November 23, 1997 includes the results of those operations related to the net
assets acquired and liabilities assumed by U.S Remodelers, Inc. The net assets
acquired and liabilities assumed are shown on a historical cost basis.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in bank accounts, money market funds,
and certificates of deposit with maturates of 90 days or less.
ACCOUNTS RECEIVABLE
Accounts receivable consists of amounts due from individuals, credit card
sponsors, and financial institutions. Because of the diverse customer base,
there are no concentrations of credit risk. The Company provides for estimated
losses of uncorrectable accounts.
INVENTORY
Inventory (consisting principally of raw materials) is carried at the lower of
cost (first-in, first-out) or market.
F-30
<PAGE>
REUNION
NOTES TO STATEMENT OF NET ASSETS ACQUIRED
AND STATEMENT OF OPERATIONS ACQUIRED
(continued)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment is carried at cost, less accumulated depreciation.
Depreciation is computed over the estimated useful lives of the related assets
by using the straight-line method of depreciation. Maintenance and repair
expenditures are expensed when incurred; renewals and betterments are
capitalized.
REVENUE RECOGNITION
Revenue is recognized upon completion of each home improvement contract.
CONTRACT COSTS
Contract costs represent the costs of direct materials and labor associated with
installations and manufacturing overhead associated with the production of
cabinet fronts and countertops.
MARKETING
The Company's marketing consists predominantly of telemarketing and is
supplemented by television and other direct consumer marketing media. The
Company expenses all marketing costs as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, the disclosure of contingent assets and liabilities, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments approximate fair
value.
F-31
<PAGE>
REUNION
NOTES TO STATEMENT OF NET ASSETS ACQUIRED
AND STATEMENT OF OPERATIONS ACQUIRED
(continued)
NOTE 3: INVENTORY
Inventories at November 23, 1997 consisted of the following:
Raw materials . . . . . . . . . . . . . . . . . .$331,330
Work-in-progress . . . . . . . . . . . . . . . . . 116,608
--------
$447,938
--------
NOTE 4: PROPERTY, PLANT AND EQUIPMENT
At November 23, 1997, property, plant and equipment consisted of the
following:
Depreciation
Cost Lives
-------- ------------
Machinery and equipment . . . . . . . . $526,043 5 years
Furniture, fixtures and computer equipment . . 205,948 3-7 years
Leasehold improvements. . . . . . . . . 6,314 3 years
--------
$738,305
Less accumulated depreciation . . . . . . 99,866
--------
$638,439
========
NOTE 5: CAPITAL LEASE OBLIGATION
At November 23, 1997 the Company's capital lease obligation consisted of certain
furniture and telecommunications equipment. Future minimum lease payments under
the lease are as follows:
1997 . . . . . . . . . . . . . . . . . . . . $ 1,629
1998 . . . . . . . . . . . . . . . . . . . . $ 19,549
1999 . . . . . . . . . . . . . . . . . . . . 19,549
2000 . . . . . . . . . . . . . . . . . . . . 11,404
--------
Total minimum lease payments . . . . . . . . . . . . $ 52,131
Interest discount amount . . . . . . . . . . . . . (14,069)
--------
Total present value
of minimum lease payments . . . . . . . . . . . . 38,062
--------
Less current portion . . . . . . . . . . . . . . 12,008
--------
Long term portion . . . . . . . . . . . . . . $ 26,054
--------
The capital lease contains a bargain purchase option payable at the end of the
lease. The lease matures in July, 2000 and is collateralized by assets under
the lease having a gross book value of $41,426.
F-32
<PAGE>
REUNION
NOTES TO STATEMENT OF NET ASSETS ACQUIRED
AND STATEMENT OF OPERATIONS ACQUIRED
(continued)
NOTE 6: COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company operates principally in leased facilities, and in most cases,
management expects that leases currently in effect will be renewed or replaced
by other leases of a similar nature and term. Escalation charges imposed by
lease agreements are not significant.
Rent expense recognized under operating leases was approximately $207,836 for
the period ended November 23, 1997. Commitments for future minimum rental
payments required under operating leases with terms in excess of one year for
the years ending December 31 are as follows:
1998 . . . . . . . . . . . . . . . . . . . . $229,430
1999 . . . . . . . . . . . . . . . . . . . . 123,048
2000 . . . . . . . . . . . . . . . . . . . . 55,569
2001 . . . . . . . . . . . . . . . . . . . . 37,204
2002 . . . . . . . . . . . . . . . . . . . . 18,602
Thereafter . . . . . . . . . . . . . . . . . . -
--------
Total Minimum lease payments . . . . . . . . . . . . $463,853
========
REVOLVING CREDIT AGREEMENT
The Company has an agreement with a financial institution that makes financing
available to the Company's customers. The agreement provides the financial
institution with the right of first refusal on all of the Company's customer
credit applications. The customer executes a Revolving Credit Agreement with
the lender and the lender pays the Company on completion of the installation.
The Company's risk under the agreement is limited to its normal representations
and warranties regarding material and workmanship.
LITIGATION
The Company is subject to various legal proceedings and claims that arise in the
ordinary course of business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position or results of operations of the Company.
F-33
<PAGE>
REUNION
NOTES TO STATEMENT OF NET ASSETS ACQUIRED
AND STATEMENT OF OPERATIONS ACQUIRED
(continued)
NOTE 7: LICENSE FEES
The Company conducts its direct consumer marketing under a license agreement
with HFS Licensing, Inc. pursuant to a master license agreement with Century 21
Real Estate Corporation, subsidiaries of HFS Incorporated (collectively
"Licensor"). The license agreement provides for a term of 10 years ending
December 31, 2007 and gives the Company the right to market, sell and install
kitchen cabinet refacing in specific territories under the names "CENTURY 21
Home Improvements" or "CENTURY 21 Cabinet Refacing." The license agreement may
be terminated by the Company upon 90 days written notice. The Licensor may
terminate the license agreement if the Company is negligent in the performance
of its services, becomes insolvent or bankrupt, fails to comply with any
material provisions of the license agreement, or fails to meet certain minimum
revenues. In the event Licensor were to cancel its license agreement, the
Company believes that these products could be independently marketed by the
Company in these territories, however, the cancellation of the license
agreements could have an adverse effect on the business of the Company.
The license agreement provides for license fees to HFS Incorporated equal to 2%
of the associated contract revenues in 1977, and 2% to 6% of contract revenues
over the remainder of the term of the agreement subject to certain adjustments
based upon contract revenue levels and minimum fees. License fees pursuant to
the license agreements were $143,055 for the period ended November 23, 1997.
F-34
<PAGE>
================================================================================
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH STATE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
TABLE OF CONTENTS
Page
----
Prospectus Summary......................................................... 3
Risk Factors............................................................... 7
Use of Proceeds............................................................ 13
Dividend Policy............................................................ 13
Dilution................................................................... 14
Capitalization............................................................. 15
Selected Consolidated Financial Information................................ 16
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................. 17
Business................................................................... 24
Management................................................................. 29
Certain Relationships and Related Transactions............................. 34
Principal Stockholders..................................................... 36
Description of Securities.................................................. 37
Shares Eligible for Future Sale............................................ 40
Underwriting............................................................... 41
Legal Matters.............................................................. 43
Experts.................................................................... 43
Index to Consolidated Financial Statements................................. F-1
UNTIL __________ (_____ DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
U.S. REMODELERS, INC.
1,400,000 UNITS
EACH UNIT COMPRISED OF ONE SHARE OF
COMMON STOCK AND ONE REDEEMABLE
COMMON STOCK PURCHASE WARRANT
=========================
P R O S P E C T U S
=========================
FIRST LONDON SECURITIES CORPORATION
____________________, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Delaware General Corporation Law
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may 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 (other than an action by or in the right of the corporation) 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, officer, 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 if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor 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, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a present or
former director or officer of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.
Section 145(d) of the DGCL states that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the present or former director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in subsections (a) and (b). Such determination shall be
made, with respect to a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by a majority vote of such directors,
even though less than a quorum, or (3) if there are no such directors, or if
such directors so direct, by independent legal counsel in a written opinion, or
(4) by the stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the corporation as authorized in
Section 145. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon such
terms and conditions, if any, as the corporation deems appropriate.
II-1
<PAGE>
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in such person's official capacity and as to action in another
capacity while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who 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, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the corporation would have the power to indemnify such person against such
liability under Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, 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 a person.
Certificate of Incorporation
The Certificate of Incorporation of the Company provides in general that a
director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except as limited by the DGCL. If the DGCL is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the Company, in addition to the limitation on personal liability
described above, shall be limited to the fullest extent permitted by the amended
DGCL. Further, any repeal or modification of such provision of the Certificate
of Incorporation by the stockholders of the Company shall be prospective only,
and shall not adversely affect any limitation on the personal liability of a
director of the Company existing at the time of such repeal or modification.
Bylaws
The Bylaws of the Company provide that the Company will indemnify its
directors to the fullest extent permitted by the DGCL and may, if and to the
extent authorized by the Board of Directors, so indemnify its officers and any
other person whom it has the power to indemnify against liability, reasonable
expense or other matter whatsoever.
Underwriting Agreement
The Underwriting Agreement provides for the indemnification of the
directors and officers of the Company in certain circumstances.
Litigation
The Company is not involved in any material pending legal proceeding.
II-2
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company will bear the following estimated expenses incurred in
connection with this Offering:
Item Amount
---- ------
SEC registration fee................................ $ 6,075.16
NASD filing fee..................................... 2,504.99
Nasdaq application and listing fee.................. 10,000.00
Underwriters' non-accountable expense allowance..... 215,250.00*
Boston Stock Exchange application and listing fee... 15,000.00
Blue sky filing fees and expenses................... 40,000.00
Transfer agent and registrar fees................... 5,000.00
Printing and engraving expenses..................... 40,000.00
Legal fees and expenses............................. 110,000.00
Accounting fees and expenses........................ 25,000.00
Miscellaneous....................................... 4,370.15
-----------
TOTAL............................................... $473,200.30
===========
- -------------------------------
*$247,537.50 if the Underwriters' over-allotment option is exercised.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Unless otherwise noted herein, all issuances of Common Stock listed in this
Item reflect the 10 for 1 stock split effected by the Company on June 15, 1998.
a. INITIAL COMMON STOCK ISSUANCE.
Upon the formation of the Company on January 23, 1997, the Company issued a
total of 315,750 shares of Common Stock to certain officers of the Company and
one entity for proceeds of $315.75.
Information concerning the issuance of Common Stock is as follows:
No. of
Shares Date of Sale Purchaser Consideration
------ ------------ --------- -------------
126,300 January 23, 1997 About Face Limited $126.30
84,200 January 23, 1997 Peter Bulger 84.20
84,200 January 23, 1997 Steven Gross/1/ 84.20
21,050 January 23, 1997 Malcom Harris 21.05
------- -------
315,750 $315.75
======= =======
The Company, after determining the availability of the exemption from
registration provided in Section 4(2) of the Securities Act, relied upon such
exemption in connection with the afore-referenced issuances of its Common Stock.
No underwriter participated in the issuances, nor did the Company pay any
commissions with respect to these transactions. The investors had access to
information concerning the Company, its financial condition, assets, management
and proposed activities. In connection with the Company's reliance upon the
exemption from registration provided in Section 4(2) of the Securities Act, the
Company determined that (i) the Company's securities were acquired by the
investors for their own account, for investment purposes only and not with a
view towards distribution thereof, (ii) the investors had the ability to bear
economically a total loss of their investment in the Company, (iii) the
investors had such knowledge and experience in financial and business matters
that they were capable of evaluating the merits
- -------------------------------
/1/ On July 16, 1998, Steven Gross transferred his shares of Common Stock to
Gross Family Trust.
II-3
<PAGE>
and risks of an investment in the Company. The Company has impressed the stock
certificates representing the referenced shares of Common Stock with a
restrictive legend.
b. STOCKHOLDER NOTES.
On January 23, 1997, the Company's Board of Directors authorized and
approved the issuance of the Convertible Notes. The Convertible Notes were to
mature on March 31, 2002 and the interest rate on the outstanding principal was
6.1% simple interest. The Convertible Notes provided that the principal could
be converted into Common Stock at a conversion price of $5.88 per share at the
election of the Board of Directors or upon the consummation of an underwritten
public offering. On March 24, 1997, the board of Directors authorized and
approved a conversion of the Convertible Notes into Common Stock for an
aggregate consideration of $1,052,500. As a result, the Company converted the
Convertible Notes into an aggregate of 1,789,250 shares of Common Stock and
issued these shares to directors and officers of the Company and other
investors. In addition, the Company replaced the Convertible Notes with
promissory notes which are not convertible into shares of Common Stock.
Information concerning the sale of such securities is as follows:
No. of
Shares Date of Sale Purchaser Consideration
------ ------------ --------- -------------
255,000 March 24, 1997 About Face Limited $ 150,000
85,000 March 24, 1997 Peter Bulger 50,000
42,500 March 24, 1997 Marc Beresin 25,000
4,250 March 24, 1997 Curtis Baker 2,500
4,250 March 24, 1997 JoAnn Feeney 2,500
63,750 March 24, 1997 Steven Gross/2/ 37,500
85,000 March 24, 1997 Garden State Brickface, Inc. 50,000
42,500 March 24, 1997 Malcom Harris 25,000
170,000 March 24, 1997 Mark Honigsfeld Living Trust 100,000
212,500 March 24, 1997 Kiernan Family Trust 125,000
4,250 March 24, 1997 Paul Kalisz 2,500
382,500 March 24, 1997 Sonostar Ventures 225,000
4,250 March 24, 1997 David Silverman 2,500
170,000 March 24, 1997 Lynne Tarnopol 100,000
4,250 March 24, 1997 Steven Thompson 2,500
4,250 March 24, 1997 David Vargas 2,500
255,000 March 24, 1997 David A. Yoho Revocable Trust 150,000
1,789,250 $1,052,500
========= ==========
The Company, after determining the availability of the exemption from
registration provided in Section 4(2) of the Securities Act, relied upon such
exemption in connection with the afore-referenced issuances of its Common Stock.
No underwriter participated in the issuances, nor did the Company pay any
commissions with respect to these transactions. The investors had access to
information concerning the Company, its financial condition, assets, management
and proposed activities. In connection with the Company's reliance upon the
exemption from registration provided in Section 4(2) of the Securities Act, the
Company determined that (i) the Company's securities were acquired by the
investors for their own account, for investment purposes only and not with a
view towards distribution thereof, (ii) the investors had the ability to bear
economically a total loss of their investment in the Company, (iii) the
investors had such knowledge and experience in financial and business matters
that they were capable of evaluating the merits and risks of an investment in
the Company. The Company has impressed the stock certificates representing the
referenced shares of Common Stock with a restrictive legend.
- -------------------------------
/2/ On July 16, 1998, Steven Gross transferred his shares of Common Stock to
Gross Family Trust.
II-4
<PAGE>
c. ASSET PURCHASE OF REUNION HOME SERVICES, INC. AND KITCHEN MASTERS,
INC.
Effective November 23, 1997, the Company acquired certain assets of
Reunion. The Company effected the purchase through the issuance of 371,480
shares of Common Stock valued at $125,405 to Ronald I. Wagner and 80,000 shares
of Series A Preferred Stock valued at $683,300 to KMI.
The Company, after determining the availability of the exemption from
registration provided in Section 4(2) of the Securities Act, relied upon such
exemption in connection with the afore-referenced issuances of its Common Stock.
No underwriter participated in the issuances, nor did the Company pay any
commissions with respect to these transactions. The investors had access to
information concerning the Company, its financial condition, assets, management
and proposed activities. In connection with the Company's reliance upon the
exemption from registration provided in Section 4(2) of the Securities Act, the
Company determined that (i) the Company's securities were acquired by the
investors for their own account, for investment purposes only and not with a
view towards distribution thereof, (ii) the investors had the ability to bear
economically a total loss of their investment in the Company, (iii) the
investors had such knowledge and experience in financial and business matters
that they were capable of evaluating the merits and risks of an investment in
the Company. The Company has impressed the stock certificates representing the
referenced shares of Common Stock with a restrictive legend.
d. COMMON STOCK ISSUANCE TO ROBERT DEFRONZO.
On May 31, 1998, the Company issued to Robert DeFronzo, Chief Financial
Officer, Treasurer and Secretary of the Company, 27,770 shares of Common Stock
for an aggregate consideration of $16,328.76. Of these shares, 23,520 were
original issue and 4,250 were treasury shares that had been acquired by the
Company from a previous stockholder.
The Company, after determining the availability of the exemption from
registration provided in Section 4(2) of the Securities Act, relied upon such
exemption in connection with the afore-referenced issuances of its Common Stock.
No underwriter participated in the issuances, nor did the Company pay any
commissions with respect to these transactions. Mr. DeFronzo had access to
information concerning the Company, its financial condition, assets, management
and proposed activities. In connection with the Company's reliance upon the
exemption from registration provided in Section 4(2) of the Securities Act, the
Company determined that (i) the Company's securities were acquired by Mr.
DeFronzo for his own account, for investment purposes only and not with a view
towards distribution thereof, (ii) Mr. DeFronzo had the ability to bear
economically a total loss of his investment in the Company, (iii) Mr. DeFronzo
had such knowledge and experience in financial and business matters that he was
capable of evaluating the merits and risks of an investment in the Company. The
Company has impressed the stock certificates representing the referenced shares
of Common Stock with a restrictive legend.
II-5
<PAGE>
ITEM 27. EXHIBITS.
Exhibit
Number Description of Exhibit
- ------- -----------------------------------------------------------------------
1.1 Form of Underwriting Agreement in connection with the Offering.
1.2 Form of Agreement Among Underwriters.
1.3 Form of Selected Dealer Agreement.
1.4 Form of Representative's Warrant Agreement.
1.5 Form of Lock-Up Agreements.
2.1 Asset Purchase Agreement dated February 12, 1997 by and among AMRE,
Inc., Facelifters Home Systems, Inc., American Remodeling, Inc. and the
Company (Schedules have been omitted, but will be furnished to the
Commission upon request).
2.2 First Amendment to Asset Purchase Agreement dated April 3, 1997 by and
among AMRE, Inc., Facelifters Home Systems, Inc., American Remodeling,
Inc. and the Company (Schedules have been omitted, but will be furnished
to the Commission upon request).
2.3 Assignment and Assumption Agreement for Real Property Lease Dated April
3, 1997 by and among AMRE, Inc., Facelifters, Inc., American Remodeling,
Inc. and the Company (Certain schedules have been omitted, but will be
furnished to the Commission upon request).
2.4 Asset Purchase Agreement dated November 30, 1997 by and among the
Company, Reunion Home Services, Inc. and Kitchen Masters, Inc.
(Schedules have been omitted, but will be furnished to the Commission
upon request).
2.5 Confidentiality and Noncompetition Agreement dated November 30, 1997 by
and between the Company and Reunion Home Services, Inc.
2.6 Confidentiality and Noncompetition Agreement dated November 30, 1997 by
and between the Company and Kitchen Masters, Inc.
2.7 Confidentiality and Noncompetition Agreement dated November 30, 1997 by
and between the Company and Ronald I. Wagner.
3.1 Restated Certificate of Incorporation of the Company.
3.2 Bylaws of the Company.
4.1 Specimen of Common Stock Certificate.
4.2 Form of Warrant Agreement covering the Warrants.
4.3 Form of Redeemable Common Stock Purchase Warrants issued in connection
with the sale of the Warrants.
4.4 Certificate of Designations, Preferences, Rights and Limitations of
Series A Preferred Stock of the Company, filed December 8, 1997.
4.5 Form of Amended and Restated Stockholders Agreement effective as of May
27, 1998.
4.6 1998 Stock Option Plan.
5.1* Opinion of Jackson Walker LLP regarding legality of the securities being
registered.
10.1 License Agreement by and between HFS Licensing, Inc. and Reunion Home
Services, Inc. (Schedules have been omitted, but will be furnished to
the Commission upon request).
10.2 Assignment and Assumption Agreement dated December 1, 1997 by and among
Reunion Home Services, Inc., the Company and HFS Licensing, Inc.
10.3 License Agreement dated March 3, 1997 by and between TM Acquisition
Corp. and the Company (Schedules have been omitted, but will be
furnished to the Commission upon request).
II-6
<PAGE>
Exhibit
Number Description of Exhibit
- ------- ------------------------------------------------------------------------
10.4 Form of Promissory Note dated March 24, 1997.
10.5 Secured Promissory Term note dated April 6, 1998 in the principal amount
of $700,000. Maker is the Company and Payee is FINOVA Capital
Corporation.
10.6 Security Agreement dated April 6, 1998 by and between the Company and
FINOVA Capital Corporation (Schedules have been omitted, but will be
furnished to the Commission upon request).
10.7 Loan and Security Agreement dated June 5, 1998 by and between the
Company and FINOVA Capital Corporation (Schedules have been omitted, but
will be furnished to the Commission upon request).
10.8 Amended and Restated Continuing Limited Personal Guaranty dated June 5,
1998 made by Murray H. Gross for the benefit of FINOVA Capital
Corporation.
10.9 Form of First Amended and Restated Contribution and Indemnification
Agreement by and among Murray H. Gross and the Stockholders of the
Company named therein.
10.10 Revolving Credit Program Agreement dated January 23, 1998 by and between
Green Tree Financial Corporation and the Company.
10.11 Assumption Agreement by and between Industrial Development Authority of
Charles City County and the Company.
10.12* Employment Agreement by and between the Company and Murray H. Gross.
10.13* Employment Agreement by and between the Company and Peter Bulger.
10.14* Employment Agreement by and between the Company and Steven Gross.
10.15* Employment Agreement by and between the Company and Malcom Harris.
10.16* Employment Agreement by and between the Company and Robert DeFronzo.
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP
23.2* Consent of Jackson Walker LLP (Included in its opinion filed as Exhibit
5.1).
24.1 Power of attorney.
27.1 Financial Data Schedule.
- ------------------------------
*To be filed by amendment.
ITEM 28. UNDERTAKINGS.
(a) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required in Section 10(a)(3) of
the Act;
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change
in the information in the registration statement;
(iii) To include any additional or changed material information
with respect to the plan of distribution;
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities
II-7
<PAGE>
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(d) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as
part of a registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1), or (4) or 497(h) under the Securities
Act shall be deemed to be part of the Registration Statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on the 30th day of September,
1998.
U. S. REMODELERS, INC.
(Company)
By: /s/ Murray H. Gross
-----------------------------------------------
Murray H. Gross, President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Murray H. Gross
and Charles D. Maguire, Jr., and either of them, either of whom may act without
joinder of the other, as his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute in the name of each such person
who is then an officer or director of the Registrant, and to file any amendments
(including post-effective amendments) to this Registration Statement and any
registration statement for the same offering filed pursuant to Rule 462 under
the Securities Act of 1933, and to file the same, with all exhibits thereto and
all other documents in connection therewith, with the Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing appropriate or necessary to be done, as fully and
for all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Murray H. Gross President, Chief Executive Officer September 30, 1998
- -------------------------- and Director
Murray H. Gross (Principal Executive Officer)
/s/ David A. Moore Chairman of the Board and Director September 30, 1998
- --------------------------
David A. Moore
/s/ Robert A. DeFronzo Financial Officer, Secretary and September 30, 1998
- -------------------------- Treasurer (Principal Financial and
Robert A. DeFronzo Accounting Officer)
/s/ David A. Yoho Director September 30, 1998
- --------------------------
David A. Yoho
/s/ Gregory Kiernan Director September 30, 1998
- --------------------------
Gregory Kiernan
/s/ Marc W. Beresin Director September 30, 1998
- --------------------------
Marc W. Beresin
/s/ Ronald I. Wagner Director September 30, 1998
- --------------------------
Ronald I. Wagner
/s/Charles D. Maguire, Jr. Director September 30, 1998
- --------------------------
Charles D. Maguire, Jr.
II-9
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
- ------- -----------------------------------------------------------------------
1.1 Form of Underwriting Agreement in connection with the Offering.
1.2 Form of Agreement Among Underwriters.
1.3 Form of Selected Dealer Agreement.
1.4 Form of Representative's Warrant Agreement.
1.5 Form of Lock-Up Agreements.
2.1 Asset Purchase Agreement dated February 12, 1997 by and among AMRE,
Inc., Facelifters Home Systems, Inc., American Remodeling, Inc. and the
Company (Schedules have been omitted, but will be furnished to the
Commission upon request).
2.2 First Amendment to Asset Purchase Agreement dated April 3, 1997 by and
among AMRE, Inc., Facelifters Home Systems, Inc., American Remodeling,
Inc. and the Company (Schedules have been omitted, but will be furnished
to the Commission upon request).
2.3 Assignment and Assumption Agreement for Real Property Lease Dated April
3, 1997 by and among AMRE, Inc., Facelifters, Inc., American Remodeling,
Inc. and the Company (Certain schedules have been omitted, but will be
furnished to the Commission upon request).
2.4 Asset Purchase Agreement dated November 30, 1997 by and among the
Company, Reunion Home Services, Inc. and Kitchen Masters, Inc.
(Schedules have been omitted, but will be furnished to the Commission
upon request).
2.5 Confidentiality and Noncompetition Agreement dated November 30, 1997 by
and between the Company and Reunion Home Services, Inc.
2.6 Confidentiality and Noncompetition Agreement dated November 30, 1997 by
and between the Company and Kitchen Masters, Inc.
2.7 Confidentiality and Noncompetition Agreement dated November 30, 1997 by
and between the Company and Ronald I. Wagner.
3.1 Restated Certificate of Incorporation of the Company.
3.2 Bylaws of the Company.
4.1 Specimen of Common Stock Certificate.
4.2 Form of Warrant Agreement covering the Warrants.
4.3 Form of Redeemable Common Stock Purchase Warrants issued in connection
with the sale of the Warrants.
4.4 Certificate of Designations, Preferences, Rights and Limitations of
Series A Preferred Stock of the Company, filed December 8, 1997.
4.5 Form of Amended and Restated Stockholders Agreement effective as of May
27, 1998.
4.6 1998 Stock Option Plan.
5.1* Opinion of Jackson Walker LLP regarding legality of the securities being
registered.
10.1 License Agreement by and between HFS Licensing, Inc. and Reunion Home
Services, Inc. (Schedules have been omitted, but will be furnished to
the Commission upon request).
II-10
<PAGE>
Exhibit
Number Description of Exhibit
- ------- ------------------------------------------------------------------------
10.2 Assignment and Assumption Agreement dated December 1, 1997 by and among
Reunion Home Services, Inc., the Company and HFS Licensing, Inc.
10.3 License Agreement dated March 3, 1997 by and between TM Acquisition
Corp. and the Company (Schedules have been omitted, but will be
furnished to the Commission upon request).
10.4 Form of Promissory Note dated March 24, 1997.
10.5 Secured Promissory Term note dated April 6, 1998 in the principal amount
of $700,000. Maker is the Company and Payee is FINOVA Capital
Corporation.
10.6 Security Agreement dated April 6, 1998 by and between the Company and
FINOVA Capital Corporation (Schedules have been omitted, but will be
furnished to the Commission upon request).
10.7 Loan and Security Agreement dated June 5, 1998 by and between the
Company and FINOVA Capital Corporation (Schedules have been omitted, but
will be furnished to the Commission upon request).
10.8 Amended and Restated Continuing Limited Personal Guaranty dated June 5,
1998 made by Murray H. Gross for the benefit of FINOVA Capital
Corporation.
10.9 Form of First Amended and Restated Contribution and Indemnification
Agreement by and among Murray H. Gross and the Stockholders of the
Company named therein.
10.10 Revolving Credit Program Agreement dated January 23, 1998 by and between
Green Tree Financial Corporation and the Company.
10.11 Assumption Agreement by and between Industrial Development Authority of
Charles City County and the Company.
10.12* Employment Agreement by and between the Company and Murray H. Gross.
10.13* Employment Agreement by and between the Company and Peter Bulger.
10.14* Employment Agreement by and between the Company and Steven Gross.
10.15* Employment Agreement by and between the Company and Malcom Harris.
10.16* Employment Agreement by and between the Company and Robert DeFronzo.
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP
23.2* Consent of Jackson Walker LLP (Included in its opinion filed as Exhibit
5.1).
24.1 Power of attorney.
27.1 Financial Data Schedule.
- ------------------------------
*To be filed by amendment.
II-11
<PAGE>
EXHIBIT 1.1
U.S. REMODELERS, INC.
1,400,000 UNITS
EACH UNIT COMPRISED OF
ONE SHARE OF COMMON STOCK
AND
ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT
(AND ONE SHARE OF COMMON STOCK ISSUABLE UNDER THE WARRANT)
UNDERWRITING AGREEMENT
----------------------
Dallas, Texas
_________________, 1998
First London Securities Corporation
As Representative of the Several
Underwriters named in Schedule A
2600 State Street
Dallas, Texas 75204
Gentlemen:
U.S. Remodelers, Inc. (the "Company"), on the basis of the representations,
warranties, covenants and conditions contained herein, hereby proposes to issue
and sell to such Underwriters as named in Schedule A (the "Underwriters") to
this Underwriting Agreement (the "Agreement"), for whom First London Securities
Corporation ("First London") is acting as the Representative (the
"Representative"), pursuant to the terms of this Agreement, on a "firm
commitment" basis, 1,400,000 Units (the "Securities"), at $5.125 per Unit, each
Unit comprised of one share of common stock, par value $.01 per share (the
"Share"), at $5.00 per Share, and one redeemable common stock purchase warrant
(the "Warrant"), at $.125 per Warrant (each such price the "Initial Public
Offering Price"). Each Warrant is exercisable to purchase one share of common
stock (the "Common Stock") at a price equal to $6.25, subject to certain
adjustments, per Share at any time and continuing thereafter during the five
year period commencing on the date hereof, unless such period is extended by the
Company. The date upon which the Securities and Exchange Commission
("Commission") shall declare the registration statement of the Company effective
shall be the "Effective Date." The Warrants are subject to redemption under
certain circumstances. In addition, the Company proposes to grant to the
Underwriters (or, at the option of the Representative, to the Representative,
individually) the option referred to in Section 2(b) to purchase all or any part
of an aggregate of 210,000 Units (collectively, the "Option Securities").
<PAGE>
You have advised the Company that you and the other Underwriters desire to
purchase, severally, the Securities, and that you have been authorized by the
Underwriters to execute this Agreement on their behalf. The Company confirms
the agreements made by it with respect to the purchase of the Securities by the
several Underwriters on whose behalf you are signing this Agreement, as follows:
1. Representations and Warranties of the Company.
---------------------------------------------
The Company represents and warrants to, and agrees with each of the
Underwriters as of the Effective Date (as defined above), the date of this
Agreement, the Closing Date (as hereinafter defined) and the Option Closing Date
(as hereinafter defined) that:
(a) A registration statement (File No. __________________) on Form SB-2
relating to the public offering of the Securities, including a preliminary form
of the prospectus, copies of which have heretofore been delivered to you, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Commission thereunder, and has been filed
with the Commission under the Act. The Company has prepared in the same manner
and proposes to file, prior to the Effective Date of such registration
statement, an additional amendment or amendments to such registration statement,
including a final form of Prospectus, copies of which shall be delivered to you.
"Preliminary Prospectus" shall mean each prospectus filed pursuant to the Rules
and Regulations under the Act prior to the Effective Date. The registration
statement (including all financial schedules and exhibits) as amended at the
time it becomes effective and the final prospectus included therein are
respectively referred to as the "Registration Statement" and the "Prospectus,"
except that (i) if the prospectus first filed by the Company pursuant to Rule
424(b) of the Rules and Regulations shall differ from said prospectus as then
amended, the term "Prospectus" shall mean the prospectus first filed pursuant to
Rule 424(b), and (ii) if such registration statement or prospectus is amended or
such prospectus is supplemented, after the effective date of such registration
statement and prior to the Option Closing Date (as hereinafter defined), the
terms "Registration Statement" and "Prospectus" shall include such registration
statement and prospectus as so amended, and the term "Prospectus" shall include
the prospectus as so supplemented, or both, as the case may be.
(b) At the Effective Date and at all times subsequent thereto up to the
Option Closing Date, if any, and during such longer period as the Prospectus may
be required to be delivered in connection with sales by the Underwriters or any
selected dealers: (i) the Registration Statement and Prospectus will in all
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make statements therein, in light of the
circumstances under which they are made, not misleading; provided, however, that
the Company makes no representations, warranties or agreements as to information
contained in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by the Underwriters specifically for use in the preparation thereof. It
is understood that the statements set forth in the Prospectus with respect to
stabilization, under the heading "Underwriting" and regarding the identity of
counsel to
UNDERWRITING AGREEMENT-PAGE 2
<PAGE>
the Underwriters under the heading "Legal Matters" constitute the only
information furnished in writing by the Underwriters for inclusion in the
Prospectus.
(c) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus and is duly
qualified to do business as a foreign corporation and is in good standing in all
other jurisdictions in which the nature of its business or the character or
location of its properties requires such qualification, except where failure to
so qualify will not materially affect the Company's business, properties or
financial condition.
(d) The authorized, issued and outstanding securities of the Company as of
the date of the Prospectus is as set forth in the Prospectus under
"Capitalization;" all of the issued and outstanding securities of the Company
has been, or will be when issued as set forth in the Prospectus, duly
authorized, validly issued and fully paid and non-assessable; the issuances and
sales of all such securities complied in all material respects with applicable
federal and state securities laws; the holders thereof have no rights of
rescission against the Company with respect thereto, and are not subject to
personal liability by reason of being such holders; none of such securities were
issued in violation of the preemptive rights of any holders of any security of
the Company or similar contractual rights granted by the Company; except as set
forth in the Prospectus, no options, warrants or other rights to purchase,
agreements or other obligations to issue, or agreements or other rights to
convert any obligation into, any securities of the Company have been granted or
entered into by the Company; and all of the securities of the Company, issued
and to be issued as set forth in the Registration Statement, conform to all
statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The Shares are duly authorized, and when issued, delivered and paid
for pursuant to this Agreement, will be duly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights of any security holder of
the Company. Neither the filing of the Registration Statement nor the offering
or sale of the Securities as contemplated in this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or relating to
the registration of any securities of the Company, except as described in the
Registration Statement and Prospectus.
The Warrants have been duly authorized and, when issued, delivered and paid
for pursuant to this Agreement, will have been duly authorized, issued and
delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms and entitled to the benefits
provided by the warrant agreements pursuant to which such Warrants are to be
issued (the "Warrant Agreements"), which will be substantially in the form filed
as exhibits to the Registration Statement. The shares of Common Stock issuable
upon exercise of the Warrants have been reserved for issuance and when issued in
accordance with the terms of the Warrants and Warrant Agreements, will be duly
and validly authorized, validly issued, fully paid and non-assessable, free of
preemptive rights and no personal liability will attach to the ownership
thereof. Except as provided for in the Warrant Agreement, the Warrant exercise
periods and the Warrant exercise prices may not be changed or revised by the
Company without the prior written consent of First London. The
UNDERWRITING AGREEMENT-PAGE 3
<PAGE>
Warrant Agreements have been duly authorized and, when executed and delivered
pursuant to this Agreement will constitute valid and legally binding obligations
of the Company enforceable in accordance with their terms.
Each of the Representative Warrants and the Underlying Warrants (each of
which is defined in the Representative's Warrant Agreements described in Section
12 herein and all of which shall be collectively referred to as the
"Representative's Warrants"), has been duly authorized and, when issued,
delivered and paid for pursuant to the Representative's Warrant Agreements, will
have been duly authorized, issued and delivered and will constitute valid and
legally binding instruments of the Company enforceable in accordance with their
terms and entitled to the benefits provided by the Representative's Warrant
Agreements. The shares of Common Stock issuable upon exercise of each of the
Representative Warrants and the Underlying Warrants have been reserved for
issuance and when issued in accordance with the terms of the Representative
Warrants and the Underlying Warrants, will be duly and validly authorized,
validly issued, fully paid and non-assessable, free of preemptive rights and no
personal liability will attach to the ownership thereof. The exercise period
and the exercise price for each of the Representative Warrants and the
Underlying Warrants may not be changed or revised by the Company without the
prior written consent of First London.
(f) This Agreement, the Warrant Agreements and the Representative's
Warrant Agreements have been duly and validly authorized, executed and delivered
by the Company, and assuming due execution of this Agreement by the other party
hereto, constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as enforceability may
be limited by bankruptcy, insolvency or other laws affecting the rights of
creditors generally. The Company has full power and lawful authority to
authorize, issue and sell the Securities to be sold by it hereunder on the terms
and conditions set forth herein, and no consent, approval, authorization or
other order of any third party or any governmental authority is required in
connection with such authorization, execution and delivery or with the
authorization, issuance and sale of the Securities or the securities to be
issued pursuant to the Representative's Warrant Agreements, except such as may
be required under the Act or state securities laws, or as otherwise have been
obtained.
(g) Except as described in the Prospectus, the Company is not in material
violation, breach of or default under, and consummation of the transactions
herein contemplated and the fulfillment of the terms of this Agreement will not
conflict with, or result in a breach of, or constitute a material default under,
or result in the creation or imposition of any lien, charge or encumbrance upon
any of the property or assets of the Company or any of the terms or provisions
of any indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which any of the property or assets of the Company is subject, nor will
such action result in any material violation of the provisions of the
certificate of incorporation or bylaws as amended of the Company, or any statute
or any order, rule or regulation applicable to the Company of any court or of
any regulatory authority or other governmental body having jurisdiction over the
Company.
UNDERWRITING AGREEMENT-PAGE 4
<PAGE>
(h) Subject to the qualifications stated in the Prospectus, the Company
has good and marketable title to all properties and assets described in the
Prospectus as owned by each of them, free and clear of all liens, charges,
encumbrances or restrictions, except such as are not materially significant or
important in relation to its business; all of the material leases and subleases
under which the Company is the lessor or sublessor of properties or assets or
under which the Company holds properties or assets as lessee or sublessee as
described in the Prospectus are in full force and effect, and, except as
described in the Prospectus, the Company is not in default in any material
respect with respect to any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone, adverse to rights of the
Company as lessor, sublessor, lessee, or sublessee under any of the leases or
subleases mentioned above, or affecting or questioning the right of the Company
to continued possession of the leased or subleased premises or assets under any
such lease or sublease except as described or referred to in the Prospectus; and
the Company owns or leases all such properties described in the Prospectus as
are necessary to its operations as now conducted and, except as otherwise stated
in the Prospectus, as proposed to be conducted as set forth in the Prospectus.
(i) Ernst & Young LLP, which has examined the financial statements,
together with the related schedules and notes, for the Company and any
subsidiary of it for the periods therein stated, which have been filed with the
Commission as a part of the Registration Statement, which are included in the
Prospectus, are with respect to the Company independent accountants within the
meaning of the Act and the Rules and Regulations.
(j) The financial statements, together with the related notes and
schedules forming a part of the Registration Statement and the Prospectus,
fairly present the financial position and the results of operations of the
Company at the respective dates and for the respective periods to which they
apply; and all audited financial statements, together with the related notes and
schedules, and the unaudited financial information of the Company have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved except as may be otherwise
stated therein. The selected and summary financial and statistical data included
in the Registration Statement present fairly the information shown therein and
have been compiled on a basis consistent with the audited financial statements
presented therein. No other financial statements or schedules are required to be
included in the Registration Statement. The Company's internal accounting
controls and procedures are sufficient to cause the Company to prepare financial
statements which comply in all material respects with generally accepted
accounting principles applied on a basis which is consistent during the periods
involved. Except as disclosed to the Representative in writing, during the
preceding five year period, nothing has been brought to the attention of the
Company's management that would result in any reportable condition relating to
the Company's internal accounting procedures, weaknesses or controls.
(k) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and the Prospectus and to and including the
Option Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) the Company has not incurred and will not have
incurred any material liabilities or obligations, direct or contingent, and has
not entered into and will not have entered into any material transactions other
than in the ordinary
UNDERWRITING AGREEMENT-PAGE 5
<PAGE>
course of business and/or as contemplated in the Registration Statement and the
Prospectus; (ii) the Company has not and will not have paid or declared any
dividends or have made any other distribution on its capital stock; (iii) there
has not been any change in the capital stock of, or any incurrence of long-term
debt by, the Company; (iv) the Company has not issued any options, warrants or
other rights to purchase the capital stock of the Company; and (v) there has not
been and will not have been any material adverse change in the business,
financial condition or results of operations of the Company, or in the book
value of the assets of the Company, arising for any reason whatsoever.
(l) Except as set forth in the Prospectus, there is not pending or, to the
knowledge of the Company, threatened, any material action, suit, proceeding,
inquiry, arbitration or investigation against the Company, or any of the
officers or directors of the Company, or any material action, suit, proceeding,
inquiry, arbitration, or investigation, which might result in any material
adverse change in the condition (financial or other), business prospects, net
worth, or properties of the Company.
(m) Except as disclosed in the Prospectus, the Company has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid all taxes shown as due thereon; and there is no tax deficiency which has
been or to the knowledge of the Company might be asserted against the Company
that has not been provided for in the financial statements.
(n) Except as set forth in the Prospectus, the Company has material
licenses, permits and other governmental authorizations currently required for
the conduct of its business or the ownership of its property as described in the
Prospectus and is in all material respects in compliance therewith and owns or
possesses adequate right to use all material patents, patent applications,
trademarks, service marks, trade-names, trademark registrations, service mark
registrations, copyrights, and licenses necessary for the conduct of such
business and has not received any notice of conflict, with the asserted rights
of others in respect thereof. To the best of the Company's knowledge, none of
the activities or business of the Company are in violation of, or cause the
Company to violate, any law, rule, regulation or order of the United States, any
state, county or locality, or of any agency or body of the United States or of
any state, county or locality, the violation of which would have a material
adverse impact upon the condition (financial or otherwise), business, property,
prospective results of operations, or net worth of the Company.
(o) The Company has not, directly or indirectly, at any time (i) made any
contributions to any candidate for political office, or failed to disclose fully
any such contribution, in violation of law or (ii) made any payment to any
state, federal or foreign governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments or
contributions required or allowed by applicable law.
(p) On the Closing Dates (herein defined) all transfer or other taxes
(including franchise, capital stock or other tax, other than income taxes,
imposed by any jurisdiction), if any, that are required to be paid in connection
with the sale and transfer of the Securities to the several Underwriters will
have been fully paid or provided for by the Company and all laws imposing such
taxes will have been fully complied with.
UNDERWRITING AGREEMENT-PAGE 6
<PAGE>
(q) All contracts and other documents which are required to be described
in or filed as exhibits to the Registration Statement have been so described
and/or filed.
(r) Except as described in the Registration Statement and Prospectus, no
holders of Common Stock or of any other securities of the Company have the right
to include such Common Stock or other securities in the Registration Statement
and Prospectus.
(s) Except as set forth in or contemplated by the Registration Statement
and the Prospectus, the Company has no material contingent liabilities.
(t) The Company has no equity interest in any corporation, limited
liability company, partnership, joint venture, trust or other entity and has not
entered into any binding agreements to obtain any such equity interest.
(u) The Commission has not issued an order preventing or suspending the
use of any Preliminary Prospectus with respect to the offer and sale of the
Securities and each Preliminary Prospectus, as of its date, has conformed fully
in all material respects with the requirements of the Act and the Rules and
Regulations and did not include any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein not
misleading.
(v) The Company, nor, to the Company's knowledge, any of its officers,
directors, employees or stockholders, has taken or will take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any of the securities of the Company.
(w) Item 26 of Part II of the Registration Statement accurately discloses
all unregistered securities sold by the Company within the three year period
prior to the date as of which information is presented in the Registration
Statement. All of such securities were sold in transactions which were exempt
from the registration provisions of the Act and not in violation of Section 5
thereof.
(x) Other than as set forth in the Prospectus, the Company has not entered
into any agreement pursuant to which any person is entitled, either directly or
indirectly, to compensation from the Company for services as a finder in
connection with the proposed offering, and the Company agrees to indemnify and
hold harmless the Underwriters against any losses, claims, damages or
liabilities, joint or several, which shall include, but not be limited to, all
costs to defend against any such claim, so long as such claim arises out of
agreements made or allegedly made by the Company.
(y) Based upon written representations received by the Company, no
officer, director or 5% or greater stockholder of the Company has any direct or
indirect affiliation or association with any member of the National Association
of Securities Dealers, Inc. ("NASD"), except as disclosed to the Representative
in writing, and, to the knowledge of the Company, no beneficial owner of the
Company's unregistered securities has any direct or indirect affiliation or
association with any NASD member except as disclosed to the Representative in
writing. The Company will advise the
UNDERWRITING AGREEMENT-PAGE 7
<PAGE>
Representative and the NASD if any 5% or greater stockholder of the Company is
or becomes an affiliate or associated person of an NASD member participating in
the distribution.
(z) The Company is in compliance in all material respects with all
federal, state and local laws and regulations respecting the employment of its
employees and employment practices, terms and conditions of employment and wages
and hours relating thereto. There are no pending investigations involving the
Company by the U.S. Department of Labor, or any other governmental agency
responsible for the enforcement of such federal, state or local laws and
regulations. There is no unfair labor practice charge or complaint against the
Company pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or to the knowledge of
the Company, threatened against or involving the Company, any predecessor
entity. No question concerning representation exists respecting the employees of
the Company and no collective bargaining agreement or modification thereof is
currently being negotiated by the Company. No grievance or arbitration
proceeding is pending under any expired or existing collective bargaining
agreements of the Company.
(aa) The Company does not maintain, sponsor or contribute to, nor is it
required to contribute to, any program or arrangement that is an "employee
pension benefit plan" an "employee benefit plan," or a "multi-employer plan" as
such terms are defined in Sections 3(2), 3(3) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA
Plans"). The Company has not maintained or contributed to a "defined benefit
plan," as defined in Section 3(35) of ERISA.
(bb) Based upon written representations received from the officers and
directors of the Company, except as disclosed in the Prospectus, during the past
five years, none of the officers or directors of the Company have been:
(i) The subject of a petition under the federal bankruptcy laws or
any state insolvency law filed by or against them, or by a receiver, fiscal
agent or similar officer appointed by a court for their business or
property, or any partnership in which any of them was a general partner at
or within two years before the time of such filing, or any corporation or
business association of which any of them was an executive officer at or
within two years before the time of such filing;
(ii) Convicted in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations and other minor
offenses);
(iii) The subject of any order, judgment, or decree not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining any of them from, or otherwise
limiting, any of the following activities:
(A) acting as a futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person regulated by the
Commodity Futures Trading
UNDERWRITING AGREEMENT-PAGE 8
<PAGE>
Commission, or an associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in securities, or as
an affiliated person, director or employee of any investment company,
bank, savings and loan association or insurance company, or engaging
in or continuing any conduct or practice in connection with any such
activity;
(B) engaging in any type of business practice; or
(C) engaging in any activity in connection with the purchase or
sale of any security or commodity or in connection with any violation
of federal or state securities law or federal commodity laws.
(iv) The subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated of any federal or state authority barring,
suspending or otherwise limiting for more than 60 days either of their
right to engage in any activity described in paragraph (3)(i) above, or be
associated with persons engaged in any such activity;
(v) Found by any court of competent jurisdiction in a civil action or
by the Commission to have violated any federal or state securities law, and
the judgment in such civil action or finding by the Commission has not been
subsequently reversed, suspended or vacated; or
(vi) Found by a court of competent jurisdiction in a civil action or
by the Commodity Futures Trading Commission to have violated any federal
commodities law, and the judgment in such civil action or finding by the
Commodity Futures Trading Commission has not been subsequently reversed,
suspended or vacated.
(cc) Based upon written representations received from the officers and
directors of the Company, each of the officers and directors of the Company has
reviewed the sections in the Prospectus relating to their biographical data and
equity ownership position in the Company, and all information contained therein
is true and accurate.
2. Purchase, Delivery and Sale of the Securities.
---------------------------------------------
(a) Subject to the terms and conditions of this Agreement and upon the
basis of the representations, warranties and agreements herein contained, the
Company hereby agrees to issue and sell to the Underwriters an aggregate of
1,400,000 Units at $4.61, (the Initial Public Offering Price less 10%), at the
place and time hereinafter specified, in accordance with the number of Units set
forth opposite the names of the Underwriters in Schedule A attached hereto plus
any additional Securities which such Underwriters may become obligated to
purchase pursuant to the provisions of Section 9 hereof. The Securities shall
consist of 1,400,000 Units to be purchased from the Company, and the price at
which the Underwriters shall sell the Securities to the public shall be $5.125
per Unit, or $5.00 per Share and $.125 per Warrant.
UNDERWRITING AGREEMENT-PAGE 9
<PAGE>
Delivery of the Securities against payment therefor shall take place at the
offices of First London, 2600 State Street, Dallas, Texas 75204 (or at such
other place as may be designated by the Representative) at 10:00 a.m., Eastern
Time, on such date after the Effective Date as the Representative shall
designate, but not later than ten business days (holidays excepted) following
the first date that any of the Securities are released to you, such time and
date of payment and delivery for the Securities being herein called the "Closing
Date."
(b) In addition, subject to the terms and conditions of this Agreement,
and upon the basis of the representations, warranties and agreements herein
contained, the Company hereby grants the "Option" to the Underwriters (or, at
the option of the Representative, to the Representative, individually) to
purchase all or any part of an aggregate of an additional 210,000 Units, at the
same price per Unit as the Underwriters shall pay for the Securities being sold
pursuant to the provisions of subsection (a) of this Section 2 (such additional
Securities being referred to herein as the "Option Securities"). This Option may
be exercised within 45 days after the Closing Date upon notice by the
Underwriters (or the Representative, individually) to the Company advising as to
the amount of Option Securities as to which the Option is being exercised, the
names and denominations in which the certificates for such Option Securities are
to be registered and the time and date when such certificates are to be
delivered. Such time and date shall be determined by the Underwriters (or the
Representative, individually) but shall not be later than ten full business days
after the exercise of the Option, nor in any event prior to the Closing Date,
and such time and date is referred to herein as the "Option Closing Date."
Delivery of the Option Securities against payment therefor shall take place at
the offices of First London. The Option granted hereunder may be exercised only
to cover over-allotments in the sale by the Underwriters of the Securities
referred to in subsection (a) above. In the event the Company declares or pays a
dividend or distribution on its Common Stock, whether in the form of cash,
shares of Common Stock or any other consideration, prior to the Option Closing
Date, such dividend or distribution shall also be paid on the Option Securities
on the Option Closing Date.
(c) The Company will make the certificates for the Securities to be sold
hereunder available to you for inspection at least two full business days prior
to the Closing Date and the Option Closing Date, respectively, at the offices of
First London, and such certificates shall be registered in such names and
denominations as you may request. Time shall be of the essence and delivery at
the time and place specified in this Agreement is a further condition to the
obligations of the Company to each Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriters hereunder will be delivered by the Company to you
for the accounts of the several Underwriters against payment of the respective
purchase prices by the several Underwriters, by certified or bank cashier's
checks in New York Clearing House funds, payable to the order of the Company or
by wire transfer in New York Clearing House funds.
In addition, in the event the Underwriters (or the Representative,
individually) exercise the Option to purchase from the Company all or any
portion of the Option Securities pursuant to the provisions of subsection (b)
above, payment for such Securities shall be made payable in New York Clearing
House funds at the offices of First London, or by wire transfer, at the time and
date of
UNDERWRITING AGREEMENT-PAGE 10
<PAGE>
delivery of such Securities as required by the provisions of subsection (b)
above, against receipt of the certificates for such Securities by the
Representative for the respective accounts of the several Underwriters
registered in such names and in such denominations as the Representative may
request.
It is understood that the Representative, individually and not as
Representative of the several Underwriters, may (but shall not be obligated to)
make any and all payments required pursuant to this Section 2 on behalf of any
Underwriters whose check or checks shall not have been received by the
Representative at the time of delivery of the Securities to be purchased by such
Underwriter or Underwriters. Any such payment by the Representative shall not
relieve any such Underwriter or Underwriters of any of its or their obligations
hereunder. It is also understood that the Representative individually, rather
than all of the Underwriters, may (but shall not be obligated to) purchase the
Option Securities referred to in subsection (b) of this Section 2, but only to
cover over-allotments.
It is understood that the several Underwriters propose to offer the
Securities to be purchased hereunder to the public upon the terms and conditions
set forth in the Registration Statement, after the Registration Statement is
declared effective by the Commission.
3. Covenants of the Company. The Company covenants and agrees with the
------------------------
several Underwriters that:
(a) The Company, upon notification from the Commission that the
Registration Statement has become effective, will so advise you and will not at
any time, whether before or after the Effective Date, file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall not
previously been advised and furnished with a copy or to which you or your
counsel shall have objected in writing, acting reasonably, or which is not in
compliance with the Act and the Rules and Regulations. At any time prior to the
later of (i) the completion by the Underwriters of the distribution of the
Securities as contemplated hereby; or (ii) 25 days after the date on which the
Registration Statement shall have become or been declared effective, the Company
will prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary or advisable in connection with the distribution of the Securities
and as mutually agreed to by the Company and the Representative.
After the Effective Date and as soon as the Company is advised thereof, the
Company will advise you, and confirm the advice in writing, of the receipt of
any comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any supplement to the
Prospectus or any amended Prospectus, of any request made by the Commission for
amendment of the Registration Statement or for supplementing of the Prospectus
or for additional information with respect thereto, of the issuance by the
Commission or any state or regulatory body of any stop order or other order
suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or of the institution of any proceedings for any of such purposes,
and will use its best efforts to prevent the issuance of any such order, and, if
issued, to obtain as soon as possible the lifting thereof.
UNDERWRITING AGREEMENT-PAGE 11
<PAGE>
The Company has caused to be delivered to you copies of each Preliminary
Prospectus and Prospectus, and the Company has consented and hereby consents to
the use of such copies for the purposes permitted by the Act. The Company
authorizes the Underwriters and the selected dealers to use the Prospectus in
connection with the sale of the Securities for such period as in the opinion of
counsel to the Underwriters the use thereof is required to comply with the
applicable provisions of the Act and the Rules and Regulations. In case of the
happening, at any time within such period as a Prospectus is required under the
Act to be delivered in connection with sales by the Underwriters or the selected
dealers, of any event of which the Company has knowledge and which materially
affects the Company or the Securities, or which in the opinion of counsel for
the Company or counsel for the Underwriters, should be set forth in an amendment
to the Registration Statement or a supplement to the Prospectus, in order to
make the statements therein not then misleading, in light of the circumstances
existing at the time the Prospectus is required to be delivered to a purchaser
of the Securities, or in case it shall be necessary to amend or supplement the
Prospectus to comply with law or with the Act and the Rules and Regulations, the
Company will notify you promptly and forthwith prepare and furnish to you copies
of such amended Prospectus or of such supplement to be attached to the
Prospectus, in such quantities as you may reasonably request, in order that the
Prospectus, as so amended or supplemented, will not contain any untrue statement
of a material fact or omit to state any material facts necessary in order to
make the statements in the Prospectus, in the light of the circumstances under
which they are made, not misleading. The preparation and furnishing of any such
amendment or supplement to the Registration Statement or amended Prospectus or
supplement to be attached to the Prospectus shall be without expense to the
Underwriters.
The Company will comply with the Act, the Rules and Regulations thereunder,
the Securities Exchange Act of 1934 (the "1934 Act"), and the rules and
regulations thereunder in connection with the offering and issuance of the
Securities.
(b) The Company will qualify to register the Securities for sale under the
securities or "blue sky" laws of such jurisdictions as the Representative may
designate and will make such applications and furnish such information as may be
required for that purpose and to comply with such laws, provided the Company
shall not be required to qualify as a foreign corporation or a dealer in
securities or to execute a general consent to service of process in any
jurisdiction in any action other than one arising out of the offering or sale of
the Securities. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long a period as the Underwriters may reasonably request.
(c) If the sale of the Securities provided for herein is not consummated,
the Company shall pay all costs and expenses incident to the performance of the
Company's obligations hereunder, including, but not limited to, all such
expenses itemized in Section 8 hereof, and the actual, accountable out-of-pocket
expenses of the Representative if the offering for any reason is terminated. For
the purposes of this sub-paragraph, the Representative shall be deemed to have
assumed such expenses when they are billed or incurred, regardless of whether
such expenses have been paid. The Representative shall not be responsible for
any expenses of the Company or others, or for any charges or claims relative to
the proposed public offering whether or not consummated.
UNDERWRITING AGREEMENT-PAGE 12
<PAGE>
(d) The Company will deliver to you at or before the Closing Date two
signed copies of the Registration Statement, including all financial statements
and exhibits filed therewith, and of each amendment or supplement thereto. The
Company will deliver to or upon the order of the several Underwriters, from time
to time until the Effective Date of the Registration Statement, as many copies
of any Preliminary Prospectus filed with the Commission prior to the Effective
Date of the Registration Statement as the Underwriters may reasonably request.
The Company will deliver to the Underwriters on the Effective Date of the
Registration Statement and thereafter for so long as a Prospectus is required to
be delivered under the Act, from time to time, as many copies of the Prospectus,
in final form, or as thereafter amended or supplemented as the several
Underwriters may from time to time reasonably request.
(e) For so long as the Company is a reporting company under either Section
12 or 15 of the 1934 Act, the Company, at its expense, will furnish to the
Representative during the period ending five years from the Effective Date, (i)
as soon as practicable after the end of each fiscal year, a balance sheet of the
Company and any of its subsidiaries as at the end of such fiscal year, together
with statements of income, surplus and cash flow of the Company and any
subsidiaries for such fiscal year, all in reasonable detail and accompanied by a
copy of the certificate or report thereon of independent accountants; (ii) as
soon as they are available, a copy of all reports (financial or other) mailed to
security holders; (iii) as soon as they are available, a copy of all non-
confidential documents, including annual reports, periodic reports and financial
statements, furnished to or filed with the Commission under the Act and the 1934
Act; (iv) copies of each press release, news item and article with respect to
the Company's affairs released by the Company; and (v) such other information as
you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its Stockholders
generally.
(g) The Company will make generally available to its stockholders and to
the registered holders of its Warrants and deliver to you as soon as it is
practicable, but in no event later than the first day of the sixteenth full
calendar month following the Effective Date, an earnings statement (which need
not be audited) covering a period of at least twelve consecutive months
beginning with the Effective Date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(h) On the Closing Date, the Company shall have taken the necessary action
to become a reporting company under Section 12 of the 1934 Act, and the Company
will make all filings required to, and will have obtained approval for, the
listing of the Shares and Warrants on The Nasdaq SmallCap Market, the Boston
Stock Exchange or a listing on a national market, and will use its best efforts
to maintain such listing for at least five years from the date of this
Agreement.
(i) For such period as the Securities are registered under the 1934 Act,
the Company will hold an annual meeting of Stockholders for the election of
directors within 180 days after the end of
UNDERWRITING AGREEMENT-PAGE 13
<PAGE>
each of the Company's fiscal years and, within 150 days after the end of each of
the Company's fiscal years will provide the Company's stockholders with the
audited financial statements of the Company as of the end of the fiscal year
just completed prior thereto. Such financial statements shall be those required
by Rule 14a-3 under the 1934 Act and shall be included in an annual report
pursuant to the requirements of such Rule.
(j) The Company will apply the net proceeds from the sale of the
Securities substantially in accordance with its statement under the caption "Use
of Proceeds" in the Prospectus, and will file such reports with the Commission
with respect to the sale of the Securities and the application of the proceeds
therefrom as may be required by Sections 12, 13 and/or 15 of the 1934 Act and
pursuant to Rule 463 under the Act.
(k) The Company will, promptly upon your request, prepare and file with
the Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
reasonable opinion of counsel to the Underwriters and the Company may be
reasonably necessary or advisable in connection with the distribution of the
Securities and will use its best efforts to cause the same to become effective
as promptly as possible.
(l) On the Closing Date the Company shall execute and deliver to you the
Representative's Warrant Agreements. The Representative's Warrant Agreements
and Warrant Certificates will be substantially in the form of the
Representative's Warrant Agreements and Warrant Certificates filed as an exhibit
to the Registration Statement.
(m) The Company will reserve and keep available for issuance that maximum
number of its authorized but unissued securities which are issuable upon
exercise of the warrants issuable pursuant to the Representative's Warrant
Agreements outstanding from time to time.
(n) Each beneficial owner of the Company's securities (including Warrants,
Options and Common Stock of the Company), as of the Effective Date, shall agree
in writing, in a form satisfactory to the Representative and Nasdaq, not to
sell, transfer or otherwise dispose of any of such securities or underlying
securities (except in a transaction other than on the open market with a
transferee who agrees to be bound by this provision) during the period of time,
commencing on the Effective Date, stated for each such beneficial owner on
Schedule B (the "lock-up period"), or any longer period required by any state or
required by Nasdaq as a condition to listing on The Nasdaq SmallCap Market,
without the prior written consent of First London and Nasdaq. Without the prior
written consent of Nasdaq, the Company shall not, directly or indirectly,
release any individual from his lock-up agreement or effect the transfer on its
books of any shares sold in contravention of a lock-up agreement. Any of such
securities that are originally registered in a name of a original beneficial
owner and are subsequently registered under a different name will be subject to
such original beneficial owner's lock-up period. Sales of the Company's
securities by officers and/or directors of the Company prior to the expiration
of their respective lock-up periods shall be effected through the
Representative.
UNDERWRITING AGREEMENT-PAGE 14
<PAGE>
(o) The Company shall pay to the Representative upon the exercise or
redemption of the Warrants a fee equal to 5% of the gross proceeds received by
the Company from the exercise of the Warrants and 5% of the aggregate redemption
price for the Warrants redeemed (collectively, the "Warrant Fee"). Such fee
will be paid to the Representative or their designees no sooner than 12 months
after the Effective Date. Additionally, as a condition to be entitled to
receive the Warrant Fee, the Representative or its designees must be designated
in writing by the Warrant holder as having solicited the Warrant (the
"Solicitation Designation") in order to receive the Warrant Fee and such Warrant
Fee shall not be paid with respect to any Warrant held in a discretionary
account without the prior written approval of such exercise by the discretionary
account holder or with respect to the exercise of any Warrant for which a
Solicitation Designation was not received by the Company before the exercise of
such Warrant.
(p) Prior to the Closing Date, the Company shall at its own expense,
undertake to list the Securities in the appropriate recognized securities manual
or manuals published by Standard & Poor's Corporation and such other manuals as
the Representative may designate, such listings to contain the information
required by such manuals and the Uniform Securities Act. The Company hereby
agrees to use its best efforts to maintain such listing for a period of not less
than five years unless the Securities otherwise qualify for a secondary market
trading exemption. The Company shall take such action as may be reasonably
requested by the Representative to obtain a secondary market trading exemption
in such states as may be reasonably requested by the Representative.
(q) During the one year period commencing on the Effective Date, the
Company will not, without the prior written consent of First London, which
consent will not be unreasonably withheld, offer, sell, contract to sell, grant
options or warrants to purchase or otherwise dispose of any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock except for securities issued in connection with an acquisition or
merger by the Company or upon the issuance of Common Stock upon the exercise of
the Warrants presently outstanding securities or securities issued in connection
with the Company's employee stock option or director stock option plans.
(r) Prior to the Closing Date, the Company will not issue, directly or
indirectly, without the prior consent of First London, any press release or
other communication or hold any press conference with respect to the Company or
its activities or the offering of the Securities other than routine customary
advertising of the Company's products and services, and except as required by
any applicable law or the directives of any relevant regulatory authority in any
relevant jurisdiction.
(s) The Company shall employ the services of a firm of independent
certified public accountants in connection with the preparation of the financial
statements to be included in any registration statement or similar disclosure
document to be filed by the Company hereunder, or any amendment or supplement
thereto. For a period of five years from the Effective Date, the Company, at
its expense, shall cause its regularly engaged independent certified public
accountants to review (but not audit) the Company's financial statements for
each of the first three fiscal quarters prior to the announcement of quarterly
financial information, the filing of the Company's quarterly report and the
filing of quarterly financial information to stockholders.
UNDERWRITING AGREEMENT-PAGE 15
<PAGE>
(t) The Company shall retain _________________________ as the transfer
agent for the securities of the Company, or such other transfer agent as First
London may agree to in writing. In addition, the Company shall direct such
transfer agent to furnish the Representative with daily transfer sheets as to
each of the Company's securities as prepared by the Company's transfer agent and
copies of lists of stockholders and warrant holders as reasonably requested by
the Representative, for a five year period commencing from the Closing Date.
(u) The Company shall cause the Depository Trust Company, or such other
depository of the Company's securities, to deliver a "special security position
report" to the Representative on a daily and weekly basis at the expense of the
Company, for a five year period from the Effective Date.
(v) Following the Effective Date, the Company shall, at its sole cost and
expense, prepare and file such Blue Sky applications with such jurisdictions as
the Representative shall designate and the Company may reasonably agree.
(w) On the Effective Date and for a period of three years thereafter, the
Company's Board of Directors shall consist of a minimum of five persons, two of
whom shall be independent and not otherwise affiliated with the Company or
associated with any of the Company's affiliates.
(x) For such period as any Warrants are outstanding, the Company shall use
its best efforts to cause post-effective amendments to the Registration
Statement or a new Registration Statement to become effective in compliance with
the Act and without any lapse of time between the effectiveness of any such
post-effective amendments and cause a copy of each Prospectus, as then amended,
to be delivered to each holder of record of a Warrant and to furnish to each of
the Underwriters and each dealer as many copies of each such Prospectus as such
Underwriter or such dealer may reasonably request. Such post-effective
amendments or new Registration Statements shall also register the
Representative's Warrant and all the securities underlying the Representative's
Warrant. The Company shall not call for redemption of any of the Warrants
unless a Registration Statement covering the securities underlying the Warrants
or Representative's Warrant has been declared effective by the Commission and
remains current at least until the date fixed for redemption. In addition, the
Warrants or Representative's Warrant shall not be redeemable during the first
year after the Effective Date without the written consent of First London, which
consent will not be unreasonably withheld.
(y) Until such time as the securities of the Company are listed or quoted
on either the New York Stock Exchange, Nasdaq National Market or the American
Stock Exchange, the Company shall engage the Company's legal counsel to deliver
to the Representative a written opinion detailing those states in which the
Shares and Warrants of the Company may be traded in non-issuer transactions
under the Blue Sky laws of the fifty states ("Secondary Market Trading
Opinion"). The initial Secondary Market Trading opinion shall be delivered to
the Representative on the Effective Date, and the Company shall continue to
update such opinion and deliver same to the Representative on a timely basis,
but in any event at the beginning of each fiscal year, for a five year period,
if requested.
UNDERWRITING AGREEMENT-PAGE 16
<PAGE>
4. Conditions of Underwriters, Obligations. The obligations of the
---------------------------------------
several Underwriters to purchase and pay for the Securities which they have
agreed to purchase hereunder from the Company are subject, as of the date hereof
and as of the Closing Date and the Option Closing Date, as the case may be, to
the continuing accuracy of, and compliance with, the representations and
warranties of the Company herein, to the accuracy of statements of officers of
the Company made pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder, and to the following conditions:
(a) (i) The Registration Statement shall have become effective not later
than 5:00 p.m., Eastern Time, on the date of this Agreement, or at such later
time or on such later date as you may agree to in writing; (ii) at or prior to
the Closing Date or Option Closing Date, as the case may be, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the Commission and no proceeding for that purpose shall have been
initiated or pending, or shall be threatened, or to the knowledge of the
Company, contemplated by the Commission; (iii) no stop order suspending the
effectiveness of the qualification or registration of the Securities under the
securities or "blue sky" laws of any jurisdiction (whether or not a jurisdiction
which you shall have specified) shall be threatened or to the knowledge of the
Company contemplated by the authorities of any such jurisdiction or shall have
been issued and in effect; (iv) any request for additional information on the
part of the Commission or any such authorities shall have been complied with to
the satisfaction of the Commission and any such authorities, and to the
satisfaction of counsel to the Underwriters; and (v) after the date hereof no
amendment or supplement to the Registration Statement or the Prospectus shall
have been filed unless a copy thereof was first submitted to the Underwriters
and the Underwriters did not object thereto.
(b) At the Closing Date, since the respective dates as of which
information is presented in the Registration Statement and the Prospectus, (i)
there shall not have been any material change in the capital stock or other
securities of the Company or any material adverse change in the long-term debt
of the Company except as set forth in or contemplated by the Registration
Statement, (ii) there shall not have been any material adverse change in the
general affairs, business, properties, condition (financial or otherwise),
management, or results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, in each case other than as set
forth in or contemplated by the Registration Statement or Prospectus; (iii) the
Company shall not have sustained any material interference with its business or
properties from fire, explosion, flood or other casualty, whether or not covered
by insurance, or from any labor dispute or any court or legislative or other
governmental action, order or decree, which is not set forth in the Registration
Statement and Prospectus; and (iv) the Registration Statement and the Prospectus
and any amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstance under
which they are made, not misleading.
UNDERWRITING AGREEMENT-PAGE 17
<PAGE>
(c) Except as set forth in the Prospectus, there is not pending or, to the
knowledge of the Company, threatened, any material action, suit, proceeding,
inquiry, arbitration or investigation against the Company, or any of the
officers or directors of the Company, or any material action, suit, proceeding,
inquiry, arbitration, or investigation, which might result in any material
adverse change in the condition (financial or other), business prospects, net
worth, or properties of the Company.
(d) Each of the representations and warranties of the Company contained
herein shall be true and correct as of this date and at the Closing Date as if
made at the Closing Date, and all covenants and agreements herein contained to
be performed on the part of the Company and all conditions herein contained to
be fulfilled or complied with by the Company at or prior to the Closing Date and
Option Closing Date shall have been duly performed, fulfilled or complied with.
(e) At each Closing Date, you shall have received the opinion, together
with copies of such opinion for each of the other several Underwriters, dated as
of each Closing Date, from Jackson Walker, L.L.P., counsel for the Company, in
form and substance satisfactory to counsel for the Underwriters, to the effect
that:
(i) the Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation with full corporate power and authority to own its properties
and conduct its business as described in the Registration Statement and
Prospectus and is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each other jurisdiction in which the
ownership or leasing of its properties or conduct of its business requires
such qualification except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the Company as a whole;
(ii) the authorized capitalization of the Company is as set forth
under "Capitalization" in the Prospectus; all shares of the Company's
outstanding stock and other securities requiring authorization for issuance
by the Company's Board of Directors have been duly authorized, validly
issued, are fully paid and non-assessable and conform to the description
thereof contained in the Prospectus; the outstanding shares of Common Stock
of the Company and other securities have not been issued in violation of
the preemptive rights of any stockholder and the stockholders of the
Company do not have any preemptive rights or, to such counsel's knowledge,
other rights to subscribe for or to purchase securities of the Company,
nor, to such counsel's knowledge, are there any restrictions upon the
voting or transfer of any of the securities of the Company, except as
disclosed in the Prospectus; the Common Stock, the Shares, the Warrants,
and the securities contained in the Representative's Warrant Agreements
conform to the respective descriptions thereof contained in the Prospectus;
the Common Stock, the Shares, the Warrants, the Representative's Warrants,
the shares of Common Stock to be issued upon exercise of the Warrants and
the Underlying Warrants, have been duly authorized and, when issued,
delivered and paid for, will be duly authorized, validly issued, fully
paid, non-assessable, free of preemptive rights and no personal liability
will attach to the ownership thereof; all prior sales by the Company of the
Company's securities have been made in compliance with or under an
exemption from registration under
UNDERWRITING AGREEMENT-PAGE 18
<PAGE>
the Act and applicable state securities laws and no stockholders of the
Company have any rescission rights against the Company with respect to the
Company's securities; a sufficient number of shares of Common Stock has
been reserved for issuance upon exercise of the Warrants, the
Representative Warrants and the Underlying Warrants, and to the best of
such counsel's knowledge, neither the filing of the Registration Statement
nor the offering or sale of the Securities as contemplated by this
Agreement gives rise to any registration rights or other rights, other than
those which have been waived or satisfied or described in the Registration
Statement;
(iii) this Agreement, the Representative's Warrant Agreements and the
Warrant Agreements have been duly and validly authorized, executed and
delivered by the Company and, assuming the due authorization, execution and
delivery of this Agreement by the Representative, are the valid and legally
binding obligations of the Company, enforceable in accordance with their
terms, except (a) as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws from
time to time in effect which effect creditors, rights generally; and (b) no
opinion is expressed as to the enforceability of the indemnity provisions
or the contribution provisions contained in this Agreement;
(iv) the certificates evidencing the outstanding securities of the
Company, the Shares, the Common Stock, the Warrants and the
Representative's Warrants are in valid and proper legal form;
(v) to the best of such counsel's knowledge, except as set forth in
the Prospectus, there is not pending or threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company
or any of the officers or directors of the Company, nor any material
action, suit, proceeding, inquiry, arbitration, or investigation, which
might materially and adversely affect the condition (financial or
otherwise), business prospects, net worth, or properties of the Company;
(vi) the execution and delivery of this Agreement, the
Representative's Warrant Agreements, and the Warrant Agreements, and the
incurrence of the obligations herein and therein set forth and the
consummation of the transactions herein or therein contemplated, will not
result in a violation of, or constitute a default under (a) the Certificate
of Incorporation or Bylaws of the Company; (b) to the best of such
counsel's knowledge, any material obligations, agreement, covenant or
condition contained in any bond, debenture, note or other evidence of
indebtedness or in any contract, indenture, mortgage, loan agreement,
lease, joint venture or other agreement or instrument to which the Company
is a party or by which it or any of its properties is bound; or (c) to the
best of such counsel's knowledge, any material order, rule, regulation,
writ, injunction, or decree of any government, governmental instrumentality
or court, domestic or foreign;
(vii) the Registration Statement has become effective under the Act,
and to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement is in effect, and no
proceedings for that purpose have been instituted or are pending
UNDERWRITER AGREEMENT - PAGE 19
<PAGE>
before, or threatened by, the Commission; the Registration Statement and
the Prospectus (except for the financial statements and other financial
data contained therein, or omitted therefrom, as to which such counsel need
express no opinion) comply as to form in all material respects with the
applicable requirements of the Act and the Rules and Regulations;
(viii) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in connection
with the authorization, issuance, transfer, sale or delivery of the
Securities by the Company, in connection with the execution, delivery and
performance of this Agreement by the Company or in connection with the
taking of any action contemplated herein, or the issuance of the
Representative's Warrants or the securities underlying the Representative's
Warrants, other than registrations or qualifications of the securities
under applicable state or foreign securities or Blue Sky laws and
registration under the Act; and
Such opinion shall also cover such matters incident to the transactions
contemplated hereby as the Representative or counsel for the Representative
shall reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact; and may rely as to all matters of law, upon opinions of counsel
satisfactory to you and counsel to the Underwriters. The opinion of such
counsel to the Company shall state that the opinion of any such other counsel is
in form satisfactory to such counsel and that the Representative and they are
justified in relying thereon.
Such counsel shall also include a statement to the effect that such counsel
has participated in the preparation of the Registration Statement and the
Prospectus and nothing has come to the attention of such counsel to lead such
counsel to believe that the Registration Statement or any amendment thereto at
the time it became effective contained any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
are made, not misleading or that the Prospectus or any supplement thereto
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make statements
therein, in light of the circumstances under which they are made, not misleading
(except, in the case of both the Registration Statement and any amendment
thereto and the Prospectus and any supplement thereto, for the financial
statements, notes thereto and other financial information and statistical data
contained therein, as to which such counsel need express no opinion).
(f) You and the several Underwriters shall have received on each Closing
Date a certificate dated as of each Closing Date, signed by the Chief Executive
Officer and the Chief Financial Officer of the Company and such other officers
of the Company as the Underwriters may request, certifying that:
(i) No order suspending the effectiveness of the Registration
Statement or stop order regarding the sale of the Securities is in effect
and no proceedings for such purpose are pending or are, to their knowledge,
threatened by the Commission;
UNDERWRITER AGREEMENT - PAGE 20
<PAGE>
(ii) To their knowledge there is no litigation instituted or
threatened against the Company, or any officer or director of the Company
of a character required to be disclosed in the Registration Statement which
is not disclosed therein; to their knowledge there are no contracts which
are required to be summarized in the Prospectus which are not so
summarized; and to their knowledge there are no material contracts required
to be filed as exhibits to the Registration Statement which are not so
filed;
(iii) They have each carefully examined the Registration Statement
and the Prospectus and, to the best of their knowledge, neither the
Registration Statement nor the Prospectus nor any amendment or supplement
to either of the foregoing contains an untrue statement of any material
fact or omits to state any material fact required to be stated therein or
necessary to make the statement therein, in light of the circumstances
under which they are made, not misleading; and since the Effective Date, to
the best of their knowledge, there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not been so set
forth;
(iv) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any
material adverse change in the condition of the Company, financial or
otherwise, or in the results of its operations, except as reflected in or
contemplated by the Registration Statement and the Prospectus and except as
so reflected or contemplated since such date, there has not been any
material transaction entered into by the Company;
(v) The representations and warranties set forth in this Agreement
are true and correct in all material respects and the Company has complied
with all of its agreements herein contained;
(vi) The Company is not delinquent in the filing of any federal,
state and municipal tax return or the payment of any federal, state or
municipal taxes; they know of no proposed re-determination or reassessment
of taxes, adverse to the Company, and the Company has paid or provided by
adequate reserves for all known tax liabilities except such delinquency
that will not have a material adverse affect on the Company;
(vii) They know of no material obligation or liability of the
Company, contingent or otherwise, not disclosed in the Registration
Statement and Prospectus;
(viii) This Agreement, the Representative's Warrant Agreements and
the Warrant Agreements, the consummation of the transactions herein or
therein contemplated, and the fulfillment of the terms hereof or thereof,
will not result in a breach by the Company of any terms of, or constitute a
default under, its Certificate of Incorporation or Bylaws, any indenture,
mortgage, lease, deed of trust, bank loan or credit agreement or any other
material agreement or undertaking of the Company including, by way of
specification but not by way of limitation, any agreement or instrument to
which the Company is now a party or pursuant to which the Company has
acquired any right and/or obligations by succession or otherwise;
UNDERWRITER AGREEMENT - PAGE 21
<PAGE>
(ix) The financial statements, together with the related notes and
schedules forming a part of the Registration Statement and the Prospectus,
fairly present the financial position and the results of operations of the
Company at the respective dates and for the respective periods to which
they apply; and all audited financial statements, together with the related
notes and schedules, and the unaudited financial consolidated financial
information of the Company have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved except as may be otherwise stated therein. The selected and
summary financial and statistical data included in the Registration
Statement present fairly the information shown therein and have been
compiled on a basis consistent with the audited financial statements
presented therein. Since the respective dates of such financial
statements, there have been no material adverse change in the condition or
general affairs of the Company, financial or otherwise, other than as
referred to in the Prospectus;
(x) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, except as may otherwise
be indicated therein, the Company has not, prior to the Closing Date,
either (i) issued any securities or incurred any material liability or
obligation, direct or contingent, for borrowed money, or (ii) entered into
any material transaction other than in the ordinary course of business.
The Company has not declared, paid or made any dividend or distribution of
any kind on its capital stock except as disclosed in the Registration
Statement;
(xi) Based upon written representation from the officers and
directors of the Company they have reviewed the sections in the Prospectus
relating to their biographical data and equity ownership position in the
Company, and all information contained therein is true and accurate; and
(xii) Based upon written representation from the officers and
directors of the Company except as disclosed in the Prospectus, during the
past five years, the officers and directors of the Company have not been:
(A) Subject of a petition under the federal bankruptcy laws or
any state insolvency law filed by or against them, or by a receiver,
fiscal agent or similar officer appointed by a court for their
business or property, or any partnership in which any of them was a
general partner at or within two years before the time of such filing,
or any corporation or business association of which any of them was an
executive officer at or within two years before the time of such
filing;
(B) Convicted in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations and other
minor offenses);
(C) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently
UNDERWRITER AGREEMENT - PAGE 22
<PAGE>
or temporarily enjoining either of them from, or otherwise limiting,
any of the following activities:
(1) acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor
broker, leverage transaction merchant, any other person regulated
by the Commodity Futures Trading Commission, or an associated
person of any of the foregoing, or as an investment adviser,
underwriter, broker or dealer in securities, or as an affiliated
person, director or employee of any investment company, bank,
savings and loan association or insurance company, or engaging in
or continuing any conduct or practice in connection with any such
activity;
(2) engaging in any type of business practice; or
(3) engaging in any activity in connection with the purchase
or sale of any security or commodity or in connection with any
violation of federal or state securities law or federal commodity
laws.
(D) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any federal or state
authority barring, suspending or otherwise limiting for more than 60
days any of their right to engage in any activity described in
paragraph (3) (i) above, or be associated with persons engaged in any
such activity;
(E) Found by any court of competent jurisdiction in a civil
action or by the Commission to have violated any federal or state
securities law, and the judgment in such civil action or finding by
the Commission has not been subsequently reversed, suspended or
vacated; or
(F) Found by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any
federal commodities law, and the judgment in such civil action or
finding by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended or vacated.
(g) The Underwriters shall have received from Ernst & Young LLP,
independent auditors to the Company, certificates or letters, one dated and
delivered on the date hereof and one dated and delivered on the Closing Date, in
form and substance satisfactory to the Underwriters, stating, that:
(i) They are independent certified public accountants with respect to
the Company within the meaning of the Act and the applicable Rules and
Regulations;
(ii) The financial statements and the schedules included in the
Registration Statement and the Prospectus were examined by them and, in
their opinion, comply as to form in all material respects with the
applicable accounting requirements of the Act, the Rules and
UNDERWRITER AGREEMENT - PAGE 23
<PAGE>
Regulations and instructions of the Commission with respect to Registration
Statements on Form SB-2;
(iii) On the basis of inquiries and procedures conducted by them (not
constituting an examination in accordance with generally accepted auditing
standards), including a reading of the latest available unaudited interim
financial statements or other financial information of the Company (with an
indication of the date of the latest available unaudited interim financial
statements), inquiries of officers of the Company who have responsibility
for financial and accounting matters, review of minutes of all meetings of
the stockholders and the Board of Directors of the Company and other
specified inquiries and procedures, nothing has come to their attention as
a result of the foregoing inquiries and procedures that causes them to
believe that:
(A) During the period from (and including) the date of the
financial statements in the Registration Statement and the Prospectus
to a specified date not more than five days prior to the date of such
letters, there has been any change in the Common Stock, long-term debt
or other securities of the Company (except as specifically
contemplated in the Registration Statement and Prospectus) or any
material decreases in net current assets, net assets, stockholder's
equity, working capital or in any other item appearing in the
Company's financial statements as to which the Underwriters may
request advice, in each case as compared with amounts shown in the
balance sheet as of the date of the financial statement in the
Prospectus, except in each case for changes, increases or decreases
which the Prospectus discloses have occurred or will occur;
(B) During the period from (and including) the date of the
financial statements in the Registration Statement and the Prospectus
to such specified date there was any material decrease in revenues or
in the total or per share amounts of income or loss before
extraordinary items or net income or loss, or any other material
change in such other items appearing in the Company's financial
statements as to which the Underwriters may request advice, in each
case as compared with the corresponding period in the preceding year,
except in each case for increases, changes or decreases which the
Prospectus discloses have occurred or will occur;
(iv) They have compared specific dollar amounts, numbers of shares,
percentages of revenues and earnings, statements and other financial
information pertaining to the Company set forth in the Prospectus in each
case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including
work sheets, of the Company and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries and other appropriate
procedures (which procedures do not constitute an examination in accordance
with generally accepted auditing standards) set forth in the letter and
found them to be in agreement.
UNDERWRITER AGREEMENT - PAGE 24
<PAGE>
Such letters shall also set forth such other information as may be
requested by counsel for the Underwriters. Any changes, increases or decreases
in the items set forth in such letters which, in the judgment of the several
Underwriters, are materially adverse with respect to the financial position or
results of operations of the Company shall be deemed to constitute a failure of
the Company to comply with the conditions of the obligations to the several
Underwriters hereunder.
(h) Upon exercise of the Option provided for in Section 2(b) hereof, the
obligation of the several Underwriters (or, at its option, the Representative,
individually) to purchase and pay for the Option Securities referred to therein
will be subject (as of the date hereof and as of the Option Closing Date) to the
following additional conditions:
(i) The Registration Statement shall remain effective at the Option
Closing Date, and no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to the knowledge of the Company, shall
be contemplated by the Commission, and any reasonable request on the part
of the Commission for additional information shall have been complied with
to the satisfaction of counsel to the Underwriters.
(ii) At the Option Closing Date, there shall have been delivered to
you the signed opinion from Jackson Walker, L.L.P., counsel for the
Company, dated as of the Option Closing Date, in form and substance
satisfactory to counsel to the Underwriters, which opinion shall be
substantially the same in scope and substance as the opinion furnished to
you at the Closing Date pursuant to Section 4(e) hereof, except that such
opinion, where appropriate, shall cover the Option Securities.
(iii) At the Option Closing Date, there shall have been delivered to
you a certificate of the Chief Executive Officer and Chief Financial
Officer of the Company, dated the Option Closing Date, in form and
substance satisfactory to counsel to the Underwriters, substantially the
same in scope and substance as the certificate furnished to you at the
Closing Date pursuant to Section 4(f) hereof.
(iv) At the Option Closing Date, there shall have been delivered to
you a letter in form and substance satisfactory to you from Ernst & Young
LLP, independent auditors to the Company, dated the Option Closing Date and
addressed to the several Underwriters confirming the information in their
letter referred to in Section 4(g) hereof and stating that nothing has come
to their attention during the period from the ending date of their review
referred to in said letter to a date not more than five business days prior
to the Option Closing Date, which would require any change in said letter
if it were required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date in
connection with the sale and issuance of the Option Securities shall be
satisfactory in form and substance to the Underwriters, and the
Underwriters and counsel to the Underwriters shall have been furnished with
all such documents, certificates, and opinions as you may request in
connection
UNDERWRITER AGREEMENT - PAGE 25
<PAGE>
with this transaction in order to evidence the accuracy and completeness of
any of the representations, warranties or statements of the Company or its
compliance with any of the covenants or conditions contained herein.
(i) No action shall have been taken by the Commission or the NASD, the
effect of which would make it improper, at any time prior to the Closing Date,
for members of the NASD to execute transactions (as principal or agent) in the
Securities and no proceedings for the taking of such action shall have been
instituted or shall be pending, or, to the knowledge of the several Underwriters
or the Company, shall be contemplated by the Commission or the NASD. The
Company represents that at the date hereof it has no knowledge that any such
action is in fact contemplated by the Commission or the NASD. The Company shall
advise the Representative of any NASD affiliations of any of its officers,
directors, or Stockholders or their affiliates in accordance with paragraph 1(y)
of this Agreement.
(j) At the date of this Agreement, you shall have received from counsel to
the Company, dated as of the date hereof, in form and substance satisfactory to
counsel for the Underwriter, a written Secondary Market Trading Opinion
detailing those states in which the Shares and Warrants may be traded in non-
issuer transactions under the Blue Sky laws of the 50 states after the Effective
Date, in accordance with Section 3(y) of this Agreement.
(k) The authorization and issuance of the Securities and delivery thereof,
the Registration Statement, the Prospectus, and all corporate proceedings
incident thereto shall be satisfactory in all respects to counsel for the
several Underwriters, and such counsel shall be furnished with such documents,
certificates and opinions as they may reasonably request to enable them to pass
upon the matters referred to in this subparagraph.
(l) Prior to the Effective Date, the Representative shall have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Representative, as described in the Registration Statement.
(m) If any of the conditions herein provided for in this Section shall not
have been fulfilled as of the date indicated, this Agreement and all obligations
of the several Underwriters under this Agreement may be canceled at, or at any
time prior to, the Closing Date and/or the Option Closing Date by the
Representative and/or the Underwriters notifying the Company of such
cancellation in writing or by telegram at or prior to the applicable Closing
Date. Any such cancellation shall be without liability of the several
Underwriters to the Company.
5. Conditions of the Obligations of the Company. The obligation of the
--------------------------------------------
Company to sell and deliver the Securities is subject to the following
conditions:
(i) The Registration Statement shall have become effective not later
than 5:00 p.m., Eastern Time, on the date of this Agreement, or on such
later time or date as the Company and the Representative may agree in
writing; and
UNDERWRITER AGREEMENT - PAGE 26
<PAGE>
(ii) At the Closing Date and the Option Closing Date, no stop orders
suspending the effectiveness of the Registration Statement shall have been
issued under the Act or any proceedings therefore initiated or threatened
by the Commission.
If the conditions to the obligations of the Company provided for in this
Section have been fulfilled on the Closing Date but are not fulfilled after the
Closing Date and prior to the Option Closing Date, then only the obligation of
the Company to sell and deliver the Securities on exercise of the Option
provided for in Section 2(b) hereof shall be affected.
6. Indemnification. (a) The Company indemnifies and holds harmless each
----------------
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include but not be
limited to, all reasonable costs of defense and investigation and all attorneys'
fees), to which the Underwriter or such controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
(i) the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, (ii) any blue sky application or other
document executed by the Company specifically for that purpose or based upon
written information furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Securities under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or arise out of or are based upon
the omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, Prospectus, or any amendment or supplement thereto, or
in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be liable in any such cases to the extent, but only to the
extent, that any such losses, claim, damages or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Underwriters
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such Preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto. Notwithstanding the foregoing, the Company shall have no
liability under this Section if such untrue statement or omission made in a
Preliminary Prospectus is cured in the Prospectus and the Prospectus is
delivered within the time required by the Act to the person or persons alleging
the liability upon which indemnification is being sought. This indemnity will
be in addition to any liability which the Company may otherwise have.
(b) Each Underwriter, severally, but not jointly, indemnifies and holds
harmless the Company, each of its directors, each nominee (if any) for director
named in the Prospectus, each of its officers who have signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the Act, against any losses, claims, damages or liabilities (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees) to which the Company or any
such director, nominee, officer or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages, or
UNDERWRITER AGREEMENT - PAGE 27
<PAGE>
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statements or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished to the Company by you or by any Underwriter through you specifically
for use in the preparation thereof. Notwithstanding the foregoing, the
Underwriters shall have no liability under this Section if such untrue statement
or omission made in a Preliminary Prospectus is cured in the Prospectus and the
Prospectus is not delivered to the person or persons alleging the liability upon
which indemnification is being sought through no fault of the Underwriter. This
indemnity will be in addition to any liability which the Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the Underwriter or such
controlling person and the indemnifying party and in the reasonable judgment of
the Representative, it is advisable for the Representative or such Underwriters
or controlling persons to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Underwriter or such controlling person, it being understood,
however, that the indemnifying party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys for all such Underwriters and controlling persons, which firm shall be
designated
UNDERWRITER AGREEMENT - PAGE 28
<PAGE>
in writing by you). No settlement of any action against an indemnified party
shall be made without the consent of the indemnifying party, which shall not be
unreasonably withheld in light of all factors of importance to such indemnifying
party.
7. Contribution. In order to provide for just and equitable contribution
-------------
under the Act in any case in which (i) each Underwriter makes claim for
indemnification pursuant to Section 6 but it is judicially determined (by the
entry of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case, notwithstanding the fact
that the express provisions of Section 6 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
Underwriter, then the Company and each person who controls the Company, in the
aggregate, and any such Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys, fees) in either
such case (after contribution from others) in such proportions that all such
Underwriters are responsible in the aggregate for that portion of such losses,
claims, damages or liabilities represented by the percentage that the
underwriting discount per Share appearing on the cover page of the Prospectus
bears to the public offering price appearing thereon, and the Company shall be
responsible for the remaining portion, provided, however, that (a) if such
allocation is not permitted by applicable law then the relative fault of the
Company and the Underwriter and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by the
Company, or the Underwriter and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriters to
contribute pursuant to this Section 7 were to be determined by pro rata or per
capita allocation of the aggregate damages (even if the Underwriters and their
controlling persons in the aggregate were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the first sentence of this Section; and
(b) that the contribution of each contributing Underwriter shall not be in
excess of its proportionate share (based on the ratio of the number of
Securities purchased by such Underwriter to the number of Securities purchased
by all contributing Underwriters) of the portion of such losses, claims, damages
or liabilities for which the Underwriters are responsible. No person ultimately
determined to be guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
is not ultimately determined to be guilty of such fraudulent misrepresentation.
As used in this paragraph, the term "Underwriter" includes any officer,
director, or other person who controls the Underwriter within the meaning of
Section 15 of the Act, and the word "Company" includes any officer, director, or
person who controls the Company within the meaning of Section 15 of the Act. If
the full amount of the contribution specified in this Section is not permitted
by law, then the Underwriter and each person who controls the Underwriter shall
be entitled to contribution from the Company, its officers, directors and
controlling persons to the full extent permitted by law.
UNDERWRITER AGREEMENT - PAGE 29
<PAGE>
This foregoing agreement shall in no way affect the contribution liabilities of
any persons having liability under Section 11 of the Act other than the Company
and the Underwriter. No contribution shall be requested with regard to the
settlement of any matter from any party who did not consent to the settlement;
provided, however, that such consent shall not be unreasonably withheld in light
of all factors of importance to such party.
8. Costs and Expenses. (a) Whether or not this Agreement becomes
------------------
effective or the sale of the Securities to the Underwriters is consummated, the
Company will pay all costs and expenses incident to the performance of this
Agreement by the Company including but not limited to the fees and expenses of
the counsel to the Company or of the Company's accountants; the costs and
expenses incident to the preparation, printing, filing and distribution under
the Act of the Registration Statement (including the financial statements
therein and all amendments and exhibits thereto), Preliminary Prospectus and the
Prospectus, as amended or supplemented; the fee of the NASD in connection with
the filing required by the NASD relating to the offering of the Securities
contemplated hereby; all state filing fees, expenses and disbursements and legal
fees of counsel to the Company who shall serve as Blue Sky counsel to the
Company in connection with the filing of applications to register the Securities
under the state securities or blue sky laws; the cost of printing and furnishing
to the several Underwriters copies of the Registration Statement, each
Preliminary Prospectus, the Prospectus, this Agreement, the Selected Dealers
Agreement, the Agreement Among Underwriters, Underwriters Questionnaire,
Underwriters Power of Attorney and the Blue Sky Memorandum; the cost of printing
the certificates evidencing the securities comprising the Securities; the cost
of preparing and delivering to the Underwriters and its counsel of their bound
volumes containing copies of all documents and appropriate correspondence filed
with or received from the Commission and the NASD and all closing documents; and
the fees and disbursements of the transfer agent for the Company's securities.
The Company shall pay any and all taxes (including any original issue, transfer,
franchise, capital stock or other tax imposed by any jurisdiction) on sales to
the Underwriters hereunder. The Company will also pay all costs and expenses
incident to the furnishing of any amended Prospectus or of any supplement to be
attached to the Prospectus. The Company shall also engage the Company's counsel
to provide the Representative with a written Secondary Market Trading Opinion in
accordance with paragraphs 3(y) and 4(j) of this Agreement.
(b) In addition to the foregoing expenses, the Company shall at the Closing
Date pay to the Representative a non-accountable expense allowance equal to 3%
of the gross proceeds received from the sale of the Securities, of which $30,000
has been paid, $30,000 will be due and payable upon the filing of the
Registration Statement with the Commission and the remainder shall be paid on
the Closing Date. In the event the over-allotment option is exercised, the
Company shall pay to the Representative at the Option Closing Date an additional
amount equal to 3% of the gross proceeds received upon exercise of the over-
allotment option.
(c) Other than as disclosed in the Registration Statement, no person is
entitled either directly or indirectly to compensation from the Company, from
the Representative or from any other person for services as a finder in
connection with the proposed offering, and the Company agrees to indemnify and
hold harmless the Representative and the other Underwriters against any losses,
claims,
UNDERWRITER AGREEMENT - PAGE 30
<PAGE>
damages or liabilities, joint or several which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys, fees, to which the Representative or such other
Underwriter may become subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon the
claim of any person (other than an employee of the party claiming indemnity) or
entity that he or it is entitled to a finder's fee in connection with the
proposed offering by reason of such person's or entity's influence or prior
contact with the indemnifying party.
9. Substitution of Underwriters. If any of the Underwriters shall for
----------------------------
any reason not permitted hereunder cancel their obligations to purchase the
Securities hereunder, or shall fail to take up and pay for the number of
Securities set forth opposite their respective names in Schedule A hereto upon
----------
tender of such Securities in accordance with the terms hereof, then:
(a) If the aggregate number of Securities which such Underwriter or
Underwriters agreed but failed to purchase does not exceed 10% of the total
number of Securities, the other Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the Securities
which such defaulting Underwriter or Underwriters agreed but failed to purchase.
(b) If any Underwriter or Underwriters so default and the agreed number of
Securities with respect to which such default or defaults occurs is more than
10% of the total number of Securities, the remaining Underwriters shall have the
right to take up and pay for (in such proportion as may be agreed upon among
them) the Securities which the defaulting Underwriter or Underwriters agreed but
failed to purchase. If such remaining Underwriters do not, at the Closing Date,
take up and pay for the Securities which the defaulting Underwriter or
Underwriters agreed but failed to purchase, the time for delivery of the
Securities shall be extended to the next business day to allow the several
Underwriters the privilege of substituting within twenty-four hours (including
non-business hours) another Underwriter or Underwriters satisfactory to the
Company. If no such Underwriter or Underwriters shall have been substituted as
aforesaid, within such twenty-four period, the time of delivery of the
Securities may, at the option of the Company, be again extended to the next
following business day, if necessary, to allow the Company the privilege of
finding within twenty-four hours (including non-business hours) another
Underwriter or Underwriters to purchase the Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase. If it shall be
arranged for the remaining Underwriters or substituted Underwriters to take up
the Securities of the defaulting Underwriter or Underwriters as provided in this
Section, (i) the Company or the Representative shall have the right to postpone
the time of delivery for a period of not more than seven business days, in order
to effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees promptly to file any amendments to the Registration Statement or
supplements to the Prospectus which may thereby be made necessary; and (ii) the
respective numbers of Securities to be purchased by the remaining Underwriters
or substituted Underwriters shall be taken at the basis of the underwriting
obligation for all purposes of this Agreement.
If in the event of a default by one or more Underwriters and the remaining
Underwriters shall not take up and pay for all the Securities agreed to be
purchased by the defaulting Underwriters or
UNDERWRITER AGREEMENT - PAGE 31
<PAGE>
substitute another Underwriter or Underwriters as aforesaid, and the Company
shall not find or shall not elect to seek another Underwriter or Underwriters
for such Securities as aforesaid, then this Agreement shall terminate.
If, following exercise of the Option provided in Section 2(b) hereof, any
Underwriter or Underwriters shall for any reason not permitted hereunder cancel
their obligations to purchase Option Securities at the Option Closing Date, or
shall fail to take up and pay for the number of Option Securities, which they
become obligated to purchase at the Option Closing Date upon tender of such
Option Securities in accordance with the terms hereof, then the remaining
Underwriters or substituted Underwriters may take up and pay for the Option
Securities of the defaulting Underwriters in the manner provided in Section 9(b)
hereof. If the remaining Underwriters or substituted Underwriters shall not
take up and pay for all Option Securities, the Underwriters shall be entitled to
purchase the number of Option Securities for which there is no default or, at
their election, the option shall terminate, the exercise thereof shall be of no
effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any non-defaulting Underwriter to the
Company, provided that the provisions of this Section 9 shall not in any event
affect the liability of any defaulting Underwriter to the Company arising out of
such default.
10. Effective Date. The Agreement shall become effective upon its
--------------
execution except that you may, at your option, delay its effectiveness until
11:00 a.m., Eastern time, on the first full business day following the Effective
Date of the Registration Statement, or at such earlier time after the Effective
Date of the Registration Statement as you in your discretion shall first
commence the public offering by the Underwriters of any of the Securities. The
time of the public offering shall mean the time after the effectiveness of the
Registration Statement when the Securities are first generally offered by you to
the other Underwriters and the selected dealers. This Agreement may be
terminated by you at any time before it becomes effective as provided above,
except that Sections 3(c), 6, 7, 8, 13, 14, 15, 16, 17 and 18 shall remain in
effect notwithstanding such termination.
11. Termination. (a) This Agreement, except for Sections 3(c), 6, 7, 8,
-----------
13, 14, 15, 16, 17, and 18 hereof, may be terminated at any time prior to the
Closing Date, and the Option referred to in Section 2(b) hereof, if exercised,
may be canceled at any time prior to the Option Closing Date, by you if in your
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriters for the resale of the Securities agreed to be purchased
hereunder by reason of: (i) the Company having sustained a material adverse
loss, whether or not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government action, order
or decree; (ii) trading in securities on the Nasdaq SmallCap Market ir the
Boston Stock Exchange having been suspended or limited; (iii) material
governmental restrictions having been imposed on trading in securities generally
(not in force and effect on the date hereof); (iv) a banking moratorium having
been declared by federal or Texas state authorities; (v) an outbreak of major
international hostilities or other national or international calamity having
occurred which is reasonably believed likely by the Representative to have a
material adverse impact on the business, financial
UNDERWRITER AGREEMENT - PAGE 32
<PAGE>
condition or financial statements of the Company or the market for the
securities offered hereby; (vi) the passage by the Congress of the United States
or by any state legislative body of similar impact, of any act or measure, or
the adoption of any orders, rules or regulations by any governmental body or any
authoritative accounting institute or board, or any governmental executive;
(vii) any material adverse change in the financial or securities markets beyond
normal market fluctuations having occurred since the date of this Agreement;
(viii) a pending or threatened legal or governmental proceeding or action
relating generally to the Company's business, or a notification having been
received by the Company of the threat of any such proceeding or action, which
could, in the reasonable judgment of the Representative, materially adversely
affect the Company; (ix) except as contemplated by the Prospectus, the Company
is merged or consolidated into or acquired by another company or group or there
exists a binding legal commitment for the foregoing or any other material change
of ownership or control occurs; or (x) the Company shall not have complied in
all material respects with any term, condition or provisions on its part to be
performed, complied with or fulfilled (including but not limited to those set
forth in this Agreement) within the respective times therein provided.
(b) If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section, the Company shall be
promptly notified by you, by telephone, telegram or facsimile, confirmed by
letter.
12. Representative's Warrant Agreements. At the Closing Date, the Company
-----------------------------------
will issue to the Representative and/or persons related to the Representative,
for an aggregate purchase price of $100, and upon the terms and conditions set
forth in the form of Representative's Warrant Agreements annexed as an exhibit
to the Registration Statement, Representative's Warrants to purchase up to an
aggregate of 140,000 Units, in such denominations as the Representative shall
designate. In the event of conflict in the terms of this Agreement and the
Representative's Warrant Agreements, the language of the form of
Representative's Warrant Agreements shall control.
13. Representations, Warranties and Agreements to Survive Delivery. The
--------------------------------------------------------------
respective indemnities, agreements, representations, warranties and other
statements of the Company and its principal officers, where appropriate, and the
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of the
Underwriters, the Company or any of its officers or directors or any controlling
person and will survive delivery of and payment for the Securities and the
termination of this Agreement.
14. Notice. All communications hereunder will be in writing and, except
------
as otherwise expressly provided herein, will be mailed, delivered or telegraphed
and confirmed:
If to the Underwriters: First London Securities Corporation
2600 State Street
Dallas, Texas 75204
Attention: Douglas R. Nichols
UNDERWRITER AGREEMENT - PAGE 33
<PAGE>
Copy to: Jakes Jordaan
Jordaan & Pennington, PLLC
300 Crescent Court, Suite 1605
Dallas, Texas 75201
If to the Company: U.S. Remodelers, Inc.
1341 West Mockingbird Lane, Suite 900E
Dallas, Texas 75247
Attention: Chief Executive Officer
Copy to: Charles D. Maguire, Jr.
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202-3797
15. Parties in Interest. This Agreement herein set forth is made solely
-------------------
for the benefit of the several Underwriters, the Company and, to the extent
expressed, any person controlling the Company or any of the Underwriters, and
directors of the Company, nominees for directors (if any) named in the
Prospectus, its officers who have signed the Registration Statement, and their
respective executors, administrators, successors, assigns and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser of the Securities, as
such purchaser, from the several Underwriters. All of the obligations of the
Underwriters hereunder are several and not joint.
16. Applicable Law. This Agreement shall be governed and construed in
--------------
accordance with the laws of the State of Texas applicable to contracts made and
to be performed entirely within the State of Texas. The parties agree that any
action brought by any party against another party in connection with any rights
or obligations arising out of this Agreement shall be instituted properly in a
federal or state court of competent jurisdiction with venue only in the State
District Court of Dallas, County, Texas or the United States District Court for
the Northern District of Texas. A party to this Agreement named as a Defendant
in any action brought in connection with this Agreement in any court outside of
the above named designated county or district shall have the right to have the
venue of said action changed to the above designated county or district or, if
necessary, have the case dismissed, requiring the other party to re-file such
action in an appropriate court in the above designated county or federal
district.
17. Counterparts. This Agreement may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counter-parts shall together constitute but one and the
same instrument.
18. Entire Agreement. This Agreement and the agreements referred to
----------------
within this Agreement constitute the entire agreement of the parties, and
supersedes all prior agreement, understanding, negotiations and discussions,
whether written or oral, of the parties hereto.
UNDERWRITER AGREEMENT - PAGE 34
<PAGE>
19. Representative as Underwriter. In the event the Representative acts
-----------------------------
as the sole Underwriter in connection with the underwriting of the securities
being offered pursuant to the Registration Statement, all references to the
Representative in this Agreement shall be replaced by reference to the
"Underwriters," and (i) any consents required to be obtained from the
Representative shall be required to be obtained solely from the Underwriters;
(ii) all compensation to be received by the Representative shall instead be
received by the Underwriters; and (iii) the provisions of Section 9 of this
Agreement shall not apply.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this Agreement, whereupon it will become a binding
Agreement between the Company and the several Underwriters in accordance with
its terms.
Very truly yours,
U.S. REMODELERS, INC.
BY: __________________________________
Name: _________________________
Title: ________________________
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
FIRST LONDON SECURITIES CORPORATION
BY: __________________________________
Douglas R. Nichols, President
UNDERWRITER AGREEMENT - PAGE 35
<PAGE>
EXHIBIT 1.2
U.S. REMODELERS, INC.
1,400,000 UNITS
EACH UNIT COMPRISED OF
ONE SHARE OF COMMON STOCK
AND
ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT
(AND ONE SHARE OF COMMON STOCK ISSUABLE UNDER THE WARRANT)
AGREEMENT AMONG UNDERWRITERS
----------------------------
Dallas, Texas
_______________, 1998
First London Securities Corporation
As Representative of the several Underwriters
named in Schedule A to attached Exhibit A
2600 State Street
Dallas, Texas 75204
Dear Sirs:
1. Underwriting Agreement. We understand that U.S. Remodelers, Inc. (the
----------------------
"Company"), proposes to enter into an underwriting agreement attached as Exhibit
A (the "Underwriting Agreement") with First London Securities Corporation (the
"Representative") and the other underwriters named in Schedule A to the
Underwriting Agreement (the "Underwriters"), acting severally and not jointly,
with respect to the purchase of an aggregate of 1,400,000 Units, each Unit
comprised of one share of Common Stock, par value $.01 per share (the "Share")
and one redeemable common stock purchase warrant (the "Warrant"). The Units,
consisting of the Shares and Warrants, are hereinafter also referred to
collectively as the "Securities." The Securities and the terms under which they
are to be offered for sale by the several Underwriters are more particularly
described in the Registration Statement, Underwriting Agreement and Prospectus.
Unless the context indicates otherwise, the term Securities shall also
include an additional 210,000 Units (the "Option Securities"), all or any part
of which the Representative and/or the Underwriters are entitled to purchase
from the Company upon exercise of the Representative' over-allotment option
referred to in Section 2(b) of the Underwriting Agreement.
This is to confirm that we agree to purchase, in accordance with the terms
hereof and of the Underwriting Agreement, the number of Securities set forth
opposite our name in Schedule A, plus such number of Securities, if any, which
we may become obligated to purchase pursuant to Section 2(b) of the Underwriting
Agreement and Section 4 hereof ("our Securities"). The ratio which the
<PAGE>
number of our Securities bears to the total number of Securities purchased
pursuant to the Underwriting Agreement is herein called "our underwriting
proportion."
2. Registration Statement and Prospectus. We have heretofore received
-------------------------------------
and examined a copy of the registration statement, as amended to the date
hereof, and the related prospectus in respect of the Securities, as filed with
the Securities and Exchange Commission. The registration statement as amended at
the time it becomes effective, including financial statements and exhibits, is
hereafter referred to as the "Registration Statement", and the prospectus in the
form first filed with the Securities and Exchange Commission pursuant to its
Rule 424(b) after the Registration Statement becomes effective is referred to as
the "Prospectus."
We confirm that the information furnished to you by us for use in the
Registration Statement and in the Prospectus is correct and is not misleading
insofar as it relates to us. We consent to being named as an Underwriter in such
Registration Statement and we are willing to accept our responsibilities under
the Securities Act of 1933 (the "Act"), as a result thereof. We confirm that we
have authorized you to advise the Company on our behalf (a) as to the statements
to be included in any preliminary prospectus and in the Prospectus under the
heading "Underwriting" insofar as they relate to us and (b) that there is no
other information about us required to be stated in the Registration Statement
or Prospectus. We further confirm that, upon request by you as Representative,
we have furnished a copy of any amended preliminary prospectus to each person to
whom we have furnished a copy of any previous prospectus, and we confirm that we
have delivered, and we agree that we will deliver, all preliminary and final
Prospectuses required for compliance with the provisions of Rule 15c2-8 under
the Securities Exchange Act of 1934 (the "1934 Act").
3. Authority of the Representative. We authorize you, acting as
-------------------------------
Representative of the Underwriters, to execute and deliver on our behalf, the
Underwriting Agreement, and to agree to any variation of its terms (except as to
the purchase price and the number of our Securities) which, in your judgment, is
not a variation which materially and adversely affects our rights and
obligations. We also authorize you, in your discretion and on our behalf, with
approval of counsel for the Underwriters, to approve the Prospectus and to
approve of, or object to, any further amendments to the Registration Statement,
or amendments or supplements to the Prospectus. We further authorize you to
exercise all the authority and discretion vested in the Underwriters and in you
by the provisions of the Underwriting Agreement and to take all such action as
you in your discretion may believe desirable to carry out the provisions of the
Underwriting Agreement and of this Agreement including the extension of any date
specified in the Underwriting Agreement, the exercise of any right of
cancellation or termination and to determine all matters relating to the public
advertisement of the Securities; provided, however, that, except with the
consent of Underwriters who shall have agreed to purchase in the aggregate 50%
or more of the Securities, no extension of the time by which the Registration
Statement is to become effective as provided in the Underwriting Agreement shall
be for a period in excess of two business days. We authorize you to take such
action as in your discretion may be necessary or desirable to effect the sale
and distribution of the Securities, including, without limiting the generality
of the foregoing, the right to determine the terms of any proposed offering, the
concession to Selected Dealers (as hereinafter defined) and the reallowance, if
any, to other dealers and the right to make the judgments provided for in the
Underwriting Agreement.
AGREEMENT AMONG UNDERWRITERS - PAGE 2
<PAGE>
4. Authority of Representative as to Defaulting Underwriters. Until the
---------------------------------------------------------
termination of this Agreement, we authorize you to arrange for the purchase by
other persons, who may include you or any of the other Underwriters, of any
Securities not taken up by any defaulting Underwriter. In the event that such
arrangements are made, the respective amounts of the Securities to be purchased
by the non-defaulting Underwriters and by such other person or persons, if any,
shall be taken as the basis for all rights and obligations hereunder; but this
shall not in any way affect the liability of any defaulting Underwriter to the
other Underwriters for damages resulting from its default, nor shall any such
default relieve any other Underwriter of any of its obligations hereunder or
under the Underwriting Agreement except as herein or therein provided.
In the event of default by one or more Underwriters in respect of their
obligations (a) under the Underwriting Agreement to purchase the Securities
agreed to be purchased by them thereunder, (b) under this Agreement to take up
and pay for any Securities purchased or (c) to deliver any Securities sold or
over-allotted by you for the respective accounts of the Underwriters pursuant to
this Agreement, or to bear their respective share of expenses or liabilities
pursuant to this Agreement, and to the extent that arrangements shall not have
been made by you for any persons to assume the obligations of such defaulting
Underwriter or Underwriters, we agree to assume our proportionate share of the
obligations of each defaulting Underwriter (subject in the case of clause (a)
above to the limitations contained in the Underwriting Agreement) without
relieving any such defaulting Underwriter of its liability therefor.
5. Offering of Securities. We understand that you will notify us when
----------------------
the public offering of the Securities is to be made and of the initial public
offering price. We hereby authorize you to fix the concession to dealers and the
reallowance to dealers and in your sole discretion after the public offering to
change the public offering price, the concession and the reallowance. The
offering price at any time in effect is hereinafter referred to as the "public
offering price". We agree that we will not offer any of the Securities for sale
at a price other than the public offering price or allow any discount therefrom
except as herein otherwise specifically provided.
We agree that public advertisement of the offering shall be made by you on
behalf of the Underwriters on such date as you shall determine. We have not
advertised the offering and will not do so until after such date. We understand
that any advertisement we may then make will be on our own responsibility and at
our own expense.
We authorize you to reserve and offer for sale to institutions and other
retail purchasers and to dealers (the "Selected Dealers") to be selected by you
(such dealers may include any Underwriter) such of our Securities as you in your
sole discretion shall determine. Any such offering to Selected Dealers may be
made pursuant to a Selected Dealer Agreement, in the form attached hereto as
Exhibits, or otherwise, as you may determine. The form of Selected Dealer
Agreement attached hereto as Exhibit B is satisfactory to us.
We authorize you to make purchases and sales of the Securities from or to
any Selected Dealers or Underwriters at the public offering price less all or
any part of the concession and, with
AGREEMENT AMONG UNDERWRITERS - PAGE 3
<PAGE>
your consent, any Underwriter may make purchases or sales of the Securities from
or to any Selected Dealer or Underwriter at the public offering price less all
or any of the concession.
We understand that you will notify each Underwriter promptly upon the
release of the Securities for public offering as to the amount of Securities
reserved for sale to Selected Dealers and retail purchasers. Securities not so
reserved may be sold by each Underwriter for its own account, except that from
time to time you may, in your discretion, add to the Securities reserved for
sale to Selected Dealers and retail purchasers any Securities retained by an
Underwriter remaining unsold. We agree to notify you from time to time upon
request of the amount of our Securities retained by us remaining unsold. If all
the Securities reserved for offering to Selected Dealers and retail Purchasers
are not promptly sold by you, any Underwriter may from time to time, with your
consent, obtain a release of all or any Securities of such Underwriter then
remaining unsold and Securities so released shall thereafter be deemed not to
have been reserved. Securities of any Underwriter so reserved which remain
unsold, or, if sold, have not been paid for at any time prior to the termination
of this Agreement may, in your discretion or upon the request of such
Underwriter, be delivered to such Underwriter for carrying purposes only, but
such Securities shall remain subject to redelivery to you upon demand for
disposition by you until this Agreement is terminated.
We agree that in connection with sales and offers to sell the Securities,
if any, made by us outside the United States or its territories or possessions,
(a) we will furnish to each person to whom any such offer or sale is made such
Prospectus, advertisement or other offering document containing information
relating to the Securities or the Company as may be required under the laws, of
the jurisdiction in which such offer or sale is made and (b) we will furnish to
each person to whom any such offer is made a copy of the then current
Preliminary Prospectus and to each person to whom any such sale is made a copy
of the Prospectus referred to in the Underwriting Agreement (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto). Any Prospectus, advertisement or other offering document (other than
any such preliminary prospectus or Prospectus) furnished by us to any person in
accordance with the preceding sentence and all such additional offering
material, if any, as we may furnish to any person (i) shall comply in all
respects with the laws of the jurisdiction in which it is so furnished, (ii)
shall be prepared and so furnished at our sole risk and expense and, (iii) shall
not contain information relating to the Securities or the Company which is
inconsistent in any respect with information contained in the then current
preliminary prospectus or in the Prospectus (as then amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) as the
case may be.
We recognize the importance of a broad distribution of the Securities among
bona fide investors and we agree to use our best efforts to obtain such broad
distribution and to that end, to the extent we deem practicable, to give
priority to small orders.
We agree that we will not sell to any account over which we exercised
discretionary authority any of the Securities which we have agreed to purchase
pursuant to the Underwriting Agreement.
6. Compensation to Representative. We authorize you to charge to our
------------------------------
account, as compensation for your services as Representative in connection with
this offering, including the
AGREEMENT AMONG UNDERWRITERS - PAGE 4
<PAGE>
purchase from the Company of the Securities and the management of the offering,
an amount equal to _____ per Share and $__________ per Warrant in respect to
each of our Securities.
7. Payment and Delivery. At or about 9:00 a.m., Eastern Time, on the
--------------------
Closing Dates (including the first Closing Date and any Option Closing Date, as
defined in the Underwriting Agreement), we agree to deliver to you at the
offices of First London Securities Corporation by wire transfer to the account
of First London Securities Corporation, as Representative, or by a certified or
official bank check payable in New York Clearing House funds to the order of
First London Securities Corporation, as Representative, in an amount equal to
the initial public offering price, less the concession to the Selected Dealers
in respect of that portion of our Securities which has been retained by or
released to us for direct sales.
In the event that our funds are not received by you when required, you are
authorized, in your discretion, but shall not be obligated, to make payment for
our account pursuant to the Underwriting Agreement by advancing your own funds.
Any such payment by you shall not relieve us from any of our obligations
hereunder or under the Underwriting Agreement.
We authorize you to hold and deliver against payment any of our Securities
which have been sold or reserved for sale to Selected Dealers or retail
purchasers. Any of our Securities not sold or reserved by you as aforesaid, will
be available for delivery to us at your office as soon as practicable after such
Securities have been delivered to you.
Upon the termination of this Agreement, or prior thereto at your
discretion, you will deliver to us any of our Securities reserved by you for
sale to Selected Dealers or retail purchasers but not sold and paid for against
payment by us of an amount equal to the initial public offering price of such
Securities, less the concession to the Selected Dealers in respect thereof.
8. Authority to Borrow. We authorize you to arrange loans for our
-------------------
account and to execute and deliver any notes or other instruments in connection
therewith, and to pledge as security therefor all or any part of our Securities,
as you may deem necessary or advisable to carry out the purchase, carrying and
distribution of the Securities, and to advance your own funds, charging current
interest rates.
9. Over-allotment; Stabilization. We authorize you, for the account of
-----------------------------
each Underwriter, prior to the termination of this Agreement, and for such
longer period as may be necessary to cover any short position incurred for the
accounts of the several Underwriters pursuant to this Agreement, (a) to over-
allot in arranging for sales of Securities to Selected Dealers and others and,
if necessary, to purchase Securities (whether pursuant to exercise of the option
set forth in Section 2(b) of the Underwriting Agreement or otherwise) at such
prices as you may determine for the purpose of covering such over-allotments,
and (b) for the purpose of stabilizing the market in the Securities, to make
purchases and sales of Securities on the open market or otherwise, for long or
short account, on a when-issued basis or otherwise, at such prices, in such
amounts and in such manner as you may determine provided, however, that at no
time shall our net commitment, either for long or short account, under this
Section exceed 15% of the amount of our Securities. Such purchases, sales and
AGREEMENT AMONG UNDERWRITERS - PAGE 5
<PAGE>
over-allotments shall be made for the respective accounts of the several
Underwriters as nearly as practicable to their respective underwriting
proportions. We agree to take up on demand at cost any Securities so purchased
for our account and deliver on demand any Securities so sold or over-allotted
for our account. We authorize you to sell for the account of the Underwriters
any Securities purchased pursuant to this Section, upon such terms as you may
deem advisable, and any Underwriter, including yourselves, may purchase such
Securities. You are authorized to charge the respective accounts of the
Underwriters with broker's commissions or dealer's mark-up on purchases and
sales effected by you.
If pursuant to the provisions of the preceding paragraph and prior to the
termination of this Agreement (or prior to such earlier date as you may have
determined) you purchase or contract to purchase for the account of any
Underwriter in the open market or otherwise any Securities which were retained
by, or released to, us for direct sale, or any Securities which may have been
issued in exchange for such Securities, we authorize you either to charge our
account with an amount equal to the concession to Selected Dealers with respect
thereto, which amount shall be credited against the cost of such Securities, or
to require us to repurchase such Securities at a price equal to the total cost
of such purchase, including transfer taxes and broker's commissions or dealer's
markup, if any. In lieu of such action you may, in your discretion, sell for our
account the Securities so purchased and debit or credit our account for the loss
or profit resulting from such sale.
You will notify us promptly if and when you engage in any stabilization
transaction pursuant to this Section or otherwise and will notify us of the date
of termination of stabilization. We agree to file with you any reports required
of us including "Not as Manager" reports pursuant to Rule 17a-2 under the 1934
Act not later than five business days following the date upon which
stabilization was terminated, and we authorize you to file on our behalf with
the Securities and Exchange Commission any reports required by such Rule.
10. Limitation on Transactions by Underwriters. Except as permitted by
------------------------------------------
you, we will not during the term of this Agreement bid for, purchase, sell or
attempt to induce others to purchase or sell, directly or indirectly, any
Securities other than (i) as provided in the Underwriting Agreement and in this
agreement, (ii) purchases from or sales to dealers of the Securities at the
public offering price less all or any part of the reallowance to dealers or
(iii) purchases or sales by us of any Securities as broker or unsolicited orders
for the account of others.
We represent that we have not participated in any transaction prohibited by
the preceding paragraph and that we have at all times complied with the
provisions of Rule 10b-6 and Rule 10b-6A under the 1934 Act applicable to this
offering.
We may, with your prior consent, make purchases of the Securities from and
sales to other Underwriters at the public offering price, less all or any part
of the concession to dealers.
11. Allocation and Payment of Expenses. We understand that all expenses
----------------------------------
of a general nature incurred by you, as Representative , in connection with the
purchase, carrying, marketing and sale of the Securities shall be borne by the
Underwriters in accordance with their respective share of
AGREEMENT AMONG UNDERWRITERS - PAGE 6
<PAGE>
the underwriting obligations. We authorize you to charge our account with our
share, based on our underwriting obligation, of the aforesaid expenses including
all transfer taxes paid of our behalf on sales or transfers made for our
account.
As promptly as possible after the termination of this Agreement, the
accounts arising pursuant hereto shall be settled and paid. Your ascertainment
of all expenses and the apportionment thereof shall be conclusive.
Notwithstanding any settlement or settlements hereunder, we will remain liable
for our share of all expenses and liabilities which may be incurred by or the
accounts of the Underwriters, including any expenses and liabilities referred to
in Sections 13 and 14 hereof, which shall be determined as provided in this
Section.
12. Termination. Unless this Agreement or any provision hereof is earlier
-----------
terminated by you and except for provisions herein that contemplate obligations
surviving the termination hereof as noted in the next paragraph, this Agreement
will terminate at the close of business on the 45th day after the date hereof,
but in your discretion may be extended by you for a further period not exceeding
30 days with the consent of the Underwriters who have agreed to purchase in the
aggregate 50% or more of the Securities. No termination or suspension pursuant
to this Section shall affect your authority to cover any short position under
this Agreement.
Upon termination of this Agreement, all authorizations, rights and
obligations hereunder shall cease, except (i) the mutual obligations to settle
accounts under Section 11, our obligation to pay any transfer taxes which may be
assessed and paid on account of any sales thereunder for our account, (ii) our
obligation with respect to purchases which may be made by you from time to time
thereafter to cover any short position incurred under this Agreement, (iv) the
provisions of Sections 13 and 14 and (v) the obligations of any defaulting
Underwriter, all of which shall continue until fully discharged.
13. Liability of Representative and Underwriters. Neither as
--------------------------------------------
Representative nor individually shall you be under any liability whatsoever to
any other Underwriter nor shall you be under any liability in respect of any
matters connected herewith or action taken by you pursuant hereto, except for
the obligations expressly assumed by you in this Agreement. You shall be under
no liability for or in respect of the value for the Securities or the of the
form thereof, the Registration Statement, the Prospectus, or agreements or other
instruments executed by the Company or others; or for or in respect of the
delivery of the Securities; or for the performance by the Company or others of
any agreement on its or their part.
Nothing herein contained shall constitute the several Underwriters an
association, or partners with us or with each other, or, except as herein
expressly provided, render any Underwriter liable for the obligation of any
other Underwriter. The rights, obligations and liabilities of each of the
Underwriters are several, in accordance with their respective obligations, and
not joint. Notwithstanding any settlement of accounts under this Agreement, we
agree to pay our underwriting proportion of the amount of any claim demand or
liability which may be asserted against and discharged by the Underwriters or
any of them, based on the claim that the Underwriters constitute an association,
unincorporated business or other entity, and also to pay our underwriting
proportion
AGREEMENT AMONG UNDERWRITERS - PAGE 7
<PAGE>
of expenses approved by you incurred by the Underwriters, or any of them, in
contesting any such claims, demands or liabilities. If the Underwriters shall be
deemed to constitute a partnership for income tax purposes, it is the intent of
each Underwriter to be excluded from the application of Subchapter K, Chapter 1,
Subtitle A of the Internal Revenue Code of 1954, as amended. Each Underwriter
elects to be so excluded and agrees not to take any position inconsistent with
such election. Each Underwriter authorizes you, in your discretion, to execute
and file on behalf of the Underwriters such evidence of election as may be
required by the Internal Revenue Service.
14. Indemnification and Future Claims.
---------------------------------
(a) We agree to indemnify and hold harmless you and each other
Underwriter, and each person, if any, who controls you and such other
Underwriter within the meaning of Section 15 of the Securities Act of 1933, and
to reimburse their expenses, to the extent and upon the terms that we agree to
indemnify and hold harmless the Company and to reimburse expenses as set forth
in the Underwriting Agreement. Our indemnity agreements set forth in this
Section remain in full force and effect regardless of any investigation made by
or on behalf of such other Underwriter or controlling person and shall survive
the delivery of and payment for the Securities and the termination of this
Agreement.
(b) In the event that at any time any claim or claims shall be asserted
against you, as Representative, or otherwise involving the Underwriters
generally, relating to the Registration Statement or any Preliminary Prospectus
or the Prospectus, as such may be from time to time amended or supplemented, the
public offering of the Securities or any of the transactions contemplated by
this Agreement, we authorize you to take such other action as you shall deem
necessary or desirable under the circumstances, including settlement of any such
claim or claims if such course of action shall be recommended by counsel
retained by you. We agree to pay to you on request, our underwriting proportion
of all expenses incurred by you (including, but not limited to, disbursements
and fees of counsel so retained) in investigating and defending against such
claim or claims and our underwriting proportion of any liability incurred by you
in respect of such claim or claims, whether such liability shall be the result
of a judgment or as a result of any such settlement.
15. Title to Securities. The Securities purchased by, or on behalf of,
-------------------
the respective Underwriters shall remain the property of such Underwriters until
sold, and title to any such Securities shall not in any event pass to the
Representative by virtue of any of the provisions of this Agreement.
16. Blue Sky Matters. It is understood that you assume no responsibility
----------------
with respect to the right of any Underwriter or other person to offer or to sell
Securities in any jurisdiction, not withstanding any information which you may
furnish as to the jurisdictions under the securities laws of which it is
believed the Securities may be sold.
17. Applicable Law. This Agreement will be governed by and construed in
--------------
accordance with the laws of the State of Texas.
AGREEMENT AMONG UNDERWRITERS - PAGE 8
<PAGE>
18. Capital Requirements. We confirm that the incurrence by us of our
--------------------
obligation under this Agreement and under the Underwriting Agreement will not
place us in violation of the net capital requirements of Rule 15c3-1 under the
1934 Act or of any applicable rules relating to capital requirements of any
securities exchange to which we are subject.
19. Miscellaneous. Any notice from you to us shall be deemed to have been
-------------
duly given if telefaxed, telephoned or telegraphed, and confirmed by mail to us
at the address set forth in the Underwriters Questionnaire furnished by us to
you. Any notice from us to you shall be deemed to have been duly given if
telefaxed or telegraphed, and confirmed by mail to you at 2600 State Street,
Dallas, Texas 75204.
We understand that you are a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"). We hereby confirm that we are
actually engaged in the investment banking or securities business and are either
(i) a member in good standing of the NASD or (ii) a dealer with its principal
place of business located outside the United States, its territories and its
possession and not registered as a broker or dealer under the 1934 Act who
agrees not to make any sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein (except
that we may participate in sales to Selected Dealers and others under Section 5
of this Agreement). We hereby agree that if we are members of the NASD, we will
comply with all of the provisions of the NASD Conduct Rules. If we are a foreign
dealer, we agree to comply with Rule 2740 of the NASD Conduct Rules. If we are a
foreign dealer and not a member of the NASD, we agree to comply with the NASD's
interpretation with respect to free-riding and withholding, as though we were a
member of the NASD, with the provisions of Rules 2730 and 2750 of the NASD
Conduct Rules, and to comply with Rule 2420 of the NASD Conduct Rules as that
applies to a non-member foreign dealer. In connection with sales and offers to
sell Securities made by us outside the United States, its territories and
possessions (i) we will either furnish to each person to whom any such sale or
offer is made a copy of the then current Preliminary Prospectus or the
Prospectus, as the case may be, or inform such person that such Preliminary
Prospectus or Prospectus will be available upon request, and (ii) we will
furnish to each person to whom any such sale or offer is made such Prospectus,
advertisement or other offering document containing information relating to the
Securities or the Company as may be required under the law of the jurisdiction
in which such sale or offer is made. Any Prospectus, advertisement or other
offering document furnished by us to any person in accordance with the preceding
sentence and any such additional offering material as we may furnish to any
person (i) shall comply in all respects with the law of the jurisdiction in
which it is so furnished, (ii) shall be prepared and so furnished at our sole
risk and expenses and (iii) shall not contain information relating to the
Securities or the Company which is inconsistent in any respect with the
information contained in the then current preliminary Prospectus or in the
Prospectus, as the case may be.
We understand that, in consideration of your services in connection with
the public offering of the Securities, the Company has agreed with you
individually, and not as Representative of the Underwriters, (a) to sell to you
the Representative' Warrants referred to in the Underwriting Agreement for the
sum of $100; and (b) to pay to you a non-accountable expense allowance referred
to in the Underwriting Agreement. In addition, you may, at your sole discretion,
elect to exercise the
AGREEMENT AMONG UNDERWRITERS - PAGE 9
<PAGE>
over-allotment option individually. We confirm to you that we shall make no
claim to the Representative' Warrants (or any offering of the Company's
securities related thereto, or any right to participate in any capacity in any
offering resulting therefrom), any rights related thereto, the Company's
securities underlying the Representative' Warrants or the non-accountable
expense allowance or the over allotment option to the extent you elect to
exercise such option individually. You confirm to us that we shall have no
obligation or liabilities with respect to the purchase of the Representative'
Warrants, the exercise thereof, the Company's securities underlying the
Representative' Warrants (or any offering of the Company's securities related
thereto, unless we shall subsequently agree to become an underwriter for, or
otherwise participate in any such offering) or the non-accountable expense
allowance, or, the over-allotment option, to the extent you elect to exercise
such option individually.
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to us a counterpart hereof.
Very truly yours,
By: _________________________________________
(Attorney-in-fact for each of the several
Underwriters named in Schedule A to the
attached Underwriting Agreement.)
Confirmed as of the date first
above written:
FIRST LONDON SECURITIES CORPORATION
As Representative of the Several Underwriters
By:______________________________________
Douglas R. Nichols, President
AGREEMENT AMONG UNDERWRITERS - PAGE 10
<PAGE>
EXHIBIT 1.3
U.S. REMODELERS, INC.
1,400,000 UNITS
EACH UNIT COMPRISED OF
ONE SHARE OF COMMON STOCK
AND
ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT
(AND ONE SHARE OF COMMON STOCK ISSUABLE UNDER THE WARRANT)
SELECTED DEALER AGREEMENT
-------------------------
Dallas, Texas
_______________, 1998
Gentlemen:
1. First London Securities Corporation (the "Representative") and the
other Underwriters named in the Prospectus (collectively the "Underwriters"),
acting through us as the Representative, are severally offering for sale an
aggregate of 1,400,000 Units (the "Firm Securities"), each Unit comprised of one
share of common stock, par value $.01 per share (the "Share"), and one
redeemable common stock purchase warrant (the "Warrant") of U.S. Remodelers,
Inc. (the "Company"), which we have agreed to purchase from the Company, and
which are more particularly described in the Registration Statement,
Underwriting Agreement and Prospectus. In addition, the several Underwriters
have been granted an option to purchase from the Company up to an additional
210,000 Units (the "Option Securities") to cover over-allotments in connection
with the sale of the Firm Securities. The Firm Securities and any Option
Securities purchased are herein called the "Securities". The Securities and the
terms under which they are to be offered for sale by the several Underwriters
are more particularly described in the Prospectus.
2. The Securities are to be offered to the public by the several
Underwriters at the price per Share and price per Warrant set forth on the cover
page of the Prospectus (the "Public Offering Price"), in accordance with the
terms of offering set forth in the Prospectus.
3. Some or all of the several Underwriters are severally offering,
subject to the terms and conditions hereof, a portion of the Securities for sale
to certain dealers who are actually engaged in the investment banking or
securities business and who are either (a) members in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"), or (b) dealers
with their principal places of business located outside the United States, its
territories and its possessions and not registered as brokers or dealers under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), who have
agreed not to make any sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein (such
dealers who shall agree to sell Securities hereunder being herein called
"Selected Dealers") at the public offering price, less a selling concession
(which may be changed) of not in excess of $_______ per Share and $__________
per Warrant payable as hereinafter provided, out of which concession an amount
not
<PAGE>
exceeding $_________ per Share and $__________ per Warrant may be reallowed by
Selected Dealers to members of the NASD or foreign dealers qualified as
aforesaid. We reserve the right not to pay such selling commission on any of the
Securities purchased by any of the Selected Dealers from us and repurchased by
us at or below the price stated above prior to termination of this Agreement.
The Selected Dealers who are members of the NASD agree to comply with all of the
provisions of the NASD Conduct Rules. Foreign Selected Dealers agree to comply
with the provisions of Rule 2740 of the NASD Conduct Rules, and, if any such
dealer is a foreign dealer and not a member of the NASD, such Selected Dealer
also agrees to comply with the NASD's Interpretation with Respect to Free-Riding
and Withholding, and to comply, as though it were a member of the NASD, with the
provisions of Rules 2730 and 2750 of the NASD Conduct Rules, and to comply with
Rule 2420 of the NASD Conduct Rules as that Rule applies to non-member foreign
dealers. Some or all of the Underwriters may be included among the Selected
Dealers. Each of the Underwriters has agreed that, during the term of this
Agreement, it will be governed by the terms and conditions hereof whether or not
such Underwriter is included among the Selected Dealers.
4. First London Securities Corporation shall act as Representative on
behalf of the Underwriters and shall have full authority to take such action as
we may deem advisable in respect to all matters pertaining to the public
offering of the Securities.
5. If you desire to act as a Selected Dealer, and purchase any of the
Securities, your application should reach us promptly by telefax or telegraph at
the offices of First London Securities Corporation, 2600 State Street, Dallas,
Texas 75204, facsimile (214) 220-0695. We reserve the right to reject
subscriptions in whole or in part, to make allotments, and to close the
subscription books at any time without notice. The Securities allotted to you
will be confirmed, subject to the terms and conditions of this Agreement.
6. The privilege of subscribing for the Securities is extended to you
only on behalf of such of the Underwriters, if any, as may lawfully sell the
Securities to Selected Dealers in your state or other applicable jurisdiction.
7. Payment for the Securities sold to you hereunder is to be made at the
Public Offering Price or, if we shall so advise you, at the Public Offering
Price less the above mentioned selling concession on such time and date as we
may advise, at the office of First London Securities Corporation, 2600 State
Street, Dallas, Texas 75204, by wire transfer to the account of First London
Securities Corporation, as Representative, or by a certified or official bank
check in current New York Clearing House funds, payable to the order of First
London Securities Corporation, as Representative, against delivery of
certificates for the Securities so purchased. If such payment is not made at
such time, you agree to pay us interest on such funds at the prevailing broker's
loan rate.
8. Any Securities to be purchased by you under the terms of this
Agreement may be immediately re-offered to the public in accordance with the
terms of offering as set forth herein and in the Prospectus, subject to the
securities or Blue Sky laws of the various states or other jurisdictions.
In the event that Securities purchased by you under the terms of this
Agreement are purchased at the Public Offering Price less the selling
commission, you agree to pay us on demand for the
SELECTED DEALER AGREEMENT - PAGE 2
<PAGE>
accounts of the several Underwriters an amount equal to the Selected Dealer
concession as to any Securities purchased by you hereunder which, prior to the
completion of the public offering as defined in Section 9 below, we may purchase
or contract to purchase for the account of any Underwriter and, in addition, we
may charge you with any broker's commission and transfer tax paid in connection
with such purchase or contract to purchase. Certificates for Securities
delivered on such repurchases need not be the identical certificates originally
purchased.
You agree to advise us from time to time, upon request, of the number of
Securities purchased by you hereunder and remaining unsold at the time of such
request, and, if in our opinion any such Securities shall be needed to make
delivery of the Securities sold or over-allotted for the account of one or more
of the Underwriters, you will, forthwith upon our request, grant to us for the
account or accounts of such Underwriter or Underwriters the right, exercisable
promptly after receipt of notice from you that such right has been granted, to
purchase, at the price you paid for such Securities or such part thereof as we
shall determine, such number of Securities owned by you as shall have been
specified in our request.
No expenses shall be charged to Selected Dealers. A single transfer tax,
if payable, upon the sale of the Securities by the respective Underwriters to
you will be paid when such Securities are delivered to you. However, you shall
pay any transfer tax on sales of Securities by you and you shall pay your
proportionate share of any transfer tax (other than the single transfer tax
described above) in the event that any such tax shall from time to time be
assessed against you and other Selected Dealers as a group or otherwise.
Neither you nor any other person is or has been authorized to give any
information or to make any representation in connection with the sale of the
Securities other than as contained in the Prospectus.
9. Section 7 and the first three paragraphs of Section 8 will terminate
when we shall have determined that the public offering of the Securities has
been completed and upon telefax notice to you of such termination, but, if not
theretofore terminated, they will terminate at the close of business on the 30th
full business day after the date hereof; provided, however, that we shall have
the right to extend such provisions for a further period or periods, not
exceeding an additional 30 days in the aggregate upon telefax notice to you.
10. For the purpose of stabilizing the market in the Securities, we have
been authorized to make purchases and sales of the Securities of the Company, in
the open market or otherwise, for long or short account, and, in arranging for
sales, to over-allot.
11. On becoming a Selected Dealer, and in offering and selling the
Securities, you agree to comply with all the applicable requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and the 1934 Act. You
confirm that you are familiar with Rule 15c2-8 under the 1934 Act relating to
the distribution of preliminary and final prospectuses for securities of an
issuer (whether or not the issuer is subject to the reporting requirements of
Section 13 or 15(d) of the 1934 Act) and confirm that you have complied and will
comply therewith.
SELECTED DEALER AGREEMENT - PAGE 3
<PAGE>
We hereby confirm that we will make available to you such number of copies
of the Prospectus (as amended or supplemented) as you may reasonably request for
the purposes contemplated by the 1933 Act or the 1934 Act, or the rules and
regulations thereunder.
12. Upon request, you will be informed as to the states and other
jurisdictions in which we have been advised that the Securities are qualified
for sale under the respective securities or Blue Sky laws of such states and
other jurisdictions, but neither we nor any of the Underwriters assume any
obligation or responsibility as to the right of any Selected Dealer to sell the
Securities in any state or other jurisdiction or as to the eligibility of the
Securities for sale therein. We will, if requested, file a Further State Notice
in respect of the Securities pursuant to Article 23-A of the General Business
Law of the State of New York.
13. No Selected Dealer is authorized to act as our agent or as agent for
the Underwriters, or otherwise to act on our behalf or on behalf of the
Underwriters, in offering or selling the Securities to the public or otherwise
or to furnish any information or make any representation except as contained in
the Prospectus.
14. Notices to us should be addressed to us at the offices of First London
Securities Corporation, 2600 State Street, Dallas, Texas 75204, Attention:
Douglas Nichols. Notices to you shall be deemed to have been duly given if
telephoned, telefaxed, telegraphed or mailed to you at the address to which this
letter is addressed.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas without giving effect to the choice of law or
conflicts of law principles thereof.
16. If you desire to purchase any Securities and act as a Selected Dealer,
please confirm your application by signing and returning to us your confirmation
on the duplicate copy of this letter enclosed herewith, even though you may have
previously advised us thereof by telephone or telegraph. Our signature hereon
may be by facsimile.
Very truly yours,
FIRST LONDON SECURITIES CORPORATION
As Representative of the Several Underwriters
By: FIRST LONDON SECURITIES
CORPORATION
By:____________________________________
Douglas R. Nichols, President
SELECTED DEALER AGREEMENT - PAGE 4
<PAGE>
FIRST LONDON SECURITIES CORPORATION
As Representative of the Several Underwriters
c/o
2600 State Street
Dallas, Texas 75204
We hereby subscribe for _____________ Units (the "Securities"), each Unit
comprised of one share of Common Stock of U.S. Remodelers, Inc. and one
Redeemable Common Stock Purchase Warrant in accordance with the terms and
conditions stated in the foregoing Selected Dealer Agreement. We hereby
acknowledge receipt of the Prospectus referred to in the Selected Dealer
Agreement. We further state that in purchasing said Securities we have relied
upon said Prospectus and upon no other statement whatsoever, whether written or
oral. We confirm that we are a dealer actually engaged in the investment
banking or securities business and that we are either (i) a member in good
standing of the National Association of Securities Dealers, Inc. ("NASD"); or
(ii) a dealer with its principal place of business located outside the United
States, its territories and its possessions and not registered as a broker or
dealer under the Securities Exchange Act of 1934, as amended, who hereby agrees
not to make any sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein. As a
member of the NASD, we hereby agree to comply with all of the provisions of NASD
Conduct Rules. If we are a foreign Selected Dealer, we agree to comply with the
provisions of Rule 2740 of the Conduct Rules, and if we are a foreign dealer and
not a member of the NASD, we agree to comply with the NASD's interpretation with
respect to free-riding and withholding, and agree to comply, as though we were a
member of the NASD, with provisions of Rules 2730 and 2750 of such Conduct
Rules, and to comply with Rule 2420 thereof, as that Rule applies to non-member
foreign dealers.
Firm:_____________________________
By:_______________________________
(Name and Position)
Address: ____________________
____________________
Telephone No.:____________________
Dated: _______________, 1998
<PAGE>
Exhibit 1.4
REPRESENTATIVE'S WARRANT AGREEMENT
Representative's WARRANT AGREEMENT (the "Representative's Warrant
Agreement" or "Agreement"), dated as of ______________, 1998, between U.S.
REMODELERS, INC. (the "Company"), and FIRST LONDON SECURITIES CORPORATION (the
"Representative").
W I T N E S S E T H:
--------------------
WHEREAS, the Representative has agreed, pursuant to that certain
underwriting agreement dated as of the date hereof by and between the Company
and the Representative (the "Underwriting Agreement"), to act as the
representative of the Underwriters in connection with the Company's proposed
public offering (the "Public Offering") of 1,400,000 Units (the "Securities") at
$5.125 per Unit (the "Unit IPO Price"), each Unit comprised of one share of
common stock, par value $.01 per share (the "Common Stock"), at $5.00 per share
of Common Stock (the "Common Stock IPO Price") and one redeemable common stock
purchase warrant (the "Warrant") at $.125 per warrant (the "Warrant IPO
Price"); and
WHEREAS, the Company proposes to issue to the Representative and/or persons
related to the Representative as those persons are defined in Rule 2710 of the
NASD Conduct Rules (the "Holder"), 140,000 warrants ("Representative's
Warrants") to purchase 140,000 Units, each Unit comprised of one share of Common
Stock (the "Share") and one Warrant (the "Underlying Warrant") exercisable to
purchase one share of Common Stock (the "Underlying Warrant Share"). The
"Shares," the "Underlying Warrants" and the "Underlying Warrant Shares" are
collectively referred to as the "Warrant Securities;" and
WHEREAS, the Representative's Warrants to be issued pursuant to this
Agreement will be issued on the Closing Date (as such term is defined in the
Underwriting Agreement) by the Company to the holders ("Holders") in
consideration for, and as part of the compensation in connection with, the
Representative acting as representative pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of ONE HUNDRED DOLLARS AND NO CENTS ($100.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Grant and Period.
----------------
The Public Offering has been registered under a Registration Statement on
Form SB-2 (File No. ________________) (the "Registration Statement") and
declared effective by the Securities and Exchange Commission (the "SEC" or
"Commission") on ______________, 199__ (the "Effective Date"). This Agreement,
relating to the purchase of the Representative's Warrants, is entered into
pursuant to the Underwriting Agreement between the Company and the
Representative, as representative of the Underwriters, in connection with the
Public Offering.
<PAGE>
Pursuant to the Representative's Warrants, the Holders are hereby granted
the right to purchase from the Company, at any time during the five year period
commencing __________, 199__ (one year from the Closing Date) (the "Purchase
Date") and expiring at 5:00 New York time on ____________, 200__, (five years
after the Purchase Date) (the "Expiration Time"), up to 140,000 Units, an
initial exercise price (subject to adjustment as provided in Article 8) of $6.15
per Unit (120% of the Unit IPO Price)(the "Unit Exercise Price"), or $6.00 per
Share (the "Share Exercise Price") and $.15 per Underlying Warrant (the "Warrant
Exercise Price"), subject to the terms and conditions of this Agreement. Each
Underlying Warrant is exercisable to purchase one Underlying Warrant Share
(subject to adjustment as provided in Article 8) at the IPO exercise price (the
"Underlying Warrant Share Exercise Price") during the five year period
commencing on the Purchase Date and ending on the Expiration Time.
Except as specifically otherwise provided herein, the Shares, the
Underlying Warrants and the Underlying Warrant Shares constituting the Warrant
Securities shall bear the same terms and conditions as such securities described
under the caption "Description of Securities" in the Registration Statement, and
as designated in the Company's Certificate of Incorporation and any amendments
thereto, and the Underlying Warrants shall be governed by the terms of the
Warrant Agreement executed in connection with the Public Offering (the "Warrant
Agreement"), except as provided herein, and the Holders shall have registration
rights under the Securities Act of 1933, as amended (the "Act"), for the Shares,
the Underlying Warrants, and the Underlying Warrant Shares, as more fully
described in paragraph Article 7 of this Representative's Warrant Agreement. In
the event of any extension of the expiration date or reduction of the exercise
price of the Warrants, the same such changes to the Underlying Warrants shall be
simultaneously effected, except that the Underlying Warrants shall expire no
later than five years from the Effective Date.
2. Warrant Certificates.
--------------------
The warrant certificates (the "Warrant Certificates") delivered and to be
delivered pursuant to this Agreement shall be in the form set forth in the form
of Warrant Certificate, attached hereto and made a part hereof, with such
appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant.
-------------------
3.1 Full Exercise.
-------------
(a) A Holder may effect a cash exercise of any of the Representative's
Warrants or the Underlying Warrants by surrendering the Warrant Certificate,
together with a Subscription in the form of Exhibit 1 attached thereto, duly
---------
executed by such Holder to the Company, at any time prior to the Expiration
Time, at the Company's principal office, accompanied by payment in cash or by
certified or official bank check payable to the order of the Company in the
amount of the aggregate purchase price of such Warrant Securities, subject to
any adjustments provided for in this Agreement. The aggregate purchase price
hereunder for each Holder shall be equal to the exercise price for such Warrant
Securities as set forth in Article 6 multiplied by the number of Underlying
Warrants,
REPRESENTATIVE'S WARRANT AGREEMENT - PAGE 2
<PAGE>
Underlying Warrant Shares or Shares, as applicable, that are the subject of each
Holder's Representative's Warrant (as adjusted as hereinafter provided).
(b) In lieu of the payment of the Share Exercise Price or the Underlying
Warrant Share Exercise Price, as the case may be, in the manner required by
Section 3.1(a), the Holder shall have the right to pay such exercise price for
the shares of Common Stock being so purchased by the surrender to the Company of
any exercisable but unexercised portion of such Holder's Representative's
Warrants or Underlying Warrants, as the case may be, having a then Value (as
defined below) equal to such exercise price multiplied by the number of shares
of Common Stock being purchased upon such exercise ("Cashless Exercise Right").
The sum of (i) the number of shares of Common Stock being purchased upon
exercise of the non-surrendered portion of the Representative's Warrants or the
Underlying Warrants, as the case may be, pursuant to this Cashless Exercise
Right and (ii) the number of shares of Common Stock underlying the portion of
the warrants being so surrendered, shall not in any event be greater than the
total number of shares of Common Stock purchasable upon the complete exercise of
the warrants being so surrendered, if the Share Exercise Price or the Underlying
Warrant Share Exercise Price, as the case may be, were paid in cash. The Value
of the portion of the Representative's Warrants or Underlying Warrants, as the
case may be, being surrendered shall equal the remainder derived from
subtracting (1) the Share Exercise Price or the Underlying Share Exercise Price,
as the case may be, multiplied by the number of shares of Common Stock
underlying the portion of the warrants being so surrendered from (2) the Market
Value (as defined below) of a share of Common Stock multiplied by the number of
shares of Common Stock underlying the portion of the warrants being so
surrendered. The Market Value shall be determined on a per share basis as of
the close of the business day preceding the exercise, which determination shall
be made as follows: (x) if the Common Stock is listed for trading on a national
or regional stock exchange or is included on the Nasdaq National Market or
SmallCap Market, the average closing sale price quoted on such exchange or the
Nasdaq National Market or SmallCap Market that is published in The Wall Street
---------------
Journal for the ten trading days immediately preceding the date of exercise, or
- -------
if no trade of the Common Stock shall have been reported during such period, the
last sale price so quoted for the next day prior thereto on which a trade in the
Common Stock was so reported; or (y) if the Common Stock is not so listed,
admitted to trading or included, the average of the closing highest reported bid
and lowest reported ask price as quoted on the National Association of
Securities Dealer's OTC Bulletin Board or in the "pink sheets" published by the
National Daily Quotation Bureau for the first day immediately preceding the date
of exercise on which the Common Stock is traded. The Cashless Exercise Right
may be exercised by the Holder by delivering the Warrant Certificate to the
Company together with a Subscription in the form of Exhibit 2 attached thereto,
---------
duly executed by such Holder, in which case no payment of cash will be required.
3.2 Partial Exercise.
----------------
The Warrant Securities referred to in Section 3.1 above also may be
exercised from time to time in part by surrendering the Warrant Certificate in
the manner specified in Section 3.1, except that with respect to a cash
exercise, the purchase price payable with respect to such exercise shall be
equal to the number of Warrant Securities being purchased hereunder multiplied
by the exercise price for
REPRESENTATIVE'S WARRANT AGREEMENT - PAGE 3
<PAGE>
such Warrant Security, subject to any adjustments provided for in this
Agreement. Upon any such partial exercise, the Company, at its expense, will
forthwith issue to the Holder hereof a new Warrant Certificate or
Representative's Warrants of like tenor calling in the aggregate for the number
of securities (as constituted as of the date hereof) for which the Warrant
Certificate shall not have been exercised, issued in the name of the Holder
hereof or as such Holder (upon payment by such Holder of any applicable transfer
taxes) may direct.
4. Issuance of Certificates.
------------------------
Upon the exercise of the Representative's Warrants or the Underlying
Warrants, the issuance of certificates for the shares of Common Stock or other
securities, as applicable, shall be made forthwith (and in any event within
three business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Articles 5
and 7) be issued in the name of, or in such names as may be directed by, the
Holder thereof; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any such certificates in a name other than that of the Holder
and the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the shares of
Common Stock or other securities, as applicable, shall be executed on behalf of
the Company by the manual or facsimile signature of the then present Chairman or
Vice Chairman of the Board of Directors or Chairman or Vice Chairman of the
Company under its corporate seal reproduced thereon, attested to by the manual
or facsimile signature of the then present Secretary or Assistant Secretary of
the Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Representative's Warrants.
----------------------------------------------------
The Holder of a Warrant Certificate, by acceptance thereof, covenants and
agrees that the Representative's Warrants may not be sold, transferred,
assigned, hypothecated or otherwise disposed of, in whole or in part, except (a)
to officers of the Representative or to officers and partners of the other
Underwriters or Selected Dealers participating in the Public Offering; (b) by
will; or (c) by operation of law.
6. Exercise Price.
--------------
6.1 Initial and Adjusted Exercise Prices.
------------------------------------
The initial Unit Exercise Price of each Representative's Warrant shall be
$6.15 per Unit (120% of the Unit IPO Price), or $6.00 per Share and $.15 per
Warrant, that make up the Underlying Warrants. The initial Underlying Warrant
Share Exercise Price of each Underlying Warrant shall be
REPRESENTATIVE'S WARRANT AGREEMENT - PAGE 4
<PAGE>
the IPO exercise price. The adjusted exercise price of any Warrant Security
shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Article 8. The Representative's Warrants are exercisable during the five year
period commencing one year from the Purchase Date and the Underlying Warrants
are exercisable during the five year period commencing on the Purchase Date.
6.2 Exercise Price.
--------------
The term "exercise price" herein shall mean the initial exercise price or
the adjusted exercise price, depending upon the context.
7. Registration Rights.
-------------------
7.1 Registration Under the Securities Act of 1933.
---------------------------------------------
The Shares, the Underlying Warrants and the Underlying Warrants Shares
(collectively the "Registrable Securities") have been registered under the
Securities Act of 1933, as amended (the "Act"). Upon exercise, in part or in
whole, of the Representative's Warrants, certificates representing the Shares,
the Underlying Warrants or the Underlying Warrants Shares, as the case may be,
shall bear the following legend in the event there is no current registration
statement effective with the Commission at such time as to such securities:
The securities represented by this certificate may not be offered
or sold except pursuant to (i) an effective registration
statement under the Securities Act of 1933, as amended (the
"Act"), (ii) to the extent applicable, Rule 144 under the Act (or
any similar rule under such Act relating to the disposition of
securities), or (iii) an opinion of counsel, if such opinion
shall be reasonably satisfactory to counsel to the issuer, that
an exemption from registration under such Act and applicable
state securities laws is available.
7.2 Piggyback Registration.
----------------------
If, at any time commencing after the Effective Date of the Public Offering
and expiring seven (7) years thereafter, the Company prepares and files a post-
effective amendment to the Registration Statement, or a new registration
statement, under the Act, or files a Notification on Form 1-A or otherwise
registers securities under the Act, or files a similar disclosure document with
the Commission (collectively the "Registration Documents") as to any of its
securities under the Act (other than under a registration statement pursuant to
Form S-8 or Form S-4 or small business issue equivalent), it will give written
notice by registered mail, at least 30 days prior to the filing of each such
Registration Document, to the Representative and to all other Holders of the
Registrable Securities of its intention to do so. If the Representative or other
Holders of the Registrable Securities notify the Company within 20 days after
receipt of any such notice of its or their desire to include any such
Registrable Securities in such proposed Registration Documents, the Company
shall afford the Representative and such Holders of such Registrable Securities
the opportunity to have any
REPRESENTATIVE'S WARRANT AGREEMENT - PAGE 5
<PAGE>
Registrable Securities registered under such Registration Documents or any other
available Registration Document.
Notwithstanding the provisions of this Section 7.2, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 7.2 (irrespective of whether a written request for inclusion of any such
securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
7.3 Demand Registration.
-------------------
(a) At any time commencing one year after the Effective Date of the Public
Offering, and expiring five years thereafter, the Holders of Registrable
Securities representing more than 50% of such securities at that time
outstanding shall have the right (which is in addition to the registration
rights under Section 7.2), exercisable by written notice to the Company, to have
the Company prepare and file with the Commission at the sole expense of the
Company, on one occasion, a registration statement and/or such other documents,
including a prospectus, and/or any other appropriate disclosure document as may
be reasonably necessary in the opinion of both counsel for the Company and
counsel for the Representative and Holders, in order to comply with the
provisions of the Act, so as to permit a public offering and sale of their
respective Registrable Securities for nine consecutive months (or such longer
period of time as permitted by the Act) by such Holders and any other Holders of
any of the Registrable Securities who notify the Company within ten days after
being given notice from the Company of such request (a "Demand Registration").
A Demand Registration shall not be counted as a Demand Registration hereunder
until such Demand Registration has been declared effective by the SEC and
maintained continuously effective for a period of at least nine months, subject
to reasonable "black-out" periods in which event such nine months shall be
extended by a number of days equal to the duration and the "black-out" periods,
or such shorter period when all Registrable Securities included therein have
been sold in accordance with such Demand Registration, provided that a Demand
Registration shall be counted as a Demand Registration hereunder if the Company
ceases its efforts in respect of such Demand Registration at the request of the
majority Holders making the demand for a reason other than a material and
adverse change in the business, assets, prospects or condition (financial or
otherwise) of the Company and its subsidiaries taken as a whole.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by the majority of the Holders to
all other registered Holders of any of the Registrable Securities within ten
days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, at any time commencing one year after the
Effective Date of the Public Offering, and expiring five years thereafter, the
Holders of any Registrable Securities representing more than 50% of such
securities shall have the right, exercisable by written request to the Company,
to have the Company prepare and file, on one occasion, with the Commission a
registration statement or any other appropriate disclosure document so as to
permit a public offering and sale for nine consecutive
REPRESENTATIVE'S WARRANT AGREEMENT - PAGE 6
<PAGE>
months (or such longer period of time as permitted by the Act) by any such
Holder of Registrable Securities; provided, however, that the provisions of
Section 7.4(b) shall not apply to any such registration request and registration
and all costs incident thereto shall be at the expense of the Holder or Holders
participating in the offering pro-rata.
(d) Any written request by the Holders made pursuant to this Section 7.3
shall:
(i) Specify the number of Registrable Securities which the Holders
intend to offer and sell and the minimum price at which the Holders intend
to offer and sell such securities;
(ii) State the intention of the Holders to offer such securities for
sale;
(iii) Describe the intended method of distribution of such
securities; and
(iv) Contain an undertaking on the part of the Holders to provide
all such information and materials concerning the Holders and take all such
action as may be reasonably required to permit the Company to comply with
all applicable requirements of the Commission and to obtain acceleration of
the effective date of the registration statement.
(e) In the event the Company receives from the Holders of any Registrable
Securities representing more than 50% of such securities at that time
outstanding, a request that the Company effect a registration on Form S-3 with
respect to the Registrable Securities and if Form S-3 is available for such
offering, the Company shall, as soon as practicable, effect such registration as
would permit or facilitate the sale and distribution of the Registrable
Securities as are specified in the request. All expenses incurred in connection
with a registration requested pursuant to this Subsection (e) shall be borne by
the Company. Registrations effected pursuant to this Subsection (e) shall not
be counted as registrations pursuant to Sections 7.3 (a) and 7.3 (c).
7.4 Covenants of the Company With Respect to Registration.
-----------------------------------------------------
In connection with any registration under Section 7.2 or 7.3, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within 45 days of receipt of any demand pursuant to Section 7.3, and
shall use its best efforts to have any such registration statement declared
effective at the earliest practicable time. The Company will promptly notify
each seller of such Registrable Securities, and confirm such advice in writing,
(i) when such registration statement becomes effective, (ii) when any post-
effective amendment to such registration statement becomes effective, and (iii)
of any request by the SEC for any amendment or supplement to such registration
statement or any prospectus relating thereto or for additional information.
The Company shall furnish to each seller of such Registrable Securities
such number of copies of such registration statement and of each such amendment
and supplement thereto (in each case including each preliminary prospectus and
summary prospectus) in conformity with the requirements
REPRESENTATIVE'S WARRANT AGREEMENT - PAGE 7
<PAGE>
of the Act, and such other documents as such seller may reasonably request in
order to facilitate the disposition of the Registrable Securities by such
seller.
(b) The Company shall pay all costs (excluding transfer taxes, if any, and
fees and reasonable expenses of Holder's counsel (such costs of counsel not to
exceed $10,000)), fees and expenses in connection with all registration
statements filed pursuant to Sections 7.2 and 7.3(a) including, without
limitation, the Company's legal and accounting fees, printing expenses, blue sky
fees and expenses. If the Company shall fail to comply with the provisions of
Section 7.3(a), the Company shall, in addition to any other equitable or other
relief available to the Holder, be liable for any or all special and
consequential damages sustained by the Holder requesting registration of their
Registrable Securities.
(c) The Company shall prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be reasonably necessary to keep such registration statement
effective for at least nine months, and to comply with the provisions of the Act
with respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the seller or sellers of Registrable Securities set forth in such
registration statement. If at any time the SEC should institute or threaten to
institute any proceedings for the purpose of issuing a stop order suspending the
effectiveness of any such registration statement, the Company will promptly
notify each seller of such Registrable Securities and will use all reasonable
efforts to prevent the issuance of any such stop order or to obtain the
withdrawal thereof as soon as possible. The Company will use its good faith
reasonable efforts and take all reasonably necessary action which may be
required in qualifying or registering the Registrable Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are required by the seller of such Registrable
Securities, provided that the Company shall not be obligated to execute or file
any general consent to service of process or to qualify as a foreign corporation
to do business under the laws of any such jurisdiction. The Company shall use
its good faith reasonable efforts to cause such Registrable Securities covered
by such registration statement to be registered with or approved by such other
governmental agencies or authorities of the United States or any state thereof
as may be reasonably necessary to enable the seller or sellers thereof to
consummate the disposition of such Registrable Securities.
(d) The Company shall indemnify the Holder of the Registrable Securities
to be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
against all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement but only to the same
extent and with the same effect as the provisions pursuant to which the Company
has agreed to indemnify the Representative as contained in the Underwriting
Agreement.
REPRESENTATIVE'S WARRANT AGREEMENT - PAGE 8
<PAGE>
(e) If requested by the Company prior to the filing of any registration
statement covering the Registrable Securities, each of the Holders of the
Registrable Securities to be sold pursuant to a registration statement, and
their successors and assigns, shall severally, and not jointly, indemnify the
Company, its officers and directors and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against all loss, claim, damage or expense or liability (including
all expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which they may become subject under the Act,
the Exchange Act or otherwise, arising from written information furnished by
such Holder, or their successors or assigns, for specific inclusion in such
registration statement to the same extent and with the same effect as the
provisions contained in the Underwriting Agreement pursuant to which the
Representative have agreed to indemnify the Company, except that the maximum
amount which may be recovered from each Holder pursuant to this paragraph or
otherwise shall be limited to the amount of net proceeds received by the Holder
from the sale of the Registrable Securities.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holders to exercise their Representative's Warrants or Underlying Warrants
prior to the filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Registrable Securities to be included in any registration statement
filed pursuant to Section 7.3 without the prior written consent of the Holders
of the Registrable Securities representing a majority of such securities.
(h) The Company shall furnish to each Holder participating in the offering
and to each underwriter, if any, a signed counterpart, addressed to such Holder
or underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
Underwriting Agreement), and (ii) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under the
Underwriting Agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(i) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and the
managing underwriter copies of all correspondence between the Commission and the
Company, its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and
REPRESENTATIVE'S WARRANT AGREEMENT - PAGE 9
<PAGE>
properties and opportunities to discuss the business of the Company with its
officers and independent auditors, all to such reasonable extent and at such
reasonable times and as often as any such Holder shall reasonably request.
(j) With respect to a registration statement filed pursuant to Section 7.3,
the Company, if requested, shall enter into an Underwriting Agreement with the
managing underwriter, reasonably satisfactory to the Company, selected for such
underwriting by Holders holding a majority of the Registrable Securities
requested to be included in such underwriting. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter. The Holders, if required by the
underwriter to be parties to any underwriting agreement relating to an
underwritten sale of their Registrable Securities, may, at their option, require
that any or all the representations, warranties and covenants of the Company to
or for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(k) Notwithstanding the provisions of Section 7.2 or Section 7.3 of this
Agreement, the Company shall not be required to effect or cause the registration
of Registrable Securities pursuant to Section 7.2 or Section 7.3 if and to the
extent that, within 30 days after its receipt of a request to register such
Registrable Securities (i) counsel for the Company delivers an opinion to the
Holders requesting registration of such Registrable Securities, in form and
substance satisfactory to counsel to such Holder, to the effect that the entire
number of Registrable Securities proposed to be sold by such Holders may
otherwise be sold, in the manner proposed by such Holder, without registration
under the Securities Act, or (ii) the SEC shall have issued a no-action
position, in form and substance reasonably satisfactory to counsel for the
Holder requesting registration of such Registrable Securities, to the effect
that the entire number of Registrable Securities proposed to be sold by such
Holder may be sold by it, in the manner proposed by such Holder, without
registration under the Securities Act.
(l) After completion of the Public Offering, the Company shall not,
directly or indirectly, enter into any merger, business combination or
consolidation in which (i) the Company shall not be the surviving corporation
and (ii) the stockholders of the Company are to receive, in whole or in part,
capital stock or other securities of the surviving corporation, unless the
surviving corporation shall, prior to such merger, business combination or
consolidation, agree in writing to assume the obligations of the Company under
this Agreement, and for that purpose references hereunder to "Registrable
Securities" shall be deemed to include the securities which the Holders would be
entitled to receive in exchange for Registrable Securities under any such
merger, business combination or consolidation, provided that to the extent such
securities to be received are convertible into shares of Common Stock of the
issuer thereof, then any such shares of Common Stock as are issued or issuable
upon conversion of said convertible securities shall also be included within the
definition of "Registrable Securities".
REPRESENTATIVE'S WARRANT AGREEMENT - PAGE 10
<PAGE>
8. Adjustments to Exercise Price and Number of Securities.
------------------------------------------------------
8.1 Adjustment for Dividends, Subdivisions, Combinations or
-------------------------------------------------------
Reclassification.
- ----------------
In case the Company shall (a) pay a dividend or make a distribution in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (b) subdivide its outstanding shares of Common Stock into a
greater number of shares, (c) combine its outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of its shares
of Common Stock any shares of capital stock of the Company; then, and in each
such case, the Share Exercise Price, the Underlying Warrant Exercise Price and
the number of Representative's Warrants in effect immediately prior to such
action shall be adjusted so that the Holder thereafter upon the exercise hereof
shall be entitled to receive the number and kind of shares of the Company which
such Holder would have owned immediately following such action had this warrant
been exercised immediately prior thereto. An adjustment made pursuant to this
Section shall become effective immediately after the record date in the case of
a dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
If, as a result of an adjustment made pursuant to this Section, the Holder shall
become entitled to receive shares of two or more classes of capital stock of the
Company, the Board of Directors of the Company (whose determination shall be
conclusive) shall determine the allocation of the adjusted Share Exercise Price
and Underlying Warrant Exercise Price between or among shares of such class of
capital stock.
Immediately upon any adjustment of the exercise price of any
Representative's Warrant pursuant to this Section, the Company shall send
written notice thereof to the Holder of Warrant Certificates (by first class
mail, postage prepaid), which notice shall state the exercise price of such
Representative's Warrant resulting from such adjustment, and any increase or
decrease in the number of Warrant Securities to be acquired upon exercise of the
Representative's Warrants, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
8.2 Adjustment For Reorganization, Merger or Consolidation.
------------------------------------------------------
In case of any reorganization of the Company or consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental Warrant agreement providing that the Holder of each
Representative's Warrant then outstanding or to be outstanding shall have the
right thereafter (until the expiration of such Representative's Warrant) to
receive, upon exercise of such Representative's Warrant, the kind and amount of
shares of stock and other securities and property receivable upon such
consolidation or merger, by a holder of the number of shares of Common Stock of
the Company for which such Representative's Warrant might have been exercised
immediately prior to such reorganization, consolidation, merger, conveyance,
sale or transfer. Such supplemental Warrant agreement shall provide for
adjustments which shall be identical to the adjustments provided in Section 8.1
and such registration rights and other rights as provided in this Agreement.
The Company shall not effect any
REPRESENTATIVE'S WARRANT AGREEMENT - PAGE 11
<PAGE>
such consolidation, merger, or similar transaction as contemplated by this
Section 8.2, unless prior to or simultaneously with the consummation thereof,
the successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing, receiving, or leasing
such assets or other appropriate corporation or entity shall assume, by written
instrument executed and delivered to the Holders, the obligation to deliver to
the Holders, such shares of stock, securities, or assets as, in accordance with
the foregoing provisions, such holders may be entitled to purchase, and to
perform the other obligations of the Company under this Agreement. The above
provision of this Subsection shall similarly apply to successive consolidations
or successively whenever any event listed above shall occur.
8.3 Dividends and Other Distributions.
---------------------------------
In the event that the Company shall at any time prior to the exercise of
all of the Representative's Warrants and Underlying Warrants distribute to its
stockholders any assets, property, rights, evidences of indebtedness, securities
(other than a distribution made as a cash dividend payable out of earnings or
out of any earned surplus legally available for dividends under the laws of the
jurisdictions of incorporation of the Company), whether issued by the Company or
by another, the Holders of the unexercised Representative's Warrants shall
thereafter be entitled, in addition to the shares of Common Stock or other
securities and property receivable upon the exercise thereof, to receive, upon
the exercise of such Representative's Warrants, the same property, assets,
rights, evidences of indebtedness, securities or any other thing of value that
they would have been entitled to receive at the time of such distribution as if
the Representative's Warrants had been exercised immediately prior to such
distribution. At the time of any such distribution, the Company shall make
appropriate reserves to ensure the timely performance of the provisions of this
subsection or an adjustment to the exercise price of such Representative's
Warrants, which shall be effective as of the day following the record date for
such distribution.
8.4 Adjustment in Number of Securities.
----------------------------------
Upon each adjustment of the exercise price of Representative's Warrants
pursuant to the provisions of this Article 8, the number of securities issuable
upon the exercise of each Warrant and Underlying Warrant shall be adjusted to
the nearest full amount by multiplying a number equal to the exercise price in
effect immediately prior to such adjustment by the number of securities issuable
upon exercise of the Representative's Warrants and the Underlying Warrants
immediately prior to such adjustment and dividing the product so obtained by the
adjusted exercise price.
8.5 No Adjustment of Exercise Price in Certain Cases.
------------------------------------------------
No adjustment of the exercise price of any Representative's Warrant shall
be made if the amount of said adjustment would be less than $.05 per security;
provided, however, that in any such case any adjustment that would otherwise be
required then to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least $.05 per security.
REPRESENTATIVE'S WARRANT AGREEMENT - PAGE 12
<PAGE>
8.6 Accountant's Certificate of Adjustment.
--------------------------------------
In each case of an adjustment or readjustment of the Share Exercise Price,
Underlying Warrant Exercise Price or the number of any securities issuable upon
exercise of the Representative's Warrants or the Underlying Warrants, the
Company, at its expense, shall cause independent certified public accountants of
recognized standing selected by the Company (who may be the independent
certified public accountants then auditing the books of the Company) to compute
such adjustment or readjustment in accordance herewith and prepare a certificate
showing such adjustment or readjustment, and shall mail such certificate, by
first class mail, postage prepaid, to any Holder of the Representative's
Warrants or the Underlying Warrants, as the case may be, at the Holder's address
as shown on the Company's books. The certificate shall set forth such
adjustment or readjustment, showing in detail the facts upon which such
adjustment or readjustment is based including, but not limited to, a statement
of (i) the Share Exercise Price or the Underlying Warrant Share Exercise Price
at the time in effect, and (ii) the number of additional securities and the type
and amount, if any, of other property which at the time would be received upon
exercise of the Representative's Warrants or Underlying Warrants, as the case
may be.
8.7 Adjustment of Underlying Warrant Exercise Price.
-----------------------------------------------
With respect to any of the Underlying Warrants, whether or not the
Underlying Warrants have been exercised (or are exercisable) and whether or not
the Underlying Warrants are issued and outstanding, the Underlying Warrant Share
Exercise Price and the number of Underlying Warrant Shares shall be
automatically adjusted in accordance with the Warrant Agreement between the
Company and the Company's transfer agent, upon occurrence of any of the events
relating to adjustments described therein. Thereafter, the Underlying Warrants
shall be exercisable at such adjusted Underlying Warrant Share Exercise Price
for such adjusted number of Underlying Warrant Shares or other securities,
properties or rights.
9. Exchange and Replacement of Warrant Certificates.
------------------------------------------------
Each Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Representative's
Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
REPRESENTATIVE'S WARRANT AGREEMENT - PAGE 13
<PAGE>
10. Elimination of Fractional Interest.
----------------------------------
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock upon the exercise of the Representative's
Warrants or Underlying Warrants, nor shall it be required to issue script or pay
cash in lieu of fractional interests, it being the intent of the parties that
all fractional interests may be eliminated, at the Company's option, by rounding
any fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights, or in lieu thereof paying cash equal to such
fractional interest multiplied by the current value of a share of Common Stock.
11. Reservation and Listing.
-----------------------
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Representative's Warrants and the Underlying Warrants, such
number of shares of Common Stock or other securities, properties or rights as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Representative's Warrants or the Underlying Warrants,
and payment of the exercise price therefor, all shares of Common Stock and other
securities issuable upon such exercise shall be duly and validly issued, fully
paid, non-assessable and not subject to the preemptive rights of any
stockholder. As long as the Representative's Warrants and Underlying Warrants
shall be outstanding, the Company shall use its best efforts to cause all shares
of Common Stock issuable upon the exercise of the Representative's Warrants and
the Underlying Warrants to be listed and quoted (subject to official notice of
issuance) on all securities exchanges and systems on which the Common Stock
and/or the Warrants may then be listed and/or quoted, including Nasdaq.
12. Notices to Warrant Holders.
--------------------------
Nothing contained in this Agreement shall be construed as conferring upon
the Holders of the Representative's Warrants or the Underlying Warrants the
right to vote or to consent or to receive notice as a stockholder in respect of
any meetings of stockholders, for the election of directors or any other matter,
or as having any rights whatsoever as a stockholder of the Company. If,
however, at any time prior to the expiration of the Representative's Warrants
and the Underlying Warrants and their exercise, any of the following events
shall occur:
(a) The Company shall take a record of the holders of its shares of Common
Stock for the purpose of entitling them to receive a dividend or distribution
payable otherwise than in cash, or a cash dividend or distribution payable
otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) The Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible into
or exchangeable for shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
REPRESENTATIVE'S WARRANT AGREEMENT - PAGE 14
<PAGE>
(c) A dissolution, liquidation or winding up of the Company (other than in
connection with a consolidation or merger) or a sale of all or substantially all
of its property, assets and business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least 15 days prior to the date fixed as a record date of the
date of closing the transfer books for the determination of the stockholders
entitled to such dividend, distribution, convertible or exchangeable securities
or subscription rights, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale. Such notices shall specify such record date or
the date of closing the transfer books, as the case may be. Failure to give
such notice or any defect therein shall not affect the validity of any action
taken in connection with the declaration or payment of any such dividend, or the
issuance of any convertible or exchangeable securities, or subscription rights,
options or warrants, or any proposed dissolution, liquidation, winding up or
sale.
13. Underlying Warrants.
-------------------
The form of the certificate representing the Underlying Warrants (and the
form of election to purchase shares of Common Stock upon the exercise of the
Underlying Warrants and the form of assignment printed on the reverse thereof)
shall be substantially as set forth in the exhibits to the Warrant Agreement.
Subject to the terms of this Agreement, one Underlying Warrant shall evidence
the right to initially purchase one fully paid and nonassessable share of Common
Stock at the Warrant IPO Price during the five year period commencing on the
Purchase Date and ending at the Effective Time, at which time the Underlying
Warrants Share shall expire. The Underlying Warrant Share Exercise Price and
the number of Underlying Warrant Shares issuable upon the exercise of the
Underlying Warrants are subject to adjustment, whether or not the
Representative's Warrants have been exercised and the Underlying Warrants have
been issued, in the manner and upon the occurrence of the events set forth in
the Warrant Agreement, which is hereby incorporated herein by reference and made
a part hereof as if set forth in its entirety herein. Subject to the provisions
of this Agreement and upon issuance of the Underlying Warrants, each registered
holder of such Underlying Warrant shall have the right to purchase from the
Company (and the Company shall issue to such registered holders) up to the
number of fully paid and nonassessable shares of Common Stock (subject to
adjustment as provided in the Warrant Agreement) set forth in such Warrant
Certificate, free and clear of all preemptive rights of stockholders, provided
that such registered Holder complies with the terms governing exercise of the
Underlying Warrant set forth in the Warrant Agreement, and pays the applicable
Underlying Warrant Share Exercise Price, determined in accordance with the terms
of the Warrant Agreement. Upon exercise of the Underlying Warrants, the Company
shall forthwith issue to the registered holder of any such Underlying Warrant in
his name or in such name as may be directed by him, certificates for the number
of shares of Common Stock so purchased. Except as otherwise provided herein and
in this Agreement, the Underlying Warrants shall be governed in all respects by
the terms of the Warrant Agreement. The Underlying Warrants shall be
transferable in the manner provided in the Warrant Agreement, and upon any such
transfer, a new Underlying Warrant certificate shall be issued promptly to the
transferee. The Company covenants to send to each Holder, irrespective of
whether or not the Representative's Warrants have been
REPRESENTATIVE'S WARRANT AGREEMENT - PAGE 15
<PAGE>
exercised, any and all notices required by the Warrant Agreement to be sent to
holders of Underlying Warrants.
14. Notices.
-------
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly given when personally
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of any of the Registrable Securities, to
the address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth below or to such other
address as the Company may designate by notice to the Holders.
U.S. Remodelers, Inc.
1341 West Mockingbird Lane, Suite 900E
Dallas, Texas 75247
Attention: Chief Executive Officer
With a copy to: Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202-3797
Attention: Charles D. Maguire, Jr.
15. Entire Agreement: Modification.
------------------------------
This Agreement (and the Underwriting Agreement and Warrant Agreement to the
extent applicable) contain the entire understanding between the parties hereto
with respect to the subject matter hereof, and the terms and provisions of this
Agreement may not be modified, waived or amended except in a writing executed by
the Company and the Holders of at least a majority of Registrable Securities
(based on underlying numbers of shares of Common Stock). Notice of any
modification, waiver or amendment shall be promptly provided to any Holder not
consenting to such modification, waiver or amendment.
16. Successors.
----------
All the covenants and provisions of this Agreement shall be binding upon
and inure to the benefit of the Company, the Holders and their respective
successors and assigns hereunder.
REPRESENTATIVE'S WARRANT AGREEMENT - PAGE 16
<PAGE>
17. Termination.
-----------
This Agreement shall terminate at 5:00 New York time on ______________,
2004. Notwithstanding the foregoing, the indemnification and piggy back
registration rights provisions of Section 7 shall survive such termination.
18. Governing Law; Submission to Jurisdiction.
-----------------------------------------
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Texas and for all
purposes shall be construed in accordance with the laws of said State without
giving effect to the rules of said State governing the conflicts of laws. The
Company, the Representative and the Holders hereby agree that any action,
proceeding or claim arising out of, or relating in any way to, this Agreement
shall be brought and enforced in a federal or state court of competent
jurisdiction with venue only in the State District court in Dallas, County,
Texas or the United States District Court for the Northern District of Texas,
and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Representative and the Holders hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum. Any
such process or summons to be served upon any of the Company, the Representative
and the Holders (at the option of the party bringing such action, proceeding or
claim) may be served by transmitting a copy thereof, by registered or certified
mail, return receipt requested, postage prepaid, addressed to it at the address
set forth in Section 14 hereof. Such mailing shall be deemed personal service
and shall be legal and binding upon the party so served in any action,
proceeding or claim.
19. Severability.
------------
If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
20. Captions.
--------
The caption headings of the Sections of this Agreement are for convenience
of reference only and are not intended, nor should they be construed as, a part
of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement.
--------------------------
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Representative and any other
registered Holder of the Warrant Certificates or Registrable Securities any
legal or equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole and exclusive benefit of the Company and the
Representative and any other Holder of the Warrant Certificates or Registrable
Securities.
REPRESENTATIVE'S WARRANT AGREEMENT - PAGE 17
<PAGE>
22. Counterparts.
------------
This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and such
counterparts shall together constitute but one and the same instrument.
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be duly
executed, as of the day and year first above written.
U.S. REMODELERS, INC.
By:_________________________________
Name: ________________________
Title: _______________________
Attest:
________________________
FIRST LONDON SECURITIES CORPORATION
By:_______________________________________
Douglas R. Nichols, President
REPRESENTATIVE'S WARRANT AGREEMENT - PAGE 18
<PAGE>
EXHIBIT A
<PAGE>
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME ON ______________, 2004
NO. W-______
_____________ Representative's Warrants
_____________ Underlying Warrants
This Warrant Certificate certifies that ______________________________, or
registered assigns, is the registered holder (the "Holder") of ___________
Representative's Warrant and__________ Underlying Warrants, __________ of U.S.
Remodelers, Inc. (the "Company"). Each Representative's Warrant permits the
Holder to purchase initially, at any time from ____________, 1999 (the "Purchase
Date") until 5:00 p.m. New York Time on ____________, 2004 (the "Expiration
Time"), one Unit of the Company at the initial exercise price, subject to
adjustment in certain events, of $6.15 per Unit (the "Unit Exercise Price")(120%
of the Unit IPO Price). Each Underlying Warrant permits the Holder thereof to
purchase, at any time from the Purchase Date until the Expiration Time, one
share of the Company's Common Stock at the initial exercise price, subject to
adjustment in certain events, of $6.25 per share.
Any exercise of Representative's Warrants or Underlying Warrants shall be
effected by surrender of this Warrant Certificate and payment of the exercise
price thereof at an office or agency of the Company, but subject to the
conditions set forth herein and in the Representative's Warrant Agreement dated
as of _______________, 1998, between the Company and First London Securities
Corporation (the "Representative's Warrant Agreement"). Payment of the exercise
price shall be made by certified check or official bank check in New York
Clearing House funds payable to the order of the Company in the event there is
no cashless exercise pursuant to Section 3.1(b) of the
<PAGE>
Representative's Warrant Agreement. The Representative's Warrants and Underlying
Warrants are collectively referred to as "Warrants".
No Warrant may be exercised after the Expiration Time, at which time all
Warrants evidenced hereby, unless exercised prior thereto, hereby shall
thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Representative's Warrant
Agreement, which Representative's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation or rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Representative's Warrant Agreement provides that upon the occurrence of
certain events, the exercise price, the type and the number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the exercise price and the
number or type of securities, as the case may be, issuable upon the exercise of
the Warrants; provided, however, that the failure of the Company to issue such
new Warrant Certificates shall not in any way change, alter, or otherwise
impair, the rights of the holder as set forth in the Representative's Warrant
Agreement.
Upon due presentment for registration or transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferees in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the
Representative's Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the Holder, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in the
Representative's Warrant Agreement shall have the meanings assigned to them in
the Representative's Warrant Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of _______________, 1998
U.S. REMODELERS, INC.
By:
Name:____________________
Title: ____________________
Attest:
________________________________
<PAGE>
EXHIBIT 1
FORM OF SUBSCRIPTION (CASH EXERCISE)
------------------------------------
(To be signed only upon exercise of Warrant)
TO: U.S. Remodelers, Inc.
1341 West Mockingbird Lane, Suite 900E
Dallas, Texas 75247
The undersigned, the Holder of Warrant Certificate number ____ (the
"Warrant"), representing ______________ Representative's Warrants and __________
Underlying Warrants of U.S. Remodelers, Inc. (the "Company"), which Warrant
Certificate is being delivered herewith, hereby irrevocably elects to exercise
the purchase right provided by the Warrant Certificate for, and to purchase
thereunder, _____________ Shares and _________________ Underlying Warrants, and
herewith makes payment of $____________ therefor, and requests that the
certificates for such securities be issued in the name of, and delivered to,
__________________________________________ whose address is
____________________________________, all in accordance with the
Representative's Warrant Agreement and the Warrant Certificate.
Dated:____________________________
___________________________________________
(Signature must conform in all respects to
name of Holder as specified on the face of
the Warrant Certificate)
___________________________________________
___________________________________________
(Address)
<PAGE>
EXHIBIT 2
FORM OF SUBSCRIPTION (CASHLESS EXERCISE)
----------------------------------------
TO: PawnMart, Inc.
301 Commerce Street, Suite 3600
Fort Worth, Texas 76102
The undersigned, the Holder of Warrant Certificate number ____ (the
"Warrant"), representing ___________ Representative's Warrants and
_________________ Underlying Warrants of U.S. Remodelers, Inc. (the "Company"),
which Warrant is being delivered herewith, hereby irrevocably elects the
cashless exercise of the purchase right provided by the Representative's Warrant
Agreement and the Warrant Certificate for, and to purchase thereunder, shares of
the Company Common Stock in accordance with the formula provided at Article 3 of
the Representative's Warrant Agreement. The undersigned requests that the
certificates for such shares be issued in the name of, and delivered to,________
___________________________________________ whose address is,_________________
_____________________________________ all in accordance with the Warrant
Certificate.
Dated:____________________________
__________________________________________
(Signature must conform in all respects to
name of Holder as specified on the face of
the Warrant Certificate)
__________________________________________
__________________________________________
(Address)
<PAGE>
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED)_____________________________________________________________
hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint______________________________
Attorney, to transfer the within Warrant Certificate on the books of the within-
named Company, and full power of substitution.
Dated: __________________________ Signature:
____________________________________________
(Signature must conform in all respects to
name of holder as specified on the fact of
the Warrant Certificate)
____________________________________________
(Insert Social Security or Other Identifying
Number of Assignee)
<PAGE>
EXHIBIT 1.5
U.S. Remodelers, Inc.
1341 West Mockingbird Lane, Suite 900E
Dallas, Texas 75247
First London Securities Corporation
2600 State Street
Dallas Texas 75204
Gentlemen:
The undersigned officer and/or director of U.S. Remodelers, Inc., a
Delaware corporation (the "Company"), understands that the Company, has filed a
registration statement on Form SB-2 (the "Registration Statement") with the
Securities and Exchange Commission for the registration of shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), and
redeemable common stock purchase warrants to be sold to the public in an
underwritten public offering (the "Public Offering").
In as much as the undersigned wishes to induce you to continue your efforts
in connection with the Public Offering, the undersigned hereby agrees and
represents to you that the undersigned will not, directly or indirectly, offer
to sell, sell, grant an option for the sale of, assign, transfer, pledge,
hypothecate or otherwise encumber or dispose of in any manner any interest in
any shares of Common Stock or securities of the Company convertible into,
exercisable or exchangeable for or evidencing any right to purchase or subscribe
for any shares of the Common Stock of the Company owned of record or
beneficially by the undersigned on the date hereof (collectively, the
"Securities"), including pursuant to Rule 144 under the Securities Act of 1933,
as amended, from the date hereof until two (2) years after the closing of the
Public Offering.
The undersigned acknowledges and agrees that the Company and the
underwriters of the IPO are relying on the representation and agreement of the
undersigned contained herein in filing the Registration Statement and in
consummating the IPO.
Very truly yours,
By:_________________________________________
Name:_______________________________________
Date:_______________________________________
No. of Securities held -____________________
<PAGE>
U.S. Remodelers, Inc.
1341 West Mockingbird Lane, Suite 900E
Dallas, Texas 75247
First London Securities Corporation
2600 State Street
Dallas Texas 75204
Gentlemen:
The undersigned beneficial owner of 5% or more of the outstanding Common
Stock (as hereinafter defined) of U.S. Remodelers, Inc., a Delaware corporation
(the "Company",) prior to the Public Offering (as hereinafter defined)
understands that the Company, has filed a registration statement on Form SB-2
(the "Registration Statement") with the Securities and Exchange Commission for
the registration of shares of the Company's common stock, par value $.01 per
share (the "Common Stock"), and redeemable common stock purchase warrants to be
sold to the public in an underwritten public offering (the "Public Offering").
In as much as the undersigned wishes to induce you to continue your efforts
in connection with the Public Offering, the undersigned hereby agrees and
represents to you that the undersigned will not, directly or indirectly, offer
to sell, sell, grant an option for the sale of, assign, transfer, pledge,
hypothecate or otherwise encumber or dispose of in any manner any interest in
any shares of Common Stock or securities of the Company convertible into,
exercisable or exchangeable for or evidencing any right to purchase or subscribe
for any shares of the Common Stock of the Company owned of record or
beneficially by the undersigned on the date hereof (collectively, the
"Securities"), including pursuant to Rule 144 under the Securities Act of 1933,
as amended, from the date hereof until one (1) year after the closing of the
Public Offering.
The undersigned acknowledges and agrees that the Company and the
underwriters of the IPO are relying on the representation and agreement of the
undersigned contained herein in filing the Registration Statement and in
consummating the IPO.
Very truly yours,
By:_________________________________________
Name:_______________________________________
Date:_______________________________________
No. of Securities held -____________________
<PAGE>
Exhibit 2.1
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is entered into as of
February __, 1997 among AMRE, Inc. ("AMRE"), Facelifters Home Systems, Inc.
("Facelifters") American Remodeling, Inc. ("ARI") (collectively, AMRE,
Facelifters and ARI are sometimes referred to herein as "Seller"), and U.S.
Remodelers, Inc. ("Purchaser").
W I T N E S S E T H:
WHEREAS, Sellers are the subject of Chapter 11 bankruptcy proceedings
jointly administered with other affiliate cases under Case No. 397-30567-SAF-11,
pending before the United States Bankruptcy Court for the Northern District of
Texas, Dallas Division (the "Court"); and
WHEREAS, AMRE, Facelifters and Purchaser previously entered into an
agreement, evidenced by the Letter Agreement dated January 27, 1997 (the
"Interim Agreement"), providing for the interim operation by Purchaser of a
portion of the cabinet refacing business of AMRE conducted through Facelifters
and such terms were approved by the Court on January 27, 1997; and
WHEREAS, Sellers desire to sell, subject to Court approval, and Purchaser
desires to acquire certain assets utilized in and related to the Business as
more particularly described herein, such assets to be sold to Purchaser free and
clear of all liens, claims and encumbrances;
NOW, THEREFORE, in consideration of the representations and promises
contained herein and such other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
SECTION 1 DEFINITIONS.
The following capitalized terms used in this Agreement shall have the
following definitions:
1.1 "Application" shall have the meaning set forth in Section 2.1(a).
1.2 "Assets" shall have the meaning set forth in Section 3.1.
1.3 "Business" shall mean the kitchen remodeling and cabinet refacing
business of Seller conducted through Seller at the Sale Offices, the
Telemarketing Centers and the Chas City Factory.
1.4 "Chas City Factory" shall mean the factory leased and operated by
Facelifters located at 125 Roxsbury Industrial Center, Charles City, Virginia.
1.5 "Court" shall have the meaning set forth in the first recital
paragraph.
<PAGE>
1.6 "FF&E" shall have the meaning set forth in Section 3.1(a).
1.7 "Inventory" shall have the meaning set forth in Section 3.1(b).
1.8 "Las Colinas Offices" shall mean the sales office of Facelifters
located at 3105 Skyway Circle North, Irving, Texas, 75038.
1.9 "Leases" shall have the meaning set forth in Section 3.3(b).
1.10 "Order" shall have the meaning set forth in Section 2.1(f).
1.11 "Purchase Price" shall have the meaning set forth in Section 3.2.
1.12 "Sales Offices" shall have the meaning set forth in Section 3.1(a).
1.13 "Telemarketing Center" shall mean the telemarketing centers located at
7650 Southgate Blvd., North Lauderdale, Florida and 1601 Clint Moore Road, Boca
Raton, Florida.
1.14 "Trademarks" shall have the meaning set forth in Section 3.1(c).
SECTION 2 CONDITIONS PRECEDENT
2.1 Bankruptcy Court Approval. The obligations of Seller and Purchaser to
-------------------------
close the transactions and sale of assets contemplated by this Agreement are
subject to the following conditions precedent:
(a) Application. An Application (the "Application") shall have been
-----------
filed with the Court requesting approval of:
(1) the assumption by AMRE and Facelifters and assignment by
Seller to the Purchaser, free and clear of all liens, claims and
encumbrances (except for those, if any, which Purchaser may agree to
assume pursuant to Section 3.2(a)), of each of the Leases and cure by
the Seller of all defaults under the Leases up through the date of the
Closing;
(2) the sale by Seller to the Purchaser, free and clear of all
liens, claims and encumbrances (except for those, if any, which
Purchaser may agree to assume pursuant to Section 3.2(a)), of the
Assets (defined herein); and
(3) a break-up fee to be paid to Purchaser if the Court fails to
approve this Agreement because another offer for the Business or any
part thereof has been approved by the Court as a higher and better
offer, to be paid immediately upon the closing of the transaction
resulting from such other offer, with such break-up fee to be in the
amount of $30,000 for reimbursement of Purchaser's costs and expenses
in connection with the negotiation of and activities incident to this
Agreement.
2
<PAGE>
(b) Findings. The Application shall have requested a finding that,
--------
with respect to each of the Leases:
(1) AMRE, Facelifters or ARI, which ever is lessee, is not in
default under the Lease, or if a default exists under such Lease, the
Application shall set forth the amount required to be paid by AMRE,
Facelifters or ARI to cure such default prior to assumption or
assignment of such Lease; and
(2) assignment of such Lease to Purchaser does not violate or
constitute a breach of such lease.
(d) Good Faith. The Application shall request a finding that
----------
Purchaser is a good faith purchaser pursuant to Section 363(m) of the
United States Bankruptcy Code, and that this Agreement constitutes an arms-
length transaction between the Seller and the Purchaser.
(d) Overbids. The Application shall have included an express
--------
requirement that the first overbid, if any, offered in competition with the
offer represented by this Agreement, offer at least $35,000 more in cash
consideration than the total consideration offered by Purchaser under this
Agreement, and that each subsequent competing bid represent at least an
additional $5,000 in cash more than the immediately preceding bid.
(e) Hearing. The Application shall have been brought on for hearing
-------
on March 19, 1997, at which time the Application shall have been subject to
higher and better bids.
(f) Order. An order by the Court in form satisfactory to counsel to
-----
Purchaser shall have been entered granting the relief requested pursuant to
the Application, including assignment of all of the Leases (the "Order"),
ten days shall have passed from the entry of the Order, and no stay of such
Order shall be in effect.
2.2 Defaults Under Leases. Provided Purchaser has paid all reimbursement
---------------------
of operating expenses required under the Interim Agreement, Seller shall have
cured all defaults under each of the Leases up through the date of the Closing.
SECTION 3 ASSET PURCHASE
3.1 Conveyance of Assets. Subject to and upon the terms and conditions
--------------------
contained herein, on the Closing Date, Seller shall sell, convey, transfer and
assign to Purchaser, free and clear of liens, claims and encumbrances (except
for those, if any, Purchaser agrees to assume pursuant to Section 3.2(a)), and
Purchaser shall purchase all of Seller's right, title and interest in and to all
items of personal property used exclusively in connection with the Business
(collectively, the "Assets"). Without limitation, the Assets include:
3
<PAGE>
(a) FF&E. All of the personal property located at the sales offices
----
listed on Exhibit A hereto (the "Sales Offices"), the Telemarketing
---------
Centers, the Chas City Factory, and the Las Colinas Sales Office, including
but not limited to the items listed on Exhibit B attached hereto and
incorporated herein by reference (collectively, the "FF&E").
(b) Inventory. All of Sellers' inventory for use in connection with
---------
the Business remaining as of the Closing Date located at the Sales Offices
and the Chas City Factory, other than obsolete, damaged and scrap inventory
or inventory subject to a valid claim for reclamation (the "Inventory").
(c) Trademark and Trade Name. All right, title and interest in the
------------------------
trademarks, service marks and trade names "Facelifters," "Facelifters Home
Systems" and all related trademarks and trade names, and any goodwill of
the business associated therewith (collectively, "Trademarks").
(d) Contracts and Leads. All right, title and interest of the Seller
-------------------
in any kitchen remodeling or cabinet refacing contracts which Purchaser has
undertaken performance of pursuant to the Interim Agreement, and any leads
generated by the Seller from any of the Sales Offices. All work performed
under such contracts shall be performed in the name of Purchaser and not on
behalf of Seller, and Purchaser shall obtain an acknowledgement from each
customer that Purchaser is responsible for the work to be performed and
warranties to be given and Seller shall not be liable for any of the work
performed by Purchaser.
(e) Books and Records. All books and records, customer lists and
-----------------
customer telephone numbers, marketing data and materials (including without
limitation television commercials and promotional videos), of AMRE and
Facelifters relating to the Assets, all of which shall be delivered to
Purchaser.
3.2 Purchase Price. Purchaser shall pay the following amounts to AMRE on
--------------
the Closing Date (the "Purchase Price"):
(a) An amount equal to 125% of the liquidation value of the FF&E as
determined by a qualified appraiser selected by AMRE and reasonably
acceptable to Purchaser. If Purchaser agrees to assume or take any of the
FF&E subject to any indebtedness or other liability secured by any of the
FF&E, the consideration to be paid by Purchaser for the FF&E shall be
reduced by the amount of that indebtedness, not to exceed the value of the
assets securing the indebtedness or other liability assumed. Costs and
expenses of the appraiser shall be the sole responsibility of and shall be
paid by AMRE. If Purchaser reasonably objects to the valuation set forth
by the appraiser, the Purchaser may, at Purchaser's sole cost and expense,
retain a qualified appraiser reasonably acceptable to AMRE and the Court,
and the liquidation in value shall be the average of the values determined
by the two appraisers; and
(b) An amount equal to 30% of AMRE's actual cost of raw materials for
the Inventory.
4
<PAGE>
3.3 Additional Consideration. In addition to the Purchase Price,
------------------------
Purchaser shall provide addition consideration to AMRE and Facelifters as
follows:
(a) Payment on Certain Contracts. With respect to contracts and
----------------------------
purchase orders originated in the name of AMRE or Facelifters prior to the
bankruptcy filing by AMRE and Facelifters but assigned to Purchaser,
Purchaser shall pay to AMRE on the last day of each week a cash amount
equal to four percent (4%) of the total amount actually collected by
Purchaser on such contracts (excluding applicable sales taxes) during the
preceding week. Purchaser shall also pay to AMRE, on the last day of each
week, three percent (3%) of amounts actually collected during the preceding
week from contracts resulting from leads provided to Purchaser by AMRE
during the Interim Agreement.
(b) Assumption of Leases and Certain Liabilities. Purchaser will take
--------------------------------------------
assignment of and will assume the obligations arising from the Closing Date
forward under the real property leases listed on Exhibit C for each of the
Sales Offices, the Telemarketing Centers and the Chas City Factory, and
will take assignment of and will assume the obligations arising from the
Closing Date forward under the equipment leases listed on Exhibit C
(collectively, the "Leases"). Provided that Purchaser has satisfied its
obligations to reimburse Seller for certain operating expenses under the
Interim Agreement, all obligations due and unpaid prior to the Closing Date
arising under the Leases, or those obligations which have accrued but are
not yet due and payable thereunder, including without limitation any taxes
or tax escrow payments, common area assessments or rental payments, shall
be paid by AMRE, Facelifters or ARI prior to the closing. The Application
shall set forth all due and unpaid obligations relating to the Leases to be
paid by AMRE or Facelifters prior to closing. Prior to the closing of the
transactions contemplated by this Agreement, Purchaser may negotiate with
lessors regarding real estate and equipment leases on an ongoing basis.
3.4 Closing. The closing of the transactions contemplated by this
-------
Agreement (the "Closing") shall occur in Dallas, Texas, on the fifth business
day following the later of (a) the date on which the Order becomes final and is
no longer subject to possibility of stay, appeal or reconsideration, (b) the
date on which the value of the FF&E is finally determined pursuant to Section
3.2(a), or (c) such other date agreed upon by Seller and Purchaser (the "Closing
Date").
3.5 Utilities. Subject to Purchaser's obligations under the Interim
---------
Agreement to reimburse AMRE and Facelifters for certain operating expenses, AMRE
and Facelifters shall remain responsible for payment for utility service related
to the Leases up to the Closing Date.
3.6 Liability Under Interim Agreement. Purchaser shall remain liable for
---------------------------------
any and all amounts due and unpaid to AMRE or Facelifters under the Interim
Agreement.
3.7 Retained Liabilities. Except for the obligations expressly assumed
--------------------
pursuant to the Interim Agreement and this Agreement, Purchaser shall not assume
or agree to pay, perform or discharge any other liabilities or obligations of
Seller, and Seller shall retain such liabilities and obligations, whether
accrued, absolute, contingent or otherwise, including without limitation
5
<PAGE>
liabilities based on or arising out of or in connection with (a) any defects in
work performed by AMRE, Facelifters or ARI, (b) any implied or express
warranties relating to such work on, or (c) any pension, benefit or other
liability relating to AMRE's, Facelifters' or ARI's employees.
3.8 Competition Waiver. AMRE and Facelifters acknowledge and agree that
------------------
Murray Gross is not bound by any covenant against competition with AMRE or
Facelifters and Purchaser may perform and undertake all actions contemplated by
this Agreement.
3.9 No Warranty/As Is-Where Is. Any and all Assets of the Business
--------------------------
purchased by Purchaser shall be, without exception, without warranty of any
kind, express or implied, and shall be in all respects in "as is-where is"
condition.
3.10 Purchaser's Option to Terminate. In the event (a) the Closing Date
-------------------------------
has not occurred by April 10, 1997, or (b) the Court has ruled that any of the
Leases underlying the Telemarketing Centers or the Chas City Factory cannot be
assigned to Purchaser or (c) less than seven of the leases underlying the nine
Sales Offices can be assigned to Purchaser, then Purchaser, at its sole option,
may elect to terminate this Agreement with no further obligation hereunder.
SECTION 4 REPRESENTATIONS AND WARRANTIES OF AMRE AND FACELIFTERS
AMRE, Facelifters and ARI, jointly and severally, hereby represent and
warrant to Purchaser as follows:
4.1 Corporate Existence and Good Standing. Each of AMRE, Facelifters and
-------------------------------------
ARI is a corporation duly organized, validly existing and in good standing under
the laws of the state of Delaware, and each of AMRE and Facelifters has all
necessary corporate power and authority to execute, deliver and perform this
Agreement and all other documents executed and delivered or to be executed and
delivered by it pursuant to this Agreement.
4.2 Title. Either AMRE, Facelifters or ARI, as the case may be, owns good
-----
and marketable title to the FF&E and the Inventory.
4.3 Intellectual Property. Neither AMRE, Facelifters nor ARI has
---------------------
transferred or conveyed any interest in or to the Trademarks, and has not
granted any right of use to the Trademarks, to any party other than Purchaser
pursuant to the Interim Agreement, since the merger of Facelifters and AMRE
Acquisition, Inc. on April 26, 1996.
SECTION 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER
5.1 Corporate Existence and Good Standing. Purchaser is a corporation
-------------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and that it has all necessary corporate power and authority
to execute, deliver and perform this Agreement and all other documents executed
and delivered or to be executed and delivered by it pursuant to this Agreement.
6
<PAGE>
5.2 Authority. The execution, delivery and performance by Purchaser of
---------
this Agreement and the consummation by it of the transactions contemplated
hereby have been duly authorized by the Board of Directors of Purchaser, and no
other corporate proceedings on the part of Purchaser are necessary to authorize
the execution, delivery and performance by it of this Agreement and the
consummation by Purchaser of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Purchaser and constitutes a
valid and legally binding obligation of Purchaser, enforceable against Purchaser
in accordance with its terms.
5.3 Financing. Purchaser has, and at the Closing Date will have, such
---------
funds as are necessary for the consummation by Purchaser of the transactions
contemplated hereby.
SECTION 6 CLOSING DELIVERIES
6.1 Deliveries by AMRE and Facelifters to Purchaser. At Closing, AMRE and
-----------------------------------------------
Facelifters shall deliver to Purchaser the following, all of which shall be in a
form satisfactory to counsel to Purchaser:
(a) Bill of Sale. A bill of sale conveying the Assets to Purchaser,
------------
signed by AMRE, Facelifters, and each of their affiliates.
(b) Assignment of Leases. An assignment and assumption agreement with
--------------------
respect to each of the Leases.
(c) Assignment of Trademarks. Assignment of the Trademarks and any
------------------------
additional notifications and documentation required by each jurisdiction in
which the Trademarks are registered to evidence such assignment.
(d) Other Instruments of Transfer. Such other instruments and
-----------------------------
documents as are reasonably requested by Purchaser to carry out and effect
the purpose and intent of this Agreement.
6.2 Deliveries by Purchaser to AMRE. At Closing, Purchaser shall deliver
-------------------------------
to AMRE the following, all of which shall be in a form satisfactory to counsel
to AMRE:
(a) Purchaser Price. The Purchase Price in immediately available
---------------
funds.
(b) Assignment of Leases. An assignment and assumption agreement with
--------------------
respect to each of the Leases.
(c) Other Instruments of Transfer. Such other instruments and
-----------------------------
documents as are reasonably requested by AMRE to carry out and effect the
purpose and intent of this Agreement.
7
<PAGE>
SECTION 7 GENERAL PROVISIONS.
7.1 Notices. Any communications required or desired to be given hereunder
-------
shall be deemed to have been properly given if sent by hand delivery, or by
facsimile and overnight courier, to the parties hereto at the following
addresses, or at such other address as either party may advise the other in
writing from time to time:
if to AMRE or Facelifters, to
AMRE or Facelifters
8585 N. Stemmons Freeway
8th Floor
Dallas,Texas, 75247
Attention: President
Telecopy: (214) 658-6101
with a copy to
Akin, Gump, Strauss, Hauer and Feld, L.L.P.
1700 Pacific Ave.
Suite 4100
Dallas, Texas 75201-4618
Attention: Michael Curran
Telecopy: (214) 969-4343
if to Purchaser
U.S. Remodelers, Inc.
3105 Skyway Circle North
Irving, Texas 75038
Attention: Murray Gross, President
Telecopy: (972) 258-7715
with a copy to
Jackson & Walker, L.L.P.
901 Main St.
Suite 6000
Dallas, Texas 75202
Attention: Charles D. Maguire, Jr.
Telecopy: (214) 953-5822
All such communications shall be deemed to have been delivered on the date
of hand delivery or on the next business day following the deposit of such
communications, properly addressed and postage prepaid with the overnight
courier.
8
<PAGE>
7.2 Invalidity of Provisions. Each of the Provisions contained in this
------------------------
Agreement is distinctive and severable and a declaration of invalidity or
unenforceability of any such provision by a court of competent jurisdiction
shall not affect the validity or enforceability of any other provision hereof.
7.3 Storage and Protection of Records. Purchaser agrees to store and
---------------------------------
retain all books and records of Seller relating to the Assets and conveyed to
Purchaser and shall make such records available to Seller for inspection and
copying for eighteen months from the Closing Date.
7.4 Additional Documentation. Each of the parties hereto agrees to
------------------------
execute such additional documents as may be necessary or appropriate to
consummate the transactions contemplated herein.
7.5 Entire Agreement. This Agreement and the Interim Agreement constitute
----------------
the entire understanding among the parties pertaining to the subject matter
hereof. There are no warranties, representations or agreements among the
parties in connection with such subject matter except as specifically set forth
or referred to in this Agreement.
7.6 No Release. Other than those releases expressly contained in the
----------
Interim Agreement or this Agreement, the parties have, by execution of this
Agreement, not released any claims that they may assert against each other.
7.7 GOVERNING LAW. THIS AGREEMENT AND THE OBLIGATIONS OF THE PARTIES WILL
-------------
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO ANY CONFLICTS-OF-LAWS PROVISION THEREOF THAT WOULD OTHERWISE
REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION.
7.8 Multiple Counterparts. This Agreement may be executed by facsimile
---------------------
signature and in counterparts, each counterpart constituting an original, but
with all counterparts together constituting a single contract.
AMRE, INC.
By: /s/ J. Gregg Pritchard
-----------------------------------
Name: J. Gregg Pritchard
---------------------------------
Title: President
--------------------------------
FACELIFTERS HOME SYSTEMS, INC.
By: /s/ J. Gregg Pritchard
-----------------------------------
Name: J. Gregg Pritchard
---------------------------------
Title: President
--------------------------------
9
<PAGE>
AMERICAN REMODELING, INC.
By: /s/ J. Gregg Pritchard
------------------------------
Name: J. Gregg Pritchard
----------------------------
Title: President
---------------------------
U.S. REMODELERS, INC.
By:______________________________
Name: Murray H. Gross
Title: President
10
<PAGE>
AMERICAN REMODELING, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
U.S. REMODELERS, INC
By /s/ Murray H. Gross
------------------------------------
Name: Murray H. Gross
Title: President
10
<PAGE>
EXHIBIT 2.2
FIRST AMENDMENT
TO
ASSET PURCHASE AGREEMENT
------------------------
This First Amendment (the "Amendment") to the Asset Purchase Agreement (the
---------
"Agreement") dated February 12, 1997, by and among AMRE, Inc., Facelifters Home
---------
Systems, Inc., American Remodeling, Inc. and U.S. Remodelers, Inc., is made as
of April 3, 1997.
WHEREAS, the parties entered into the Agreement whereby Purchaser would
acquire certain assets of Sellers; and
WHEREAS, in preparation for the Closing certain determinations have been
made with respect to the Business Assets which the parties desire to
acknowledge;
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the above recitals, which constitute a
part of this Agreement, the mutual promises and agreements set forth herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Purchaser and Sellers, intending to be legally bound
hereby, agree as follows:
1. Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to such terms in the Agreement.
2. A new Section 1.9A shall be added to the Agreement, to read in its
entirety as follows:
"1.9A "Loan Documents" shall mean (a) the Economic Development
Revolving Loan Fund Agreement dated as of February 12, 1995, by and between
the Department of Housing and Community Development and the Industrial
Development Authority of the County of Charles City, Virginia (b) the
Economic Development Revolving Loan Fund Loan Agreement dated as of April
1, 1995, by and between Facelifters and the Industrial Development
Authority of the County of Charles City, Virginia, (c) the Security
Agreement dated as of April 1, 1995, by and between Facelifters and the
Industrial Development Authority of the County of Charles City, Virginia,
(d) a Promissory Note dated as of April 7, 1995, by Facelifters in favor of
the Industrial Development Authority of the County of Charles City,
Virginia, (e) an Amendment to Financing Statement (950407-7743) filed on
April 7, 1995, executed by Central Fidelity National Bank and Facelifters,
and amending an Original Financing Statement (941109-7147) filed on
November 9, 1994 and executed by Central Fidelity National Bank and
Facelifters, (f) an Original Financing Statement (950407-7742) filed on
April 7, 1995 and executed by Facelifters, (g) Loan Agreement dated as of
September 23, 1994, by and between Facelifters and Central Fidelity
National Bank, (h) Commercial Note dated as of October 20, 1994, by
Facelifters in favor of Central Fidelity National Bank, (i) Original
Financing Statement (941109-7147) filed on November 9, 1994 and executed by
Central Fidelity National Bank and Facelifters, (j) Security Agreement
dated July 28, 1994 by and between Facelifters Home Systems, Inc., a New
York corporation, and Central Fidelity National
<PAGE>
Bank, (k) the Lease-Purchase Agreement dated as of February 16, 1994, by
and between Charles City County, Virginia, and Facelifters, and (1) Letter
Agreement dated effective as of May 18, 1995, between Facelifters and
Charles City County relating to Reconstruction of Parking/Loading Areas,
Contract with Brooks & Company General Contractors, Inc., as modified by
the letter dated February 23, 1996, and accompanying payment schedule, to
Facelifters from Randolph, Boyd, Cherry and Vaughan.
3. Section 3.1 (c) of the Agreement is amended to read in its entirety as
follows:
"(c) Trademark and Trade Name. All right, title and interest of the
------------------------
Sellers or any of their subsidiaries in the trademarks, service marks and
trade names "Facelifters," "Facelifters Home Systems" and all related
trademarks and trade names and any goodwill of the business associated
therewith (collectively, "Trademarks")."
4. A new Section 3.3(c) is added to the Agreement, to read in its
entirety as follows:
"(c) Assumption of Certain Debt and/or Lease Obligations. Purchaser
---------------------------------------------------
will assume any and all obligations of any and all Sellers under or related
to the Loan Documents. Purchaser shall use its reasonable best efforts to
obtain releases from all parties (other than Sellers) to the Loan Documents
and any related guaranties in favor of Sellers in connection with
Purchaser's assumption of the obligations under and related to the Loan
Documents."
5. A new Section 3.11 is added to the Agreement, to read in its entirety
as follows:
"3.11 Sellers' Release of Preferences. Sellers shall release any and
-------------------------------
all preference claims against the parties to the Loan Documents (other than
Sellers and Purchaser) with respect to the obligations that Purchaser
assumes pursuant to Section 3.3(c)."
6. Section 4.1 to the Agreement is hereby amended to read in its entirety
as follows:
"4.1 Corporate Existence and Good Standing. Each of AMRE and
-------------------------------------
Facelifters is a corporation duly organized, validly existing and in good
standing under the laws of the state of Delaware, and ARI is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Texas, and each of AMRE, ARI and Facelifters has all necessary
corporate power and authority to execute, deliver and perform this
Agreement and all other documents executed and delivered or to be executed
and delivered by it pursuant to this Agreement."
7. A new Section 6.3 is added to the Agreement, to read in its entirety
as follows:
"6.3 Additional Undertakings of Sellers at Closing. As of the
---------------------------------------------
Closing Date, Sellers will (a) pay any and all overdue personal property
taxes and real estate taxes owed to any taxing authority in Charles City
County and (b) pay all amounts due through the Closing Date on the
agreements specified in subsections (a) and (b) of Section 1.9A."
8. The Exhibits to the Agreement are replaced in their entirety by the
Exhibits attached to this Amendment.
2
<PAGE>
9. The Agreement, as amended by this Amendment, is hereby ratified and
confirmed to be in full force and effect as of the date hereof.
10. This Amendment may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same agreement.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed on its behalf by its representative thereunto duly authorized, all as
of the 3/rd/ day of April, 1997.
AMRE, INC.
By: /s/ J. Gregg Pritchard
----------------------
Name: J. Gregg Pritchard
------------------
Title: President
---------
FACELIFTERS HOME SYSTEMS, INC.
By: /s/ J. Gregg Pritchard
----------------------
Name: J. Gregg Pritchard
------------------
Title: President
---------
AMERICAN REMODELING, INC.
By: /s/ J. Gregg Pritchard
----------------------
Name: J. Gregg Pritchard
------------------
Title: President
---------
U.S. REMODELERS, INC.
By: /s/ Murray H. Gross
-------------------
Name: Murray H. Gross
---------------
Title: President
---------
3
<PAGE>
EXHIBIT 2.3
ASSIGNMENT AND ASSUMPTION AGREEMENT
REAL PROPERTY LEASE
For TEN AND NO/100 DOLLARS ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
AMRE, Inc., a Delaware corporation, American Remodeling, Inc., a Texas
corporation, and Facelifters Home Systems, Inc., a Delaware corporation
(collectively, the "ASSIGNORS"), have sold, and do hereby assign, transfer and
set over unto U.S. Remodelers, Inc., a Texas corporation (the "ASSIGNEE"),
having a principal office at 3105 Skyway Circle North, Irving, Texas 75038, its
successors and assigns, all of Assignors' estate, right, title and interest in,
to and under that certain real property lease described on Exhibit A hereto, as
modified, amended, supplemented and/or extended (the "LEASE"). Capitalized
terms used herein but not otherwise defined shall have the meanings assigned to
them in that certain Asset Purchase Agreement dated February 12, 1997 by and
among Assignors and Assignee, as amended by the First Amendment thereto dated as
of March 18, 1997.
TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns, for
the residue of the term and at the rent set forth in said Lease, and subject to
the covenants herein set forth by Assignors and the conditions therein contained
and henceforth to be performed and observed.
In consideration of the said assignment and for other good and valuable
consideration received by Assignee from Assignors, the receipt and sufficiency
of which are hereby acknowledged, Assignee hereby accepts said assignment
subject to and upon the terms and conditions set forth in this instrument and
the Lease. Assignee agrees that it shall have no claim or remedy against
Assignors by virtue of any lessor's act or failure to act under said Lease after
the effective date hereof, unless related to a failure by Assignor to fulfill
its obligation to cure all pre-assignment defaults under the Lease. Assignee
hereby releases Assignors of any liability with regard to the Lease, unless
related to a failure by Assignor to fulfill its obligation to cure all pre-
assignment defaults under the Lease, and Assignee hereby covenants with
Assignors and lessors and for the benefit of any assignee or successors in
interest of lessors, that Assignee, its successors and assigns, will henceforth
assume and agree to keep, perform, fulfill or cause to be performed all of the
terms, covenants, conditions and obligations contained in said Lease which, by
the terms thereof, are imposed upon Assignors and which accrue from and after
the effective date hereof, including, without limitation, the payment of the
rent therein reserved.
Assignors agree that within five (5) business days after receiving any
notice from any lessor relating to performance of any Assignor's or Assignee's
obligations under said Lease, Assignors shall send a copy of said notice to
Assignee at the above address, or to any other address Assignee from time to
time may designate in writing to Assignors.
It is the intention of the parties hereto that the terms and provisions of
this Agreement shall become effective and operative from and after the Closing
Date.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this instrument as of
the 3/rd/ day of April, 1997.
ASSIGNORS:
AMRE, INC.
By: /s/ J. Gregg Pritchard
--------------------------------
Name: J. Gregg Pritchard
Title: President
AMERICAN REMODELING, INC.
By: /s/ J. Gregg Pritchard
--------------------------------
Name: J. Gregg Pritchard
Title: President
FACELIFTERS HOME SYSTEMS, INC.
By: /s/ J. Gregg Pritchard
--------------------------------
Name: J. Gregg Pritchard
Title: President
ASSIGNEE:
U.S. REMODELERS, INC.
By: /s/ Murray H. Gross
--------------------------------
Name: Murray H. Gross
Title: President
2
<PAGE>
EXHIBIT A
REAL PROPERTY LEASE
-------------------
Lease Purchase Agreement between Charles City County and Facelifters Home
Systems, Inc. providing for the lease-purchase of the building and underlying
real estate in which the Charles City factory is located.
<PAGE>
Deed Book 137 Page 232
THIS LEASE-PURCHASE AGREEMENT, made as of this 16th day of February, 1994,
by and between CHARLES CITY COUNTY, herein referred to as "County," and
FACELIFTERS HOME SYSTEMS, INC., herein referred to as "Facelifters." Note:
This Agreement replaces in full a similar agreement recorded February 17, 1994,
in Deed Book 135, page 335, in the Clerk's Office of Charles City County and is
exempt from recordation taxes as it is a rerecording to correct several errors
in language.
W I T N E S S E T H :
WHEREAS, County is the sole owner of the following described real estate,
to-wit:
Approximately 7.551 acres, Roxbury Industrial Center, Charles City County,
Virginia, all as shown on the plat of Resource International, Ltd., dated
January 19, 1994, attached hereto as Exhibit A.
WHEREAS, Facelifters desires to lease the premises for the purpose of
conducting its business as a manufacturer of lumber products and related
purposes;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereby agree as follows:
DESCRIPTION OF THE PREMISES
---------------------------
County agrees to lease and Facelifters agrees to rent that certain 7.551
acres, Roxbury Industrial Center, and all improvements thereon, as shown on the
aforesaid plat, which property is hereinafter referred to as the "premises."
TERM OF LEASE
-------------
Facelifters agrees to lease the above described premises for a period of
fifteen (15) years commencing on the date hereof. Facelifters has inspected the
premises and, by its execution of
<PAGE>
Deed Book 137 Page 233
this lease, acknowledges that County has provided the lot and improvements
thereon anticipated in an Agreement between the parties hereto dated December
15, 1993, ("the Agreement") and hereby accepts the same.
IMPROVEMENTS
------------
Facelifters shall be responsible for making alterations and additions to
the premises at its own expense as it may desire and as anticipated in the
aforesaid agreement, except that County shall pave with asphalt the parking
areas of the property, except for those areas where concrete pads will be
installed as required by the Agreement. The net cost of these improvements will
be repaid to County over 15 years at 7 percent interest. Facelifters'
obligation to repay such costs to the County shall be reduced by the amount of
any additional funding the County may receive under any local, state or federal
program to offset such costs.
RENT
----
Facelifters agrees to pay to County at P. 0. Box 128, Charles City,
Virginia 23030, the sum of $7,156.40 per month for the lease of the premises, to
be due and payable on the 16th day of each month beginning on the 16th day of
March, 1994.
REAL ESTATE TAXES
-----------------
During the term of this lease, Facelifters will pay to County the value of
all real and personal property taxes (including penalty and interest, if any)
which would be due on the premises and its improvements if owned by Facelifters.
Facelifters shall
2
<PAGE>
Deed Book Page 234
have the right to contest any assessment of such taxes and pay them in
installments to the extent provided by law.
SERVICES
--------
During the term of this lease, Facelifters shall be responsible for
providing heat, electricity and other utilities to the demised premises, as well
as all other improvements, repairs or modifications which may be necessary or
desirable, it being the intention of the parties that County should have no
further expense in the premises for the term of this lease, except as may be
necessary to maintain or improve any water and sewerage systems not located on
the premises.
INSURANCE
---------
Facelifters shall maintain all public and private areas in good condition,
free from all physical and fire hazards and shall adequately insure the
building, all public or common areas and its contents for fire, casualty, hazard
and liability, having a fire policy in an amount equal to at least $1,051,000.00
which shows County as a named insured, a copy of which will be delivered to
County annually. Facelifters will also maintain premises liability insurance on
the site and improvements in an amount not less than $1,000,000.00 or such other
agreeable amount and agrees to indemnify and save County harmless from all
claims and demands (including reasonable attorney's fees) arising from the use
and occupancy of the site and improvements by Facelifters. County must be a
named insured on said general liability policy.
3
<PAGE>
Deed Book Page 235
INSOLVENCY
----------
It is expressly agreed that if, at any time during the term of this lease,
Facelifters or its assigns herein shall be adjudged insolvent by any State Court
of competent jurisdiction, County may, at its option, declare this lease to be
terminated and canceled, and may take possession of the demised premises unless
Facelifters is not otherwise in default.
DAMAGE OR DESTRUCTION BY FIRE OR NATURAL CAUSES
-----------------------------------------------
If, during the term of this lease, the building on the demised premises is
destroyed by fire, natural causes or other casualty, said building shall be, by
Facelifters, repaired as quickly as is reasonably possible, and this lease shall
remain in full force and effect unless Facelifters shall determine in the
exercise of its reasonable business judgment that repair is not economically
feasible; in such event it may terminate the lease and the landlord shall be
entitled to that portion of the insurance proceeds equal to the remaining lease
payments and any other currently due payments under the terms of this lease and
the remainder of the insurance proceeds shall be paid to Facelifters.
DEFAULT
-------
If any monthly installment of rent or other payment as herein called for
remains overdue and unpaid for ten (10) days, County shall impose a penalty of
five percent (5%) of the monthly rental or other payment for each month overdue.
If any monthly installment of rent and interest or other payment as herein
called for remains overdue and unpaid for thirty (30) days following
4
<PAGE>
Deed Book 137 Page 236
written notice to Facelifters by County, County may, at its option, at any time
during such default, declare this lease terminated and take possession of
demised premises.
In the event Facelifters does not comply with any of the provisions of this
lease (other than those covered by the above paragraph), County may notify
Facelifters of such violations in writing through its registered agent. If such
violations are not corrected within sixty (60) days of receipt of said notice,
County may, at its option, declare this lease terminated and take possession of
the demised premises.
All improvements to the premises will remain a part thereof and belong to
County except such improvements as have been identified by Facelifters prior to
installation and such notification has been approved by County.
SIGNS
-----
Facelifters may display signs and shingles advertising its place of
business with the prior written consent of the County, which shall not be
unreasonably withheld, so long as such signs are in conformity with all
applicable zones and restrictive covenants.
OPTION TO PURCHASE
------------------
County hereby gives and grants to Facelifters, its heirs and assigns, the
exclusive option to purchase the property herein demised (that is 7.551 acres
with all attachments thereto and improvements thereon) at the end of the lease
period for the sum of One Hundred Dollars ($100.00) provided that all payments
5
<PAGE>
Deed Book 137 Page 237
required hereunder have been paid in full. Facelifters must notify County at
least thirty (30) days prior to the termination of this lease of its desire to
complete such a purchase; if such notice is given in writing, County will convey
the property to Facelifters by Special Warranty deed, free of all encumbrances
except such reservations, restrictions, utility and drainage easements as may
apply to the property. County warrants such restrictions and easements will be
reasonable.
County further gives Facelifters, its heirs and assigns, the exclusive
option to accelerate this lease and purchase said property by giving County
written notice of its intent to accelerate and purchase. Within sixty (60) days
of the receipt of such notice, upon payment of the purchase price described
below, County will convey the property to Facelifters as set out above.
The purchase price of the property prior to the end of this lease will be
the current principal balance at the time of transfer shown on the amortization
schedule attached hereto as Exhibit B, assuming the rental payments required by
this lease were the monthly interest and principal payments shown on the
attached schedule, plus such amounts as are necessary to reimburse County for
any paving costs as set out above. The payoff of the paving costs will be
calculated by a similar amortization schedule.
SEWERAGE AND WATER
------------------
Facelifters will pay County its normal water rates and sewerage rates for
water and sewer services.
6
<PAGE>
Deed Book 137 Page 238
ADDITIONAL LAND
---------------
County hereby grants to Facelifters the option to purchase 9.09 acres of
land adjacent to the subject property for 2 years from the date hereof so long
as this lease agreement is in effect or Facelifters (or its assigns) has
purchased the subject property. The option price will be $2,500.00 per acre and
the land covered by this option is shown as lots 30, 31, 32 and 33 on the sketch
attached hereto as Exhibit C. Facelifters must pay for the cost of a survey if
none exists at the time of exercise. Notice of exercise of the option must be
in writing and given to County at the address set out below in the Notice
provision. Conveyance will be by Special Warranty with Facelifters to bear all
recording, costs or other costs of the transfer, except for the cost of
preparing the deed.
In the event this option is not exercised, Facelifters will retain a right
of first refusal on the subject 9.09 acres for an additional 8 years, provided
that this Agreement is still in effect or Facelifters (or its assigns) has
purchased the subject property. This right of first refusal means that County
must offer to Facelifters the right to purchase the property at every price for
which County is willing to sell the property. Such offer must be in writing and
sent to Facelifters (or its assigns) at its address in the Notice provision; if
the offer of sale is not accepted in writing within 30 days of its mailing
(certified mail, return receipt requested), County may then sell the subject
property to a third party at the offered price. In the event
7
<PAGE>
Deed Book 137 Page 239
Facelifters accepts the offer, it will have 60 additional days to close the
purchase. This obligation to buy will be subject to Facelifters right to conduct
due diligence in examination of the property, the results of which must be
reasonably satisfactory to Facelifters.
ASSIGNMENT
----------
This Agreement is assignable only with the express written consent of
County, which consent shall not be unreasonably withheld.
ADDITIONAL FINANCING
--------------------
In the event Facelifters employs in excess of an average of 75 full-time
employees for a period of not less than three (3) years from date of occupancy,
and if additional financing is required by Facelifters and such financing is
available by the County to other companies locating into the area, then such
financing will be made available for Facelifters on terms no less favorable than
what may be made available for other companies.
APPLICABILITY
-------------
The parties, having read and understood the provisions of this lease, agree
for themselves, their heirs, administrators, personal representatives, executors
and assigns to be bound thereby. This agreement will be construed according to
the laws of the Commonwealth of Virginia.
NOTICES
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Unless otherwise provided herein, all notices required hereunder must be in
writing and sent to the respective addresses
8
<PAGE>
Deed Book 137
set out below. The addresses set forth here may be changed by the addressee
giving notice to the other party of a new address.
To Charles City County:
County Administrator
P. 0. Box 128
Charles City, Virginia 23030
To Facelifters:
Facelifters Home Systems, Inc.
800 Snediker Avenue
Brooklyn, New York 11207-7606
Attn: Mark Honigsfeld
IN WITNESS WHEREOF, the parties have executed this lease.
CHARLES CITY COUNTY
By: /s/ Gail P. Clayton (SEAL)
------------------------------
FACELIFTERS HOME SYSTEMS, INC.
By: /s/ M. R. Harris (SEAL)
------------------------------
STATE OF VIRGINIA
COUNTY OF CHARLES CITY, to-wit:
The foregoing instrument, bearing date of February 16, 1994, was
acknowledged before me this 22/nd/ day of March, 1994, by Gail P. Clayton for
Charles City County.
My commission expires: March 31, 1997.
/s/ B. Randolph Boyd
----------------------------------
Notary Public
9
<PAGE>
Deed Book 137 Page 241
STATE OF New York
COUNTY OF Kings to-wit:
The foregoing instrument, bearing date as of February 16, 1994, was
acknowledged before me this 14/th/ day of March, 1994, by Mac R. Harris for
Facelifters Home Systems, Inc.
My commission expires: April 25, 1994.
/s/ Daniel N. Zarro
----------------------------------
Notary Public
Daniel N. Zarro
Notary Public, State of New York
No. 30-4927360
Qualified in Nassau County
Commission Expires April 25, 1994
10
<PAGE>
EXHIBIT 2.4
ASSET PURCHASE AGREEMENT
BY AND AMONG
U.S. REMODELERS, INC.,
AS PURCHASER,
AND
REUNION HOME SERVICES, INC.,
AND
KITCHEN MASTERS, INC.,
AS SELLERS
DATED AS OF NOVEMBER 30, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
Definition
Section 1.1. Definitions..................................................... 1
ARTICLE II
Purchase and Sale
Section 2.1. Purchase and Sale of Assets..................................... 5
Section 2.2. Purchase Price.................................................. 6
ARTICLE III
Representations and Warranties of Sellers
Section 3.1. Organization and Good Standing; Qualification................... 8
Section 3.2. Corporate Records............................................... 8
Section 3.3. Authorization and Validity...................................... 8
Section 3.4. No Violation.................................................... 8
Section 3.5. Consents........................................................ 9
Section 3.6. Financial Statements............................................ 9
Section 3.7. Liabilities and Obligations..................................... 9
Section 3.8. Employee Matters................................................ 9
Section 3.9. Employee Benefit Plans.......................................... 10
Section 3.10. Absence of Certain Changes...................................... 11
Section 3.11. Title; Leased Assets............................................ 11
Section 3.12. Commitments..................................................... 12
Section 3.13. Adverse Agreements.............................................. 12
Section 3.14. Insurance....................................................... 13
Section 3.15. Patents, Trade-marks, Service Marks and Copyrights.............. 13
Section 3.16. Trade Secrets and Customer Lists................................ 14
Section 3.17. Taxes........................................................... 14
Section 3.18. Compliance with Laws............................................ 14
Section 3.19. Finder's Fee.................................................... 14
Section 3.20. Litigation...................................................... 14
Section 3.21. Accuracy of Information Furnished............................... 15
Section 3.22. Inventory....................................................... 15
Section 3.23. Books of Account................................................ 15
Section 3.24. Backlog......................................................... 15
Section 3.25. Accounts Receivable............................................. 15
Section 3.26. Product Warranties.............................................. 15
Section 3.27. Banking Relations............................................... 15
Section 3.28. Ownership Interests of Interested Persons....................... 15
Section 3.29. Environmental Laws.............................................. 16
Section 3.30. Securities Act Representations.................................. 16
ARTICLE IV
</TABLE>
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<TABLE>
<S> <C>
Representations and Warranties of Purchaser
Section 4.1. Organization and Good Standing.......................................... 17
Section 4.2. Authorization and Validity.............................................. 17
Section 4.3. Capital Stock of Purchaser.............................................. 17
Section 4.4. No Violation............................................................ 17
Section 4.5. Finder's Fee............................................................ 17
ARTICLE V
Closing Deliveries
Section 5.1. Deliveries of Sellers................................................... 18
Section 5.2. Deliveries of Purchaser................................................. 19
ARTICLE VI
Post Closing Matters
Section 6.1. Further Instruments of Transfer......................................... 20
Section 6.2. Employee Matters........................................................ 20
Section 6.3. Sales Taxes Applicable to Sales Prior to or On the Closing Date......... 20
Section 6.4. Sales and Transfer Taxes................................................ 20
ARTICLE VII
Remedies
Section 7.1. Indemnification by Sellers.............................................. 21
Section 7.2. Indemnification by Purchaser............................................ 21
Section 7.3. Conditions of Indemnification........................................... 22
Section 7.4. Indemnification Limitations............................................. 23
Section 7.5. Waiver.................................................................. 23
Section 7.6. Remedies Not Exclusive.................................................. 23
Section 7.7. Offset.................................................................. 23
Section 7.8. Costs, Expenses and Legal Fees.......................................... 24
Section 7.9. Specific Performance.................................................... 24
Section 7.10. Tax Effect of Indemnification........................................... 24
ARTICLE VIII
Miscellaneous
Section 8.1. Amendment............................................................... 24
Section 8.2. Assignment.............................................................. 24
Section 8.3. Parties In Interest; No Third Party Beneficiaries....................... 24
Section 8.4. Entire Agreement........................................................ 24
Section 8.5. Severability............................................................ 25
Section 8.6. Survival of Representations, Warranties and Covenants................... 25
Section 8.7. Governing Law........................................................... 25
Section 8.8. Captions................................................................ 25
Section 8.9. Gender and Number....................................................... 25
Section 8.10. Reference to Agreement.................................................. 25
Section 8.11. Confidentiality; Publicity and Disclosures.............................. 26
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
Section 8.12. Notice......................................................... 26
Section 8.13. Choice of Forum................................................ 27
Section 8.14. Service of Process............................................. 27
Section 8.15. Counterparts................................................... 27
</TABLE>
-iii-
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of November 30,
1997, among Reunion Home Services, Inc., a Texas corporation, ("Reunion"),
Kitchen Masters, Inc., a Texas corporation ("KMI"), (Reunion and KMI sometimes
referred to herein individually as a "Seller" and collectively as "Sellers"),
and U.S. Remodelers, Inc., a Delaware corporation ("Purchaser"),
W I T N E S S E T H :
WHEREAS, Reunion desires to sell substantially all of the assets of Reunion
to Purchaser, and KMI desires to sell certain assets of KMI to Purchaser, and
Purchaser desires to purchase such assets from Reunion and KMI;
NOW, THEREFORE, in consideration of the mutual representations, warranties
and covenants herein contained, and on the terms and subject to the conditions
herein set forth, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth below:
(a) "Assigned Commitments" shall mean those Commitments listed on Exhibit
-------
1.1(a); provided, however, than any Commitments which require consent to
- ------
assignment shall not be deemed "Assigned Commitments" or assumed by Purchaser
until the required consent has been received by Purchaser.
(b) "Assumed Reunion Liabilities" shall mean (i) those fixed and
determinable liabilities of Reunion in the amounts as set forth in the Closing
Balance Sheet (ii) the obligations of Reunion under the Assigned Commitments
arising after the Effective Date, and (iii) those liabilities listed in Exhibit
-------
1.1(b). Except for the Assumed Reunion Liabilities, Purchaser shall not assume
- ------
or agree to pay, perform or discharge any liabilities or obligations of Reunion
or KMI, whether contingent or otherwise, including without limitation the
Excluded Liabilities.
(c) "best knowledge", "have no knowledge of", or "do not know of" and
similar phrases shall mean (i) in the case of a natural person, the particular
fact was known, or not known, as the context requires, to such person after
diligent investigation and inquiry by such person, and (ii) in the case of an
entity, the particular fact was known, or not known, as the context requires, to
any
<PAGE>
employee of such entity after diligent investigation and inquiry by the
principal executive officer of such entity.
(d) "Call Center" shall mean the telemarketing center of Reunion located
at 1591 Robert J. Conlan Boulevard, N. E., Suite 120, Palm Bay, Florida.
(e) "Cash Compensation" shall have the meaning set forth in Section
3.8(a).
(f) "Closing" shall mean the closing of the transactions contemplated by
this Agreement, which shall occur at 10:00 a.m., local time, on the Closing Date
in the offices of Jackson Walker L.L.P., Suite 6000, 901 Main Street, Dallas,
Texas 75202, or at such other time and place as shall be mutually agreed in
writing by the parties hereto.
(g) "Closing Balance Sheet" shall have the meaning set forth in Sections
2.2(c).
(h) "Closing Date" shall mean November 30, 1997 or such other date as may
be mutually agreed in writing by the parties hereto; provided that the date may
not be later than December 15, 1997.
(i) "Code" shall have the meaning set forth in Section 2.2(d).
(j) "Commitments" shall have the meaning set forth in Section 3.12(a).
(k) "Compensation Plans" shall have the meaning set forth in Section
3.8(b).
(l) "Controlled Group" shall have the meaning set forth in Section 3.9(g).
(m) "Damages" shall have the meaning set forth in Section 7.1.
(n) "Effective Date" shall mean November 23, 1997.
(o) "Employee Benefit Plans" shall have the meaning set forth in Section
3.9(a).
(p) "Employee Policies and Procedures" shall have the meaning set forth in
Section 3.8(d).
(q) "Employment Agreements" shall have the meaning set forth in Section
3.8(c).
(r) "Environmental Laws" shall have the meaning set forth in Section 3.29.
(s) "ERISA" shall have the meaning set forth in Section 3.9(a).
(t) "Excluded Assets" shall mean the following assets and properties:
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<PAGE>
(i) The consideration delivered to Reunion pursuant to this
Agreement for the Reunion Assets sold, transferred, assigned, conveyed and
delivered to Purchaser pursuant hereto;
(ii) The consideration delivered to KMI pursuant to this Agreement
for the KMI assets sold, transferred, assigned, conveyed and delivered to
Purchaser pursuant hereto;
(iii) The right of each of Reunion and KMI to enforce Purchaser's
representations, warranties and covenants hereunder and the obligations of
Purchaser to pay, perform or discharge the Assumed Reunion Liabilities and
all other rights, including rights of indemnification, of Reunion and KMI
under this Agreement or any instrument executed pursuant hereto;
(iv) The Articles of Incorporation and all amendments thereto,
Bylaws, corporate seal, minute books, stock books and other corporate
records of each of Reunion and KMI having exclusively to do with the
corporate organization and capitalization of Reunion and KMI, respectively;
(v) The books of account of Reunion and KMI, but each of Reunion and
KMI agree that Purchaser shall have the right at Purchaser's request to
inspect such books and make copies thereof;
(vi) Rights to claims for refunds of taxes of Reunion and KMI which
cannot be assigned by law;
(vii) Shares of the capital stock of each of Reunion and KMI;
(viii) Unclaimed dividends and other money and property that are held
in trust by each of Reunion or KMI or subject to escheat;
(ix) All assets owned or leased by Reunion located at the Call Center
and relating solely to the operation of the Call Center; and
(x) The utility deposits on the Illinois Facility and the Call
Center.
(u) "Excluded Liabilities" shall mean the liabilities described on
Exhibit 1.1(u), which Excluded Liabilities shall include, without
--------------
limitation, any pension or other benefit liability relating to employees of
Reunion or KMI and their termination.
(v) "Financial Statements" shall have the meaning set forth in
Section 3.6.
-3-
<PAGE>
(w) "HFS License Agreement" shall mean that certain License Agreement,
dated March 1, 1997 by and between Reunion and HFS Licensing, Inc.
(x) "indemnifying party" shall have the meaning set forth in Section 7.3.
(y) "Illinois Facility" shall have the meaning set forth in Section 10.6.
(z) "KMI Assets" shall mean the assets described on Exhibit 1.1(z).
--------------
(aa") "KMI Purchase Price" shall have the meaning set forth in Section
2.2(b).
(bb) "Lien" shall have the meaning set forth in Section 2.1(a).
(cc) "ordinary course of business" means the usual and customary way in
which Sellers have conducted its business in the past.
(dd) "party to be indemnified" shall have the meaning set forth in Section
7.3.
(ee) "Permitted Liens" shall mean financing statements filed of record
with respect to personal property leased by Reunion from unaffiliated third
party lessors and reflecting such lessor's ownership of such personal property.
(ff) "Personal Property" shall have the meaning set forth in Section
3.11(b).
(gg) "Proprietary Rights" shall have the meaning set forth in Section
3.15(a).
(hh) "Purchaser Common Stock" shall mean common stock, par value $0.01 per
share, of Purchaser.
(ii) "Purchaser Preferred Stock" shall mean preferred stock, par value
$0.01 per share, of Purchaser issued pursuant to and containing the terms and
conditions set forth in the Statement of Designation attached hereto as Exhibit
-------
1.1(ii).
- -------
(jj) "Real Property" shall have the meaning set forth in Section 3.11(a).
(kk) "Referee" shall have the meaning set forth in Section 2.2(c).
(ll) "Related Parties" shall mean any affiliates of Sellers which have
loaned or advanced funds to the Sellers.
(mm) "Related Party Debt" shall mean the approximately $525,000 of
indebtedness owed by Reunion to the Related Parties included in the Assumed
Reunion Liabilities.
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<PAGE>
(nn) "Reunion Assets" shall mean, with respect to Reunion, all of the
business, properties and assets (real and personal, tangible and intangible) of
Reunion of every kind and wherever situated that are owned by Reunion or in
which it has any right or interest (including without limitation and to the
extent owned, its business as a going concern, its goodwill, franchises, trade-
names, trade-marks, trade-mark registrations and trade-mark applications,
service marks, service mark registrations and service mark applications,
copyrights, copyright registrations and copyright applications, patents, patent
registrations and patent applications, processes, formulae, proprietary and
technical information, computer software, know-how, permits, licenses, trade
secrets, inventions and royalties (including all rights to sue for past
infringement of any of the foregoing, if any); its land, leaseholds and other
interests in land; its inventory of finished goods, work-in-process and raw
materials, backlog, equipment and supplies; its cash, money on deposit with
banks and others, certificates of deposit, commercial paper, stocks, bonds and
other investments; its accounts receivable; rights under its insurance policies
and warranties through the Closing Date; its causes of action, judgments, claims
and demands of whatever nature; its deferred charges, advance payments, prepaid
items, claims for refunds, rights of offset and credits of all kinds; all credit
balances of or inuring to Reunion under any state unemployment compensation plan
or fund; its rights under restrictive covenants and obligations of present and
former officers and employees and of individuals and corporations; its rights
under partnership or joint venture agreements or arrangements; its rights under
all agreements assumed by Purchaser; and its files, papers and records relating
to the aforesaid business, properties and assets) including, other than the
Excluded Assets.
(oo) "Reunion Purchase Price" shall have the meaning set forth in Section
2.2(a).
(pp) "SEC" shall mean the United States Securities and Exchange
Commission.
(qq) "Securities Act" shall have the meaning set forth in Section 3.30.
ARTICLE II
PURCHASE AND SALE
SECTION 2.1. PURCHASE AND SALE OF ASSETS.
(a) REUNION ASSETS. Subject to and upon the terms and conditions contained
herein, at the Closing, Reunion shall sell, transfer, assign, convey and deliver
to Purchaser, free and clear of all security interests, liens, claims,
mortgages, deeds of trust, charges, encumbrances and security agreements of any
nature (collectively "Liens") except for Permitted Liens and Purchaser shall
purchase, accept and acquire from Reunion, the Reunion Assets.
(b) KMI ASSETS. Subject to and upon the terms and conditions contained
herein, at the Closing, KMI shall sell, transfer, assign, convey and deliver to
Purchaser, free and clear of all Liens, and Purchaser shall purchase, accept and
acquire from KMI, the KMI Assets.
-5-
<PAGE>
SECTION 2.2. PURCHASE PRICE. Subject to adjustment as provided in
Section 2.2(c), the consideration to be paid by Purchaser hereunder shall be as
follows:
(a) REUNION PURCHASE PRICE. The total purchase price for the Reunion
Assets (the "Reunion Purchase Price") shall be $1.00 plus the assumption by
Purchaser of the Assumed Reunion Liabilities.
(b) KMI PURCHASE PRICE. The total purchase price for the KMI Assets (the
"KMI Purchase Price") shall be the delivery of 80,000 shares of Purchaser
Preferred Stock, provided such shares will not be delivered to KMI until the
delivery of the Closing Balance Sheet (but that the shares of Purchaser
Preferred Stock will be deemed issued as of the Closing Date) and conclusion of
any adjustments required by Section 2.2(c) to the number of shares of Purchaser
Preferred Stock due to KMI.
(c) POST-CLOSING ADJUSTMENT. No later than ninety (90) days after the
Closing Date, Reunion shall deliver to Purchaser a balance sheet as of the
Effective Date reflecting only the Reunion Assets and the Assumed Reunion
Liabilities, prepared in accordance with GAAP (the "Closing Balance Sheet").
Purchaser and their representatives will be given advance notice of and the
opportunity to observe all physical inventories taken in connection with
preparation of the Closing Balance Sheet.
The Closing Balance Sheet delivered pursuant to this Section 2.2(c) hereof
shall be prepared by Reunion in accordance with this Agreement and generally
accepted accounting principles, consistently applied. In preparing the Closing
Balance Sheet, Reunion shall permit Purchaser's independent auditors to review
the work papers, schedules and calculations related thereto.
If Purchaser does not dispute such Closing Balance Sheet and report within
five (5) business days of Purchaser's receipt of the Closing Balance Sheet, such
Closing Balance Sheet shall be final. In the event Purchaser has any dispute
with regard to the Closing Balance Sheet or any item included therein, such
dispute shall be resolved in the following manner:
(i) Purchaser shall notify Reunion in writing within five (5) business
days after Purchaser's receipt of the Closing Balance Sheet, which
notice shall specify in reasonable detail the nature of the dispute;
(ii) during the five (5) business day period following Reunion's receipt
of such notice, Purchaser and Reunion shall attempt to resolve such
dispute; and
(iii) if at the end of the five (5) business day period specified in
subsection (ii) above, Purchaser and Reunion shall have failed to
reach a written accord with shall be referred to the offices of a
mutually agreed upon accounting firm located in Dallas, Texas (the
"Referee"), which shall act as an arbitrator and shall issue its
report
-6-
<PAGE>
resolving all disputes as to the Closing Balance Sheet within sixty
(60) days after such dispute is referred to it. The Closing Balance
Sheet, as modified by any adjustments determined to be appropriate by
the Referee, shall then be the final Closing Balance Sheet. Each of
the parties hereto shall bear all costs and expenses incurred by it
in connection with such arbitration, except that the fees and
expenses of the Referee hereunder shall be borne equally by Purchaser
and Reunion. This provision for arbitration shall be specifically
enforceable by the parties; the decision of the Referee in accordance
with the provisions hereof shall be final and binding (absent
manifest error); and there shall be no right of appeal therefrom.
If the amount of the Assumed Reunion Liabilities (excluding the Related
Party Debt) reflected on the Closing Balance Sheet exceeds the value of Reunion
Assets shown thereon, then (a) first, the cash portion of the Reunion Purchase
Price shall be reduced, dollar for dollar, by the difference between the value
of the Assumed Reunion Liabilities and the value of the Reunion Assets, but not
below $0.00 and (b) second, the KMI Purchase Price shall be reduced by the
number of shares of Purchaser Preferred Stock that, if multiplied by the
liquidation preference for such shares, would equal the remaining difference
between the value of the Assumed Reunion Liabilities and value of Reunion Assets
reflected on the Closing Balance Sheet. The KMI Purchase Price, as adjusted
pursuant to this Section 2.2(c), shall be delivered to KMI within 10 days
following final determination of the Closing Balance Sheet.
(d) ALLOCATION OF PURCHASE PRICE. The Reunion Purchase Price and the KMI
Purchase Price shall be allocated among the Reunion Assets and the KMI Assets
respectively as set forth in Exhibit 2.2(d), such allocation to be made as
--------------
provided in Section 1060 of the Internal Revenue Code of 1986 (the "Code").
Purchaser, Reunion and KMI shall each file Form 8594 (Asset Acquisition
Statement Under Section 1060) on a timely basis reporting the allocation of the
Reunion Purchase Price and the KMI Purchase Price consistent with the allocation
in Exhibit 2.2(d). Exhibit 2.2(d) also reflects the aggregate fair market
-------------- --------------
values for each of Class I assets, Class II assets and Class III assets, as such
terms are defined in regulations promulgated pursuant to Section 1060 of the
Code. Purchaser, Reunion and KMI shall file on a timely basis any amendments
required to such Form 8594 as a result of a subsequent increase or decrease of
the Reunion Purchase Price or the KMI Purchase Price. Purchaser, Reunion and
KMI shall not take any position on their respective income tax returns that is
inconsistent with the allocation of the Reunion Purchase Price or the KMI
Purchase Price as agreed to in Exhibit 2.2(d) or as adjusted as a result of a
--------------
subsequent increase or decrease in such purchase price. Purchaser, Reunion and
KMI shall each indemnify, defend and hold harmless the other party from and
against any and all claims, losses, liabilities, damages, costs and expenses
that may be incurred as a result of the failure to file Form 8594, the failure
to file such Form 8594 on a timely basis or the failure to file its income tax
return on a basis as required by this Section 2.2(d).
-7-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each of Reunion and KMI (each constituting individually a "Seller" for
purposes of this Article III) represents and warrants that the following are
true and correct as of the date hereof and will be true and correct through the
Closing Date as if made on that date:
SECTION 3.1. ORGANIZATION AND GOOD STANDING; QUALIFICATION. Each Seller
is a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation, with all requisite corporate power and
authority to carry on the business in which it is engaged, to own the properties
it owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. Each Seller is duly qualified and licensed to
do business and is in good standing in all jurisdictions where the nature of its
business makes such qualification necessary, which jurisdictions are listed in
Exhibit 3.1, except where the failure to be qualified or licensed would not have
- -----------
a material adverse effect on the business of each Seller. Neither Seller has
any assets or offices in any state other than the states listed in Exhibit 3.1.
-----------
Neither Seller owns, directly or indirectly, any of the capital stock of any
other corporation or any equity, profit sharing, participation or other interest
in any corporation, partnership, joint venture or other entity.
SECTION 3.2. CORPORATE RECORDS. The copies of the Articles of
Incorporation and all amendments thereto and the Bylaws of each Seller that have
been delivered or made available to Purchaser are true, correct and complete
copies thereof, as in effect on the date hereof. The minute books of each
Seller, copies of which have been delivered or made available to Purchaser,
contain accurate minutes of all meetings of, and accurate consents to all
actions taken without meetings by, the Board of Directors (and any committees
thereof) and the shareholders of Seller since the formation of each Seller.
SECTION 3.3. AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by each Seller of this Agreement and the other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by each Seller. This Agreement and
each other agreement contemplated hereby have been or will be as of the Closing
Date duly executed and delivered by each Seller and constitute or will
constitute legal, valid and binding obligations of each Seller, enforceable
against each Seller in accordance with their respective terms, except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
SECTION 3.4. NO VIOLATION. Except as set forth in Exhibit 3.4, neither
-----------
the execution, delivery or performance of this Agreement or the other agreements
contemplated hereby nor the consummation of the transactions contemplated hereby
or thereby will (i) conflict with, or result in a violation or breach of the
terms, conditions or provisions of, or constitute a default under, the Articles
of Incorporation or Bylaws of either Seller or any agreement, indenture or other
instrument
-8-
<PAGE>
under which either Seller is bound or to which any of the assets of either
Seller are subject, or result in the creation or imposition of any security
interest, lien, charge or encumbrance upon any of the assets of either Seller or
(ii) violate or conflict with any judgment, decree, order, statute, rule or
regulation of any court or any public, governmental or regulatory agency or body
having jurisdiction over either Seller or the assets of either Seller. Each
Seller has complied with all laws, regulations and licensing requirements and
has filed with the proper authorities all necessary statements and reports.
SECTION 3.5. CONSENTS. Except as set forth in Exhibit 3.5, no consent,
-----------
authorization, approval, permit or license of, or filing with, any governmental
or public body or authority, any lender or lessor or any other person or entity
is required to authorize, or is required in connection with, the execution,
delivery and performance of this Agreement or the agreements contemplated hereby
on the part of Seller.
SECTION 3.6. FINANCIAL STATEMENTS. Reunion has furnished to Purchaser an
unaudited balance sheet and related unaudited statements of operations, retained
earnings and cash flows for the month period ended October 26, 1997, (the
"Financial Statements"). The Financial Statements are in accordance with the
books and records of each Seller, fairly present the financial condition and
results of operations of Seller as of the dates and for the periods indicated
and have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis with prior periods.
SECTION 3.7. LIABILITIES AND OBLIGATIONS. Except as set forth in Exhibit
-------
3.7, the Financial Statements reflect all liabilities of Seller, accrued,
- ---
contingent or otherwise (known or unknown and asserted or unasserted), arising
out of transactions effected or events occurring on or prior to the date hereof
other than transaction arising in the ordinary course of business. All reserves
shown in the Financial Statements are appropriate, reasonable and sufficient to
provide for losses thereby contemplated. Except as set forth in the Financial
Statements and in the Closing Balance Sheet, neither Seller is liable upon or
with respect to, or obligated in any other way to provide funds in respect of or
to guarantee or assume in any manner, any debt, obligation or dividend of any
person, corporation, association, partnership, joint venture, trust or other
entity, and neither Seller knows of any basis for the assertion of any other
claims or liabilities of any nature or in any amount.
SECTION 3.8. EMPLOYEE MATTERS.
(a) CASH COMPENSATION. Exhibit 3.8(a) contains a complete and accurate
--------------
list of the names, titles and cash compensation, including without limitation
wages, salaries, bonuses (discretionary and formula) and other cash compensation
(the "Cash Compensation") of all employees of Seller who are currently
compensated at a rate in excess of $20,000 per year and who earned in excess of
such amount during Seller's preceding fiscal year. In addition, Exhibit 3.8(a)
--------------
contains a complete and accurate description of any promised increases in Cash
Compensation of employees of Seller that have not yet been effected.
-9-
<PAGE>
(b) COMPENSATION PLANS. There are no compensation plans, arrangements or
practices (the "Compensation Plans") sponsored by each Seller or to which each
Seller contributes on behalf of its employees, other than Employee Benefit Plans
listed in Exhibit 3.9(a). The term "Compensation Plans" includes, without
--------------
limitation, plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) EMPLOYMENT AGREEMENTS. All employees of each Seller are terminable at
will of the Company. There are no employment agreements (the "Employment
Agreements") to which either Seller is a party with respect to its employees.
The term "Employment Agreements" includes, without limitation, employee leasing
agreements, employee services agreements and noncompetition agreements.
(d) EMPLOYEE POLICIES AND PROCEDURES. There are no employee manuals,
policies, procedures and work-related rules (the "Employee Policies and
Procedures") that apply to employees of each Seller.
(e) LABOR COMPLIANCE. Neither Seller is a party to any collective
bargaining or other labor union contract. No collective bargaining agreement is
being negotiated by either Seller. To the best knowledge of each Seller, the
employees of such Seller have no intention to and have not threatened to
organize or join a union, labor organization or collective bargaining unit. Each
Seller is in compliance in all material respects with all applicable laws
respecting employment, employment practices, and wages and hours. There is no
pending or to the knowledge of either Seller, threatened labor dispute, strike,
or work stoppage against either Seller that may interfere with the business
activities of either Seller. Except as set forth in Exhibit 3.8(e), neither
--------------
Seller or any of its respective representatives or employees has committed any
unfair labor practices in connection with the operation of the business of such
Seller, and there is no pending or to the knowledge of either Seller, threatened
charge or complaint against either Seller by the National Labor Relations Board
or any comparable Governmental Entity.
(f) ALIENS. All employees of each Seller have provided documentation to
Seller reflecting that such employees are citizens of, or are authorized to be
employed in, the United States.
SECTION 3.9. EMPLOYEE BENEFIT PLANS.
(a) IDENTIFICATION. Exhibit 3.9(a) contains a complete and accurate list
--------------
of all employee benefit plans (the "Employee Benefit Plans") (within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) sponsored by each Seller or to which such Seller contributes
on behalf of its employees and all Employee Benefit Plans previously sponsored
or contributed to on behalf of its employees within the three years preceding
the date hereof.
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(b) COMPLIANCE. Each Employee Benefit Plan has been administered and
maintained in compliance with all laws, rules and regulations. No Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any state or federal agency. No
prohibited transactions (within the meaning of Section 4975 of the Code) have
occurred with respect to any Employee Benefit Plan.
(c) QUALIFICATION. Neither Seller has an Employee Benefit Plan intended
to be qualified within the meaning of Section 401(a) of the Code and/or tax-
exempt within the meaning of Section 501(a) of the Code.
SECTION 3.10. ABSENCE OF CERTAIN CHANGES. Since the date of the Financial
Statements, there has not been (i) any material adverse change in the financial
position of Reunion, (ii) any entry of either Seller into any commitments or
transactions material to their business, (iii) any change in the accounting
methods or principles of either Seller, (iv) any revaluation by either Seller of
any of its respective assets, or (v) any indebtedness of borrowed money incurred
or committed for either Seller. Reunion has applied its standard credit policies
for accepting new customers in a manner consistent with prior practice.
SECTION 3.11. TITLE; LEASED ASSETS.
(a) REAL PROPERTY. Neither Seller owns any interests in real property
other than the leasehold interests described in Section 3.11(c)
(b) REUNION PERSONAL PROPERTY. A description of all material fixed assets
owned by Reunion is set forth in Exhibit 3.11(b). Except as set forth in
---------------
Exhibit 3.11(b), Reunion has good, valid and marketable title to all the
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tangible and intangible personal property (collectively, the "Personal
Property"). The Personal Property and the leased personal property referred to
in Section 3.11(c) constitute the only personal property used in the conduct of
Seller's business. Upon consummation of the transactions contemplated hereby,
Purchaser shall receive good, valid and marketable title to the Personal
Property free and clear of all security interests, liens, claims and
encumbrances other than Permitted Liens and those described in Exhibit 3.11(b).
---------------
(c) REUNION LEASES. A list and brief description of all leases of real
and personal property to which Reunion is a party, either as lessor or lessee,
are set forth in Exhibit 3.11(c). All such leases are valid and enforceable in
---------------
accordance with their respective terms except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
the availability of equitable remedies.
(d) REUNION RIGHT TO USE ASSETS. All tangible assets used in the conduct
of Reunion's business are reflected in the Financial Statements in a manner that
is in conformity with generally accepted accounting principles applied on a
consistent basis with prior periods. Reunion owns, leases
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or otherwise possesses a transferable right to use all assets used in the
conduct of its business, and except for the Excluded Assets, will transfer all
of such rights to Purchaser at Closing.
(e) KMI ASSETS. Except as set forth on Exhibit 3.11(e), KMI has good,
---------------
valid and marketable title to the KMI Assets and upon consummation of the
transactions contemplated hereby, Purchaser shall receive good, valid and
marketable title to the KMI Assets, free and clear of all liens, claims and
encumbrances, other than those described on Exhibit 3.11(e).
---------------
SECTION 3.12. COMMITMENTS.
(a) COMMITMENTS; DEFAULTS. Exhibit 3.12 lists each agreement, contract or
------------
commitment to which Reunion is a party or by which it is bound and that is
material to the business, financial condition, results of operations or
prospects of Reunion. Those items set forth on Exhibit 3.12 are hereinafter
------------
collectively referred to as the "Commitments." True, correct and complete copies
of the written Commitments, and true, correct and complete written descriptions
of the oral Commitments, have heretofore been delivered or made available to
Purchaser. There are no existing defaults, events of default or events,
occurrences, acts or omissions that, with the giving of notice or lapse of time
or both, would constitute defaults by such Seller, and no penalties have been
incurred nor are amendments pending, with respect to the Commitments, except as
described in Exhibit 3.12. The Commitments are in full force and effect and are
------------
valid and enforceable obligations of the parties thereto in accordance with
their respective terms, and no defenses, off-sets or counterclaims have been
asserted or, to the best knowledge of such Seller, may be made by any party
thereto, nor has such Seller waived any rights thereunder, except as described
in Exhibit 3.12. Neither Seller has received notice of any default with respect
------------
to any Commitment to which it is a party.
(b) NO CANCELLATION OR TERMINATION OF COMMITMENT. Except as contemplated
hereby, neither Seller has received notice of any plan or intention of any other
party to any Commitment to which it is a party to exercise any right to cancel
or terminate any such Commitment or agreement, and such Seller knows of no fact
that would justify the exercise of such a right. Neither Seller currently
contemplates, or has reason to believe any other person or entity currently
contemplates, any amendment or change to any Commitment to which such Seller is
a party. Except as listed in Exhibit 3.12, none of the customers or suppliers
------------
of either Seller has refused, or communicated that it will or may refuse, to
purchase or supply goods or services, as the case may be, or has communicated
that it will or may substantially reduce the amounts of goods or services that
it is willing to purchase from, or sell to, such Seller.
SECTION 3.13. ADVERSE AGREEMENTS. Neither Seller is a party to any
agreement or instrument or subject to any charter or other corporate restriction
or any judgment, order, writ, injunction, decree, rule or regulation that
materially and adversely affects, or so far as such Seller can now foresee, may
in the future materially and adversely affect, the condition (financial or
otherwise), operations, assets, liabilities, business or prospects of such
Seller.
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SECTION 3.14. INSURANCE. Each Seller carries property, liability,
workers' compensation and such other types of insurance as is customary in such
Seller's industry. A list and brief description of all insurance policies of
each Seller are set forth in Exhibit 3.14. All of such policies are valid and
------------
enforceable policies, issued by insurers of recognized responsibility in amounts
and against such risks and losses as is customary in such Seller's industry.
Such insurance shall be outstanding and duly in force without interruption up to
and including the Closing Date. True, complete and correct copies of all such
policies have been provided to Purchaser on or prior to the date hereof.
SECTION 3.15. PATENTS, TRADE-MARKS, SERVICE MARKS AND COPYRIGHTS.
(a) OWNERSHIP. Each Seller owns all patents, trade-marks, service marks
and copyrights, if any, necessary to conduct its business, or possesses adequate
licenses or other rights, if any, therefor, without conflict with the rights of
others. Set forth in Exhibit 3.15(a) is a true and correct description of the
---------------
following ("Proprietary Rights"):
(i) all trade-marks, trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, and all patents, copyrights and applications currently owned, in
whole or in part, by each Seller with respect to such Seller's assets and
business, and all licenses, royalties, assignments and other similar
agreements relating to the foregoing to which such Seller is a party
(including expiration date if applicable); and
(ii) all agreements relating to technology, know-how or processes that
either Seller is licensed or authorized to use by others, or which it
licenses or authorizes others to use.
(b) CONFLICTING RIGHTS OF THIRD PARTIES. Except as set forth in Exhibit
-------
3.15(b), each Seller has the sole and exclusive right to use the Proprietary
- -------
Rights without infringing or violating the rights of any third parties. No
consent of third parties will be required for the transfer thereof to Purchaser
or the use thereof by Purchaser upon consummation of the transactions
contemplated hereby and the Proprietary Rights are freely transferable. No claim
has been asserted by any person to the ownership of or right to use any
Proprietary Right or challenging or questioning the validity or effectiveness of
any license or agreement constituting a part of any Proprietary Right, and such
Seller knows of no valid basis for any such claim. Each of the Proprietary
Rights is valid and subsisting, has not been canceled, abandoned or otherwise
terminated and, if applicable, has been duly issued or filed.
(c) CLAIMS OF OTHER PERSONS. Neither Seller has knowledge of any claim
that, or inquiry as to whether, any product, activity or operation of such
Seller infringes upon or involves, or has resulted in the infringement of, any
proprietary right of any other person, corporation or other entity; and no
proceedings have been instituted, are pending or are threatened that challenge
the rights of such Seller with respect thereto. Neither Seller has given or is
bound by any agreement of
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indemnification for any Proprietary Right as to any property manufactured, used
or sold by such Seller.
SECTION 3.16. TRADE SECRETS AND CUSTOMER LISTS. Each Seller has the right
to use, free and clear of any claims or rights of others except claims or rights
specifically set forth in Exhibit 3.16, all trade secrets, customer lists and
------------
proprietary information required for the marketing of all merchandise and
services formerly or presently sold or marketed by such Seller. Neither Seller
is using or in any way making use of any confidential information or trade
secrets of any third party, including without limitation any past or present
employee of such Seller.
SECTION 3.17. TAXES. All income, excise, corporate, franchise, property,
sales, use, payroll, withholding and other taxes related to taxable periods or
portions thereof ending prior to or on the Effective Date, including, without
limitation, governmental charges, assessments and required contributions of
either Seller that may result in the filing of a Lien on the Reunion Assets or
KMI Assets or that may result in the imposition of transferee or other liability
on Purchaser for the payment of such taxes, have been accurately recorded and
duly paid, collected or withheld and remitted to the appropriate Governmental
Authority, except for current taxes not due and payable prior to or on the
Effective Date (such taxes to be paid when due by each Seller) unless such taxes
are accrued on the Closing Balance Sheet (in which case, such taxes to be paid
when due by Purchaser).
SECTION 3.18. COMPLIANCE WITH LAWS. Each Seller, to the best of Seller's
knowledge, has complied, in all material respects, with all laws, regulations
and licensing requirements and has filed with the proper authorities all
necessary statements and reports. There are no existing violations by either
Seller of any federal, state or local law or regulation that could affect the
property or business of such Seller in any material respect. Each Seller
possesses all necessary licenses, franchises, permits and governmental
authorizations to conduct its business as now conducted, all of which are listed
in Exhibit 3.18, except where the failure to possess such licenses, permits and
------------
governmental authorizations, would not have a material adverse effect on the
business, condition (financial or otherwise) or properties of the Sellers.
SECTION 3.19. FINDER'S FEE. Neither Seller has incurred any obligation
for any finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
SECTION 3.20. LITIGATION. Except as described in Exhibit 3.20, there are
------------
no legal actions or administrative proceedings or investigations instituted, or
to the best knowledge of either Seller threatened, against or affecting, or that
could affect, such Seller, or the business or assets of such Seller. Neither
Seller is subject to any continuing court or administrative order, writ,
injunction or decree applicable specifically to such Seller or to its business,
assets, operations or employees or (ii) in default with respect to any such
order, writ, injunction or decree. Neither Seller knows of any basis for any
such action, proceeding or investigation.
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SECTION 3.21. ACCURACY OF INFORMATION FURNISHED. All information
furnished to Purchaser by each Seller hereby or in connection with the
transactions contemplated hereby is true, correct and complete in all respects.
Such information states all facts required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which such
statements are made, true, correct and complete.
SECTION 3.22. INVENTORY. All of the inventory included in the Reunion
Assets and the KMI Assets is in good, current, standard and merchantable
condition and is not obsolete or defective. Purchase commitments for merchandise
are not in excess of normal requirements and, taken as a whole, are not at
prices in excess of market prices. Each Seller has presently, and at the
Closing Date will have, the types and quantities of inventories appropriate,
taken as a whole, to conduct its business consistently with past practices.
SECTION 3.23. BOOKS OF ACCOUNT. The books of account of each Seller have
been kept accurately in the ordinary course of business, the transactions
entered therein represent bona fide transactions and the revenues, expenses,
assets and liabilities of such Seller have been properly recorded in such books.
SECTION 3.24. BACKLOG. Exhibit 3.24 sets forth the backlog of each
------------
Seller's business as of October 26, 1997 and has been accurately derived from
such Seller's internal records of backlog of unfilled firm orders for products
manufactured or sold by such Seller as of the date hereof.
SECTION 3.25. ACCOUNTS RECEIVABLE. Exhibit 3.25 sets forth the accounts
------------
receivable of each Seller's business from sales made as of October 26, 1997 and
the payments and rights to receive payments related thereto, is complete and
accurate. All the accounts receivable of Sellers have arisen from bona fide
transactions in the ordinary course of business and are valid and enforceable
claims subject to no right of set-off or counterclaim.
SECTION 3.26. PRODUCT WARRANTIES. Except as set forth in Exhibit 3.26,
------------
there is no claim against or liability of either Seller on account of product
warranties or with respect to the manufacture, sale or rental of defective
products and there is no basis for any such claim on account of defective
products heretofore manufactured, sold or rented that is not fully covered by
insurance.
SECTION 3.27. BANKING RELATIONS. Set forth in Exhibit 3.27 is a complete
------------
and accurate list of all arrangements that each Seller has with any bank or
other financial institution, indicating with respect to each relationship the
type of arrangement maintained (such as checking account, borrowing
arrangements, safe deposit box, etc.) and the person or persons authorized in
respect thereof.
SECTION 3.28. OWNERSHIP INTERESTS OF INTERESTED PERSONS. Except as set
forth in Exhibit 3.28, no officer, supervisory employee, director or shareholder
------------
of either Seller, or their respective spouses or children, owns directly or
indirectly, on an individual or joint basis, any material interest
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<PAGE>
in, or serves as an officer or director of, any customer or supplier of such
Seller, or any organization that has a material contract or arrangement with
such Seller.
SECTION 3.29. ENVIRONMENTAL LAWS. To the best knowledge of Sellers,
neither of the Sellers nor any of the Reunion Assets or the KMI Assets are
currently in violation of, or subject to any existing, pending or threatened
investigation or inquiry by any governmental authority or to any remedial
obligations under, any laws or regulations pertaining to health or the
environment (hereinafter sometimes collectively called "Environmental Laws"),
and this representation and warranty would continue to be true and correct
following disclosure to the applicable governmental authorities of all relevant
facts, conditions and circumstances, if any, pertaining to the Reunion Assets or
the KMI Assets.
SECTION 3.30. SECURITIES ACT REPRESENTATIONS. KMI acknowledges that the
shares of Purchaser Preferred Stock to be delivered to KMI pursuant to this
Agreement have not been and will not be registered under the Securities Act of
1933, as amended (the "Securities Act") and therefore may not be resold without
compliance with the Securities Act and the rules and regulations promulgated
thereunder. The Purchaser Preferred Stock to be acquired by KMI pursuant to this
Agreement is being acquired by it solely for its own account, for investment
purposes only, and with no present intention of distributing, selling or
otherwise disposing of it in connection with a distribution.
(a) COMPLIANCE WITH LAW. KMI covenants, warrants and represents that the
Purchaser Preferred Stock issued to KMI will not be offered, sold, assigned,
pledged, hypothecated, transferred or otherwise disposed of except after full
compliance with all of the applicable provisions of the Securities Act and the
rules and regulations of the SEC. All of the Purchaser Preferred Stock issued
to KMI shall bear the following legend: THE SHARES REPRESENTED HEREBY HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE SECURITIES ACT AND APPLICABLE
FEDERAL AND STATE SECURITIES LAWS.
(b) ECONOMIC RISK; SOPHISTICATION. KMI is able to bear the economic risk
of an investment in the Purchaser Preferred Stock acquired pursuant to this
Agreement, and can afford to sustain a total loss of such investment and each
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the proposed investment in such
stock. KMI has had an adequate opportunity to ask questions and receive answers
from the officers of Purchaser concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of Purchaser, the
plans for the operations of the business of Purchaser, and any plans for
additional acquisitions and the like. KMI has asked any and all questions in the
nature described in the preceding sentence and all questions have been answered
to their satisfaction.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants that the following are true and correct
as of the date hereof and will be true and correct through the Closing Date as
if made on that date:
SECTION 4.1. ORGANIZATION AND GOOD STANDING. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with all requisite corporate power and authority to carry on
the business in which it is engaged, to own the properties it owns, to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby.
SECTION 4.2. AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by Purchaser of this Agreement and the other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by Purchaser. This Agreement and each other
agreement contemplated hereby have been or will be as of the Closing Date duly
executed and delivered by Purchaser and constitute or will constitute legal,
valid and binding obligations of Purchaser, enforceable against Purchaser in
accordance with their respective terms, except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
the availability of equitable remedies.
SECTION 4.3. CAPITAL STOCK OF PURCHASER. The Purchaser Preferred Stock to
be issued to KMI and the Purchaser Common Stock to be issued to Wagner have been
duly authorized and when issued to KMI and Wagner, respectively, such shares
will be validly issued, fully-paid and non-assessable. As of the date of this
Agreement, the authorized capital stock of Purchaser consists of (a) 1,000,000
shares of Purchaser Common Stock, of which 229,625 shares are issued and
outstanding and (b) 100,000 shares of Purchaser Preferred Stock authorized of
which none are issued and outstanding.
SECTION 4.4. NO VIOLATION. Neither the execution, delivery or performance
of this Agreement or the other agreements contemplated hereby nor the
consummation of the transactions contemplated hereby or thereby will (i)
conflict with, or result in a violation or breach of the terms, conditions and
provisions of, or constitute a default under, the Certificate of Incorporation
or Bylaws of Purchaser or any agreement, indenture or other instrument under
which Purchaser is bound or (ii) violate or conflict with any judgment, decree,
order, statute, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over Purchaser or the properties
or assets of Purchaser.
SECTION 4.5. FINDER'S FEE. Purchaser has not incurred any obligation for
any finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
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ARTICLE V
CLOSING DELIVERIES
SECTION 5.1. DELIVERIES OF SELLERS. At the Closing, Reunion and KMI shall
deliver to Purchaser the following, all of which shall be in a form satisfactory
to counsel to Purchaser:
(a) bills of sale conveying the Reunion Assets and the KMI Assets to
Purchaser;
(b) an assignment of each lease including in the Reunion Assets or the KMI
Assets, assigning the interest of the Seller being a party to Purchaser;
(c) assignments for all funds of Reunion on deposit with banks or other
persons (other than Excluded Assets);
(d) an Assignment and Assumption Agreement in the form attached as Exhibit
-------
5.1(d) with respect to each Seller's rights and obligations under the Assigned
- ------
Commitments.
(e) a copy of resolutions of the Board of Directors of each Seller
authorizing the execution, delivery and performance of this Agreement and all
related documents and agreements, each certified by the Secretary of such Seller
as being true and correct copies of the originals thereof subject to no
modifications or amendments;
(f) a certificate of the Secretary of each Seller certifying as to the
incumbency of the directors and officers of such Seller and as to the signatures
of such directors and officers who have executed documents delivered at the
Closing on behalf of such Seller;
(g) a certificate, dated within ten days of the Closing Date, of the
Secretary of State of Texas establishing that each Seller is in existence, has
paid all franchise taxes and otherwise is in good standing to transact business
in its state of incorporation;
(h) certificates, dated within ten days of the Closing Date, of the
Secretaries of State of each of the states in which a Seller is qualified to do
business, to the effect that such Seller is qualified to do business and is in
good standing as a foreign corporation in such state;
(i) an opinion of Klein & Associates, counsel to each Seller, dated as of
the Closing Date, in the form attached as Exhibit 5.1(i);
--------------
(j) all authorizations, consents, approvals, permits and licenses
referenced in Section 3.5 including the consent to assignment from HFS with
respect to the HFS License Agreement;
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(k) an executed Confidentiality and Noncompetition Agreement between each
Seller, and Purchaser in the form attached as Exhibit 5.1(k);
--------------
(l) a Transition Services Agreement in the form attached hereto as Exhibit
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5.1(l); and
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(m) such other instrument or instruments of transfer as shall be necessary
or appropriate, as Purchaser or its counsel shall reasonably request, to vest in
Purchaser good and marketable title to the Reunion Assets and the KMI Assets.
SECTION 5.2. DELIVERIES OF PURCHASER. At the Closing, Purchaser shall
deliver the following:
(a) to Reunion:
(i) $1.00 in cash;
(ii) an Assumption and Assumption Agreement in the form of that
attached as Exhibit 5.1(d) pursuant to which Purchaser assumes
--------------
the Assumed Reunion Liabilities to which Reunion is a party;
(iii) Confidentiality and Noncompetition Agreement between Reunion
and Purchaser in the form attached as Exhibit 5.1(k);
--------------
(iv) Transition Services Agreement in the form attached as Exhibit
-------
5.1(l); and
------
(v) an opinion of Jackson Walker L.L.P., counsel to Purchaser,
dated as of the Closing Date, in the form attached as Exhibit
-------
5.2(a).
------
(b) to KMI:
(i) Confidentiality and Noncompetition Agreement between KMI and
Purchaser in the form attached as Exhibit 5.1(k).
--------------
(ii) an opinion of Jackson Walker L.L.P., counsel to Purchaser,
dated as of the Closing Date, in the form attached as Exhibit
-------
5.2(a).
------
(c) a copy of the resolutions of the Board of Directors of Purchaser
authorizing the execution, delivery and performance of this Agreement and all
related documents and agreements, each certified by Purchaser's Secretary as
being true and correct copies of the originals thereof subject to no
modifications or amendments;
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(d) a certificate of the Secretary of Purchaser certifying as to the
incumbency of the directors and officers of Purchaser and as to the signatures
of such directors and officers who have executed documents delivered at the
Closing on behalf of Purchaser; and
(e) a certificate, dated within ten days of the Closing Date, of the
Secretary of State of Purchaser's state of incorporation, establishing that
Purchaser is in existence, has paid all state taxes and otherwise is in good
standing to transact business in such state.
ARTICLE VI
POST CLOSING MATTERS
SECTION 6.1. FURTHER INSTRUMENTS OF TRANSFER. Following the Closing, at
the request of Purchaser, each Seller shall deliver any further instruments of
transfer and take all reasonable action as may be necessary or appropriate to
(i) vest in Purchaser good and marketable title to the Reunion Assets and the
KMI Assets and (ii) transfer to Purchaser all licenses and permits (to the
extent assignable) necessary for the operation of the Reunion Assets and the KMI
Assets (including, without limitation, all contractor's licenses).
SECTION 6.2. EMPLOYEE MATTERS. Purchaser shall not be obligated to
employ any employees of either Seller, and shall not assume any liability of
either Seller under any Employee Benefit Plans.
SECTION 6.3. SALES TAXES APPLICABLE TO SALES PRIOR TO OR ON THE CLOSING
DATE. Each Seller shall timely file all sales tax returns with respect to sales
occurring in connection with such Seller's business prior to or on the Closing
Date.
SECTION 6.4. SALES AND TRANSFER TAXES. Each Seller shall timely pay all
sales taxes applicable to the sales reported on the tax returns referred to in
Section 6.3. Each Seller shall be liable for and shall indemnify Purchaser
against all sales, transfer, use, excise, registration or other taxes assessed
or payable in connection with the transfer of the Reunion Assets and the KMI
Assets to Purchaser. Each Seller and Purchaser shall sign, and otherwise shall
cooperate in the preparation and filing with the appropriate governmental
agencies of, any affidavits or other transfer documents that are required in
connection with the transfer of vehicles or trailers that constitute part of the
Reunion Assets or KMI Assets.
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SECTION 6.5 USE OF ILLINOIS FACILITY. Purchaser shall be permitted to
occupy and use the facility located at 1625 E. Algonquin Road, Arlington
Heights, Illinois (the "Illinois Facility") without cost to Purchaser, other
than utilities used during such occupancy from the Closing date through January
1, 1998.
ARTICLE VII
REMEDIES
SECTION 7.1. INDEMNIFICATION BY SELLERS. Subject to the terms and
conditions of this Article, each Seller agrees, jointly and severally, to
indemnify, defend and hold Purchaser and its directors, officers, agents,
attorneys and affiliates harmless from and against all losses, claims,
obligations, demands, assessments, penalties, liabilities, costs, damages,
attorneys' fees and expenses (collectively, "Damages"), asserted against or
incurred by such indemnities by reason of or resulting from:
(a) a breach of any representation, warranty or covenant of such Seller
contained herein, in any exhibit, schedule, certificate or financial statement
delivered hereunder, or in any agreement executed in connection with the
transactions contemplated hereby;
(b) other than liabilities included in the Assumed Reunion Liabilities,
any product liability claims relating to products sold by such Seller prior to
or on the Effective Date, and all general liability claims arising out of or
relating to occurrences of any nature relating to such Seller's business prior
to the Effective Date, whether any such claims are asserted prior to, on or
after the Effective Date;
(c) any obligation or liability under or related to any Employee Benefit
Plan or the termination thereof;
(d) any tax filing or return or payment made, or position taken, by either
Seller that any governmental authority challenges and that results in an
assertion of Damages against Purchaser;
(e) any Excluded Liability; or
(f) any liability imposed upon Purchaser related to or arising from the
transactions contemplated by this Agreement, including, without limitation, any
claims asserted by creditors of Reunion or KMI.
SECTION 7.2. INDEMNIFICATION BY PURCHASER. Subject to the terms and
conditions of this Article, Purchaser hereby agrees to indemnify, defend and
hold each Seller and its respective directors, officers, agents, attorneys and
affiliates harmless from and against all Damages asserted against or incurred by
any of such indemnities by reason of or resulting from:
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<PAGE>
(a) a breach by Purchaser of any representation, warranty or covenant of
Purchaser contained herein or in any exhibit, schedule or certificate delivered
hereunder, or in any agreement executed in connection with the transactions
contemplated hereby; or
(b) the failure of Purchaser to pay, perform and discharge when due any of
the Assumed Reunion Liabilities or to pay, perform and discharge, after the
Effective Date, any obligations under the Assigned Commitments; or
(c) any act or omission relating to the use by Purchaser, its employees,
officers, agents and affiliates with respect to Purchaser's occupancy of the
Illinois Facility (other than taxes or other direct costs of occupancy).
SECTION 7.3. CONDITIONS OF INDEMNIFICATION. The respective obligations
and liabilities of each Seller, Wagner and Purchaser (the "indemnifying party")
to the other (the "party to be indemnified") under Sections 7.1 and 7.2 with
respect to claims resulting from the assertion of liability by third parties
shall be subject to the following terms and conditions:
(a) Within 20 days (or such earlier time as might be required to avoid
prejudicing the indemnifying party's position) after receipt of notice of
commencement of any action evidenced by service of process or other legal
pleading, the party to be indemnified shall give the indemnifying party written
notice thereof together with a copy of such claim, process or other legal
pleading, and the indemnifying party shall have the right to undertake the
defense thereof by representatives of its own choosing and at its own expense;
provided that the party to be indemnified may participate in the defense with
counsel of its own choice, the fees and expenses of which counsel shall be paid
by the party to be indemnified unless (i) the indemnifying party has agreed to
pay such fees and expenses, (ii) the indemnifying party has failed to assume the
defense of such action or (iii) the named parties to any such action (including
any impleaded parties) include both the indemnifying party and the party to be
indemnified and the party to be indemnified has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the indemnifying party (in which case, if
the party to be indemnified informs the indemnifying party in writing that it
elects to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the party to be indemnified, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for the party to be indemnified, which firm shall be designated in writing
by the party to be indemnified).
(b) In the event that the indemnifying party, by the 30th day after
receipt of notice of any such claim (or, if earlier, by the 10th day preceding
the day on which an answer or other pleading must be served in order to prevent
judgment by default in favor of the person asserting such claim), does not elect
to defend against such claim, the party to be indemnified will (upon further
notice to
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<PAGE>
the indemnifying party) have the right to undertake the defense, compromise or
settlement of such claim on behalf of and for the account and risk of the
indemnifying party and at the indemnifying party's expense, subject to the right
of the indemnifying party to assume the defense of such claims at any time prior
to settlement, compromise or final determination thereof.
(c) Notwithstanding the foregoing, the indemnifying party shall not settle
any claim without the consent of the party to be indemnified unless such
settlement involves only the payment of money and the claimant provides to the
party to be indemnified a release from all liability in respect of such claim.
If the settlement of the claim involves more than the payment of money, the
indemnifying party shall not settle the claim without the prior consent of the
party to be indemnified.
(d) The party to be indemnified and the indemnifying party will each
cooperate with all reasonable requests of the other.
SECTION 7.4. INDEMNIFICATION LIMITATIONS. Notwithstanding the provisions
of Section 7.1, Sellers shall not be obligated to indemnify purchaser unless the
aggregate amount of Damages claimed exceeds $50,000 in which case Sellers shall
indemnify Purchaser for Damages in excess of $50,000.
SECTION 7.5. WAIVER. No waiver by any party of any default or breach by
another party of any representation, warranty, covenant or condition contained
in this Agreement, any exhibit or any document, instrument or certificate
contemplated hereby shall be deemed to be a waiver of any subsequent default or
breach by such party of the same or any other representation, warranty, covenant
or condition. No act, delay, omission or course of dealing on the part of any
party in exercising any right, power or remedy under this Agreement or at law or
in equity shall operate as a waiver thereof or otherwise prejudice any of such
party's rights, powers and remedies. All remedies, whether at law or in equity,
shall be cumulative and the election of any one or more shall not constitute a
waiver of the right to pursue other available remedies.
SECTION 7.6. REMEDIES NOT EXCLUSIVE. The remedies provided in this
Article shall not be exclusive of any other rights or remedies available to one
party against the other, either at law or in equity.
SECTION 7.7. OFFSET. Any and all amounts owing or to be paid by Purchaser
to either of the Sellers, hereunder or otherwise, including any amounts due to
KMI under the Purchaser Preferred Stock shall be subject to offset and reduction
pro tanto by any amounts that may be owing at any time by such Seller to
- --- -----
Purchaser in respect of any failure or breach of any representation, warranty or
covenant of such Seller under or in connection with this Agreement or any other
agreement with Purchaser or any transaction contemplated hereby or thereby, as
reasonably determined by Purchaser subject to the limitations set forth in
Section 7.4 hereof. If Purchaser determines that such offset is appropriate,
notice shall be given to such Seller, as the case may be, of such determination
at least 10 days prior to the due date of the payment to be reduced. If the
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<PAGE>
conditions upon which the reduction is based are cured by such Seller prior to
such due date, as determined by Purchaser, the amount of such payment shall not
be so reduced.
SECTION 7.8. COSTS, EXPENSES AND LEGAL FEES. Subject to the provisions of
Section 8.13, whether or not the transactions contemplated hereby are
consummated, each party hereto shall bear its own costs and expenses (including
attorneys' fees), except that each party hereto agrees to pay the costs and
expenses (including reasonable attorneys' fees and expenses) incurred by the
other parties in successfully (i) enforcing any of the terms of this Agreement
or (ii) proving that another party breached any of the terms of this Agreement.
SECTION 7.9. SPECIFIC PERFORMANCE. Each Seller acknowledges that a
refusal by such Seller to consummate the transactions contemplated hereby will
cause irreparable harm to Purchaser, for which there may be no adequate remedy
at law and for which the ascertainment of damages would be difficult. Therefore,
Purchaser shall be entitled, in addition to, and without having to prove the
inadequacy of, other remedies at law, to specific performance of this Agreement,
as well as injunctive relief (without being required to post bond or other
security).
SECTION 7.10. TAX EFFECT OF INDEMNIFICATION. Notwithstanding any term or
provision of this Agreement to the contrary, any indemnity payments owed by one
party to another party to this Agreement shall be reduced by any tax benefits to
the party claiming indemnity hereunder and increased by any tax detriments to
the party claiming indemnity hereunder.
ARTICLE VII
MISCELLANEOUS
SECTION 8.1. AMENDMENT. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all the parties
hereto.
SECTION 8.2. ASSIGNMENT. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by Purchaser
to an affiliate of Purchaser.
SECTION 8.3. PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. Except as
otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Neither this
Agreement nor any other agreement contemplated hereby shall be deemed to confer
upon any person not a party hereto or thereto any rights or remedies hereunder
or thereunder.
SECTION 8.4. ENTIRE AGREEMENT. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and
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<PAGE>
supersede all prior agreements and understandings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof.
SECTION 8.5. SEVERABILITY. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
SECTION 8.6. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties contained herein shall survive the Closing and all
statements contained in any certificate, exhibit or other instrument delivered
by or on behalf of Wagner, either Seller or Purchaser pursuant to this Agreement
shall be deemed to have been representations and warranties by Wagner, either
Seller or Purchaser, as the case may be, and, notwithstanding any provision in
this Agreement to the contrary all such representations and warranties, shall
survive the Closing for a period of nine (9) months, except for representations
and warranties with respect to any tax or tax-related matters or any ERISA
matters, which shall survive the Closing until the running of any applicable
statutes of limitation. All covenants contained herein shall survive the
Closing and shall continue indefinitely.
SECTION 8.7. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING CONFLICTS OF
LAWS) OF THE STATE OF TEXAS. THE PARTIES AGREE THAT THIS AGREEMENT SHALL BE
PERFORMABLE IN DALLAS COUNTY, TEXAS.
SECTION 8.8. CAPTIONS. The captions in this Agreement are for convenience
of reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
SECTION 8.9. GENDER AND NUMBER. When the context requires, the gender of
all words used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
SECTION 8.10. REFERENCE TO AGREEMENT. Use of the words "herein",
"hereof", "hereto" and the like in this Agreement shall be construed as
references to this Agreement as a whole and not to any particular Article,
Section or provision of this Agreement, unless otherwise noted.
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<PAGE>
SECTION 8.11. CONFIDENTIALITY; PUBLICITY AND DISCLOSURES. Each party
shall keep this Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (i) by press release, filing or otherwise that is required by federal
securities laws, (ii) to attorneys, accountants, investment bankers or other
agents of the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (iii) by Purchaser in connection with
obtaining financing for the transactions contemplated by this Agreement and
conducting an examination of the operations and assets of Sellers. In the event
that the transactions contemplated hereby are not consummated for any reason
whatsoever, the parties hereto agree not to disclose or use any confidential
information they may have concerning the affairs of the other parties, except
for information that is required by law to be disclosed. Confidential
information includes, but is not limited to: financial records, surveys,
reports, plans, proposals, financial information, information relating to
personnel, contracts, stock ownership, liabilities and litigation; provided that
should the transactions contemplated hereby not be consummated, nothing
contained in this Section shall be construed to prohibit the parties hereto from
operating businesses in competition with each other.
SECTION 8.12. NOTICE. Any notice or communication hereunder or in any
agreement entered into in connection with the transactions contemplated hereby
must be in writing and given by depositing the same in the United States mail,
addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person.
Such notice shall be deemed received on the date on which it is hand-delivered
or on the third business day following the date on which it is so mailed. For
purposes of notice, the addresses of the parties shall be:
If to Purchaser: U.S. Remodelers, Inc,
13740 Midway Rd.
Dallas, Texas 75244
Attn: President
with a copy to: Jackson Walker, L.L.P.
901 Main St., Suite 6000
Dallas, Texas 75202
Attn: Charles D. Maguire, Jr.
If to Reunion Reunion Home Services, Inc.
1341 West Mockingbird, Suite 900E
Dallas, Texas 75246
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<PAGE>
with a copy to: Alan C. Klein
Klein & Associates
8333 Douglas Avenue, Suite 1200
Dallas, Texas 75225
If to KMI: Kitchen Masters, Inc.
1341 West Mockingbird, Suite 900E
Dallas, Texas 75246
with a copy to: Alan C. Klein
Klein & Associates
8333 Douglas Avenue, Suite 1200
Dallas, Texas 75225
party may change its address for notice by written notice given to the other
parties in accordance with this Section.
SECTION 8.13. CHOICE OF FORUM. The parties hereto agree that should any
suit, action or proceeding arising out of this Agreement be instituted by any
party hereto (other than a suit, action or proceeding to enforce or realize upon
any final court judgment arising out of this Agreement), such suit, action or
proceeding shall be instituted only in a state or federal court in Dallas
County, Texas. Each of the parties hereto consents to the in personam
-- --------
jurisdiction of any state or federal court in Dallas County, Texas and waives
any objection to the venue of any such suit, action or proceeding. The parties
hereto recognize that courts outside Dallas County, Texas may also have
jurisdiction over suits, actions or proceedings arising out of this Agreement,
and in the event that any party hereto shall institute a proceeding involving
this Agreement in a jurisdiction outside Dallas County, Texas, the party
instituting such proceeding shall indemnify any other party hereto for any
losses and expenses that may result from the breach of the foregoing covenant to
institute such proceeding only in a state or federal court in Dallas County,
Texas, including without limitation any additional expenses incurred as a result
of litigating in another jurisdiction, such as reasonable fees and expenses of
local counsel and travel and lodging expenses for parties, witnesses, experts
and support personnel.
SECTION 8.14. SERVICE OF PROCESS. Service of any and all process that may
be served on any party hereto in any suit, action or proceeding arising out of
this Agreement may be made in the manner and to the address set forth in Section
8.12 and service thus made shall be taken and held to be valid personal service
upon such party by any party hereto on whose behalf such service is made.
SECTION 8.15. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
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<PAGE>
PURCHASER:
U.S. REMODELERS, INC.
By: /s/ [SIGNATURE ILLEGIBLE]^^
---------------------------------
Its: President
--------------------------------
SELLERS:
REUNION HOME SERVICES, INC.
By: /s/ [SIGNATURE ILLEGIBLE]^^
---------------------------------
Its: CEO
--------------------------------
KITCHEN MASTERS, INC.:
By: /s/ [SIGNATURE ILLEGIBLE]^^
---------------------------------
Its: CEO
--------------------------------
<PAGE>
EXHIBIT 2.5
CONFIDENTIALITY AND NONCOMPETITION AGREEMENT
THIS CONFIDENTIALITY AND NONCOMPETITION AGREEMENT (this "Agreement") is
entered into as of the 30/th/ day of November, 1997, by and between U.S.
Remodelers, Inc., a Delaware corporation ("Purchaser"), and Reunion Home
Services, Inc., a Texas corporation ("Reunion"). This Agreement is being
executed and delivered by the parties pursuant to Section 9 of the Purchase
Agreement (as defined below).
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Reunion is engaged in the business of marketing, promotion, sale,
financing and providing of home remodeling services, and Kitchen Masters, Inc.,
a Texas corporation ("KMI"), is engaged in the manufacture of parts and material
used by Reunion in providing such home remodeling services (such home remodeling
services and manufacture of such materials hereinafter referred to collectively
as the "Business"); and
WHEREAS, on the date hereof, Purchaser, Reunion and KMI are entering into
an Asset Purchase Agreement (the "Purchase Agreement") whereby, among other
things, Purchaser is purchasing substantially all assets of Reunion and specific
assets of KMI, (as more particulary described therein); and
WHEREAS, Reunion's covenants not-to-compete contained herein are an
important aspect of the above-referenced asset purchase transaction, and
Purchaser, Reunion and KMI would not enter into the Purchase Agreement absent
Reunion's covenants not-to-compete contained herein; and
WHEREAS, Reunion has financial resources, experience in the Business and
the ability to operate a business or businesses that could compete with
Purchaser in the Business in which Purchaser and/or its affiliates will be
engaged upon the closing of the transactions contemplated by the Purchase
Agreement (the "Closing"); and
WHEREAS, Purchaser would suffer damages, including the loss of profits, if
Reunion, or any of its affiliates, engaged, directly or indirectly, in
competition with Purchaser or any of its affiliates in the Business; and
WHEREAS, Purchaser and Reunion have reached this agreement in good faith
through arms-length negotiations;
NOW, THEREFORE, for and in consideration of the covenants not-to-compete
contained herein and the consideration to be paid therefor and other good and
valuable consideration, and of the other promises, covenants and conditions
contained herein, the receipt and adequacy of which consideration are hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
1. COVENANTS NOT-TO-COMPETE.
------------------------
(a) During the term of this Agreement, neither Reunion nor any of its
affiliates shall, directly or indirectly, for itself or on behalf of any other
corporation, person, firm, partnership, association, or any other entity
(whether as an individual, agent, servant, employee, employer, officer,
director, shareholder, investor, principal, consultant or in any other
capacity), engage or participate in any business in competition with the
Business purchased by Purchaser pursuant to the Purchase Agreement to the extent
and within 200 miles of any sales office or manufacturing facility through which
Reunion conducted the Business prior to the date hereof, or through which
Purchaser conducts the Business as of the date of or during the term of this
Agreement; provided, however, the provisions of this Agreement shall not prevent
Reunion fulfilling its obligations under that certain Transition Services
Agreement, dated of even date herewith, by and between Reunion and Purchaser..
(b) During the term of this Agreement, neither Reunion nor any of its
affiliates, shall for itself or on behalf of any other corporation, person,
firm, partnership, association, or any other entity (whether as an individual,
agent, servant, employee, employer, officer, director, shareholder, investor,
principal, consultant or in any other capacity) disclose to any person or entity
any of the client lists, client mailing lists, trade secrets, pricing,
advertising or marketing plans, methods, systems, procedures, data bases or
other software programs or applications or processes of, or utilized by,
Purchaser or any of its affiliates with respect to or related to the Business.
(c) During the term of this Agreement, neither Reunion nor any of its
affiliates, shall assist or finance any person or entity in any manner or in any
way inconsistent with the intents and purposes of this Agreement.
(d) Reunion shall, from the date of this Agreement forward, refrain
form making any disparaging, negative, or other similar remarks concerning
Purchaser or any of its affiliates, to any third party.
2. TERM. The term of this Agreement shall commence on the date hereof
----
and shall continue for five (5) years.
3. REMEDIES. In the event of Reunion's breach, or threatened breach, of
--------
any term or provision contained in this Agreement, Reunion agrees that Purchaser
and/or its affiliates shall be entitled to the right of specific performance
and/or both temporary and permanent injunctive relief in addition to but not in
lieu of any other remedies available at law or in equity.
4. ENFORCEABILITY. If for any reason any provision contained in this
--------------
Agreement should be held invalid in whole or in part by a court of competent
jurisdiction, then it is the intent of each of the parties hereto that the
balance of this Agreement be enforced to the fullest extent permitted by
applicable law. It is the intent of each of the parties that the covenants not-
to-compete contained
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<PAGE>
in Section 1 herein be enforced to the fullest extent permitted by applicable
law. Accordingly, should a court of competent jurisdiction determine that the
scope of any covenant is too broad to be enforced as written or is otherwise
unenforceable, it is the intent of each of the parties that the court should
reform such covenant to such narrower scope or otherwise as it may determine is
necessary to make such covenant enforceable.
5. INTENT OF PARTIES. Each of the parties hereto recognizes and agrees
-----------------
that this Agreement is necessary and essential to the protection of the assets
of Reunion and KMI, which Purchaser is purchasing, and the Business which
Purchaser and its affiliates will conduct during the term of this Agreement,
and to enable Purchaser to realize and derive all of the benefits, rights and
expectations of the Purchase Agreement; that the area and duration of the
covenants herein are in all aspects, under the circumstances of the Purchase
Agreement, reasonable; and that good and valuable consideration exists for the
Reunion agreeing to be bound by such covenants.
6. PARTIES IN INTEREST. This Agreement and all terms, covenants and
-------------------
conditions contained herein shall inure to the benefit of and shall be binding
upon the undersigned parties and their respective heirs, executors,
administrators, trustees, successors and permitted assigns. The parties' rights
or obligations hereunder are not transferable or assignable to any other party,
except that Purchaser may assign its rights or obligations hereunder to any of
its affiliates that operates the Business as operated by Purchaser on the date
hereof. Any purported assignment of this Agreement in violation of this
provision shall be null and void and without any effect.
7. NOTICES. All notices, requests, demands and other communications to
-------
be given hereunder shall be delivered as set forth in the Purchase Agreement and
shall be deemed to have been given and received in the same manner as set forth
in the Purchase Agreement.
8. AFFILIATE. As used herein, an "affiliate" of any party means any
---------
person or entity controlling, controlled by or under common control with such
party.
9. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
-------------
PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING CONFLICTS OF LAWS) OF THE
STATE OF TEXAS.
10. HEADINGS. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning of this
Agreement.
11. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument, but only one of which need be produced.
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
U.S. REMODELERS, INC.
By: /s/ Murray Gross
----------------------------
Murray Gross, President
REUNION HOME SERVICES, INC.
By: /s/ Ronald I. Wagner
----------------------------
Ronald I. Wagner, President
-4-
<PAGE>
EXHIBIT 2.6
CONFIDENTIALITY AND NONCOMPETITION AGREEMENT
THIS CONFIDENTIALITY AND NONCOMPETITION AGREEMENT (this "Agreement") is
entered into as of the 30/th/ day of November, 1997, by and between U.S.
Remodelers, Inc., a Delaware corporation ("Purchaser"), and Kitchen Masters,
Inc., a Texas corporation ("KMI"). This Agreement is being executed and
delivered by the parties pursuant to Section 9 of the Purchase Agreement (as
defined below).
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Reunion Home Services, Inc., a Texas corporation ("Reunion"), is
engaged in the business of marketing, promotion, sale, financing and providing
of home remodeling services, and KMI is engaged in the manufacture of parts and
material used by Reunion in providing such home remodeling services (such home
remodeling services and manufacture of such materials hereinafter referred to
collectively as the "Business"); and
WHEREAS, on the date hereof, Purchaser, Reunion and KMI are entering into
an Asset Purchase Agreement (the "Purchase Agreement") whereby, among other
things, Purchaser is purchasing substantially all assets of Reunion and specific
assets of KMI, (as more particulary described therein); and
WHEREAS, KMI's covenants not-to-compete contained herein are an important
aspect of the above-referenced asset purchase transaction, and Purchaser,
Reunion and KMI would not enter into the Purchase Agreement absent KMI's
covenants not-to-compete contained herein; and
WHEREAS, KMI has financial resources, experience in the Business and the
ability to operate a business or businesses that could compete with Purchaser in
the Business in which Purchaser and/or its affiliates will be engaged upon the
closing of the transactions contemplated by the Purchase Agreement (the
"Closing"); and
WHEREAS, Purchaser would suffer damages, including the loss of profits, if
KMI, or any of its affiliates, engaged, directly or indirectly, in competition
with Purchaser or any of its affiliates in the Business; and
WHEREAS, Purchaser and KMI have reached this agreement in good faith
through arms-length negotiations;
NOW, THEREFORE, for and in consideration of the covenants not-to-compete
contained herein and the consideration to be paid therefor and other good and
valuable consideration, and of the other promises, covenants and conditions
contained herein, the receipt and adequacy of which consideration are hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
1. COVENANTS NOT-TO-COMPETE.
------------------------
(a) During the term of this Agreement, neither KMI nor any of its
affiliates shall, directly or indirectly, for itself or on behalf of any other
corporation, person, firm, partnership, association, or any other entity
(whether as an individual, agent, servant, employee, employer, officer,
director, shareholder, investor, principal, consultant or in any other
capacity), engage or participate in any business in competition with the
Business purchased by Purchaser pursuant to the Purchase Agreement to the extent
and within 200 miles of any sales office or manufacturing facility through which
KMI conducted the Business prior to the date hereof, or through which Purchaser
conducts the Business as of the date of or during the term of this Agreement;
provided, however, the provisions of this Agreement shall not prevent Reunion
Home Services, Inc. ("Reunion") from fulfilling its obligations, under that
certain Transition Services Agreement, dated of even date herewith, by and
between Reunion and Purchaser.
(b) During the term of this Agreement, neither KMI nor any of its
affiliates, shall for itself or on behalf of any other corporation, person,
firm, partnership, association, or any other entity (whether as an individual,
agent, servant, employee, employer, officer, director, shareholder, investor,
principal, consultant or in any other capacity) disclose to any person or entity
any of the client lists, client mailing lists, trade secrets, pricing,
advertising or marketing plans, methods, systems, procedures, data bases or
other software programs or applications or processes of, or utilized by,
Purchaser or any of its affiliates with respect to or related to the Business.
(c) During the term of this Agreement, neither KMI nor any of its
affiliates, shall assist or finance any person or entity in any manner or in any
way inconsistent with the intents and purposes of this Agreement.
(d) KMI shall, from the date of this Agreement forward, refrain form
making any disparaging, negative, or other similar remarks concerning Purchaser
or any of its affiliates, to any third party.
2. TERM. The term of this Agreement shall commence on the date hereof
----
and shall continue for five (5) years.
3. REMEDIES. In the event of KMI's breach, or threatened breach, of any
--------
term or provision contained in this Agreement, KMI agrees that Purchaser and/or
its affiliates shall be entitled to the right of specific performance and/or
both temporary and permanent injunctive relief in addition to but not in lieu of
any other remedies available at law or in equity.
4. ENFORCEABILITY. If for any reason any provision contained in this
--------------
Agreement should be held invalid in whole or in part by a court of competent
jurisdiction, then it is the intent of each of the parties hereto that the
balance of this Agreement be enforced to the fullest extent permitted by
applicable law. It is the intent of each of the parties that the covenants not-
to-compete contained
-2-
<PAGE>
in Section 1 herein be enforced to the fullest extent permitted by applicable
law. Accordingly, should a court of competent jurisdiction determine that the
scope of any covenant is too broad to be enforced as written or is otherwise
unenforceable, it is the intent of each of the parties that the court should
reform such covenant to such narrower scope or otherwise as it may determine is
necessary to make such covenant enforceable.
5. INTENT OF PARTIES. Each of the parties hereto recognizes and agrees
-----------------
that this Agreement is necessary and essential to the protection of the assets
of Reunion and KMI, which Purchaser is purchasing, and the Business which
Purchaser and its affiliates will conduct during the term of this Agreement,
and to enable Purchaser to realize and derive all of the benefits, rights and
expectations of the Purchase Agreement; that the area and duration of the
covenants herein are in all aspects, under the circumstances of the Purchase
Agreement, reasonable; and that good and valuable consideration exists for the
KMI agreeing to be bound by such covenants.
6. PARTIES IN INTEREST. This Agreement and all terms, covenants and
-------------------
conditions contained herein shall inure to the benefit of and shall be binding
upon the undersigned parties and their respective heirs, executors,
administrators, trustees, successors and permitted assigns. The parties' rights
or obligations hereunder are not transferable or assignable to any other party,
except that Purchaser may assign its rights or obligations hereunder to any of
its affiliates that operates the Business as operated by Purchaser on the date
hereof. Any purported assignment of this Agreement in violation of this
provision shall be null and void and without any effect.
7. NOTICES. All notices, requests, demands and other communications to
-------
be given hereunder shall be delivered as set forth in the Purchase Agreement and
shall be deemed to have been given and received in the same manner as set forth
in the Purchase Agreement.
8. AFFILIATE. As used herein, an "affiliate" of any party means any
---------
person or entity controlling, controlled by or under common control with such
party.
9. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
-------------
PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING CONFLICTS OF LAWS) OF THE
STATE OF TEXAS.
10. HEADINGS. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning of this
Agreement.
11. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument, but only one of which need be produced.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
U.S. REMODELERS, INC.
By:Murray Gross
----------------------------------
Murray Gross, President
KITCHEN MASTERS, INC.
By:Ronald I. Wagner, President
----------------------------------
Ronald I. Wagner, President
-4-
<PAGE>
EXHIBIT 2.7
CONFIDENTIALITY AND NONCOMPETITION AGREEMENT
THIS CONFIDENTIALITY AND NONCOMPETITION AGREEMENT (this "Agreement") is
entered into as of the 30/th/ day of November, 1997, by and between U.S.
Remodelers, Inc., a Delaware corporation ("Purchaser"), and Ronald I. Wagner
("Shareholder"). This Agreement is being executed and delivered by the parties
pursuant to Section 9 of the Purchase Agreement (as defined below).
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Reunion Home Services, Inc., a Texas corporation ("Reunion"), is
engaged in the business of marketing, promotion, sale, financing and providing
of home remodeling services, and Kitchen Masters, Inc., a Texas corporation
("KMI"), is engaged in the manufacture of parts and material used by Reunion in
providing such home remodeling services (such home remodeling services and
manufacture of such materials hereinafter referred to collectively as the
"Business"); and
WHEREAS, on the date hereof, Purchaser, Reunion and KMI are entering into
an Asset Purchase Agreement (the "Purchase Agreement") whereby, among other
things, Purchaser is purchasing substantially all assets of Reunion and specific
assets of KMI, (as more particulary described therein); and
WHEREAS, Shareholder is an officer, director and/or shareholder of Reunion
and KMI; and
WHEREAS, Shareholder's covenants not-to-compete contained herein are an
important aspect of the above-referenced asset purchase transaction, and
Purchaser, Reunion and KMI would not enter into the Purchase Agreement absent
Shareholder's covenants not-to-compete contained herein; and
WHEREAS, Shareholder has financial resources, experience in the Business
and the ability to operate a business or businesses that could compete with
Purchaser in the Business in which Purchaser and/or its affiliates will be
engaged upon the closing of the transactions contemplated by the Purchase
Agreement (the "Closing"); and
WHEREAS, Purchaser would suffer damages, including the loss of profits, if
Shareholder, or any of his affiliates, engaged, directly or indirectly, in
competition with Purchaser or any of its affiliates in the Business; and
WHEREAS, Purchaser and Shareholder have reached this agreement in good
faith through arms-length negotiations;
NOW, THEREFORE, for and in consideration of the covenants not-to-compete
contained herein and the consideration to be paid therefor and other good and
valuable consideration, and of the other promises, covenants and conditions
contained herein, the receipt and adequacy of which consideration are hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
1. COVENANTS NOT-TO-COMPETE.
------------------------
(a) During the term of this Agreement, neither Shareholder nor any of
his affiliates shall, directly or indirectly, for itself or on behalf of any
other corporation, person, firm, partnership, association, or any other entity
(whether as an individual, agent, servant, employee, employer, officer,
director, shareholder, investor, principal, consultant or in any other
capacity), engage or participate in any business in competition with the
Business purchased by Purchaser pursuant to the Purchase Agreement to the extent
and within 200 miles of any sales office or manufacturing facility through which
Reunion, KMI or Shareholder conducted the Business prior to the date hereof, or
through which Purchaser conducts the Business as of the date of or during the
term of this Agreement; provided, however, the provisions of this Agreement
shall not prevent Reunion Home Services, Inc. ("Reunion") from fulfilling its
obligations under that certain Transition Services Agreement, dated of even date
herewith, by and between Reunion and Purchaser.
(b) During the term of this Agreement, neither Shareholder nor any of
his affiliates, shall for itself or on behalf of any other corporation, person,
firm, partnership, association, or any other entity (whether as an individual,
agent, servant, employee, employer, officer, director, shareholder, investor,
principal, consultant or in any other capacity) disclose to any person or entity
any of the client lists, client mailing lists, trade secrets, pricing,
advertising or marketing plans, methods, systems, procedures, data bases or
other software programs or applications or processes of, or utilized by,
Purchaser or any of its affiliates with respect to or related to the Business.
(c) During the term of this Agreement, neither Shareholder nor any of
his affiliates, shall assist or finance any person or entity in any manner or in
any way inconsistent with the intents and purposes of this Agreement.
(d) Shareholder shall, from the date of this Agreement forward,
refrain form making any disparaging, negative, or other similar remarks
concerning Purchaser or any of its affiliates, to any third party.
2. TERM. The term of this Agreement shall commence on the date hereof
----
and shall continue for five (5) years.
3. REMEDIES. In the event of Shareholder's breach, or threatened breach,
--------
of any term or provision contained in this Agreement, Shareholder agrees that
Purchaser and/or its affiliates shall be entitled to the right of specific
performance and/or both temporary and permanent injunctive relief in addition to
but not in lieu of any other remedies available at law or in equity.
4. ENFORCEABILITY. If for any reason any provision contained in this
--------------
Agreement should be held invalid in whole or in part by a court of competent
jurisdiction, then it is the intent of each of the parties hereto that the
balance of this Agreement be enforced to the fullest extent permitted by
applicable law. It is the intent of each of the parties that the covenants not-
to-compete contained in
-2-
<PAGE>
Section 1 herein be enforced to the fullest extent permitted by applicable law.
Accordingly, should a court of competent jurisdiction determine that the scope
of any covenant is too broad to be enforced as written or is otherwise
unenforceable, it is the intent of each of the parties that the court should
reform such covenant to such narrower scope or otherwise as it may determine is
necessary to make such covenant enforceable.
5. INTENT OF PARTIES. Each of the parties hereto recognizes and agrees
-----------------
that this Agreement is necessary and essential to the protection of the assets
of Reunion and KMI, which Purchaser is purchasing, and the Business which
Purchaser and its affiliates will conduct during the term of this Agreement,
and to enable Purchaser to realize and derive all of the benefits, rights and
expectations of the Purchase Agreement; that the area and duration of the
covenants herein are in all aspects, under the circumstances of the Purchase
Agreement, reasonable; and that good and valuable consideration exists for the
Shareholder agreeing to be bound by such covenants.
6. PARTIES IN INTEREST. This Agreement and all terms, covenants and
-------------------
conditions contained herein shall inure to the benefit of and shall be binding
upon the undersigned parties and their respective heirs, executors,
administrators, trustees, successors and permitted assigns. The parties' rights
or obligations hereunder are not transferable or assignable to any other party,
except that Purchaser may assign its rights or obligations hereunder to any of
its affiliates that operates the Business as operated by Purchaser on the date
hereof. Any purported assignment of this Agreement in violation of this
provision shall be null and void and without any effect.
7. NOTICES. All notices, requests, demands and other communications to
-------
be given hereunder shall be delivered as set forth in the Purchase Agreement and
shall be deemed to have been given and received in the same manner as set forth
in the Purchase Agreement.
8. AFFILIATE. As used herein, an "affiliate" of any party means any
---------
person or entity controlling, controlled by or under common control with such
party.
9. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
-------------
PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING CONFLICTS OF LAWS) OF THE
STATE OF TEXAS.
10. HEADINGS. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning of this
Agreement.
11. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument, but only one of which need be produced.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
U.S. REMODELERS, INC.
By: /s/ Murray Gross
--------------------------
Murray Gross, President
/s/ Ronald I. Wagner
-----------------------------
Ronald I. Wagner
-4-
<PAGE>
EXHIBIT 3.1
State of Delaware
OFFICE OF THE SECRETARY OF STATE PAGE 1
____________________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"U. S. REMODELERS, INC.", FILED IN THIS OFFICE ON THE ELEVENTH DAY OF JUNE, A.D.
1998, AT 4 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
[ SEAL APPEARS HERE] /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 9133839
DATE: 06-11-98
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
U.S. REMODELERS, INC.
It is hereby certified that:
FIRST: The name of the corporation is "U.S. Remodelers, Inc." (the
"Corporation").
SECOND: The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware, on the 23rd day of
January, 1997.
THIRD: The Amendment to the Certificate of Incorporation (the "Amendment")
of the Corporation effected by this Restated Certificate of Incorporation (the
"Certificate") is to amend Article Four in order to increase the capital stock
of the Corporation from 1,000,000 shares of "Common Stock" to 15,000,000 shares
of Common Stock.
FOURTH: The Board of Directors of the Corporation duly adopted a
resolution proposing and declaring advisable the Amendment to the Certificate of
Incorporation and the Certificate herein certified as described herein.
FIFTH: The Amendment and the Certificate have been duly adopted by the
stockholders in accordance with Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware. Prompt written notice of the adoption
of the Amendment and of the Certificate shall be given to those stockholders who
have not consented in writing thereto, as provided in Section 228 of the General
Corporation Law of the State of Delaware.
SIXTH: That the text of the Certificate of Incorporation of the
Corporation, as amended, is hereby restated and further amended as of the date
this Certificate is filed with the Secretary of State of the State of Delaware,
to read in full, as follows:
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
U.S. REMODELERS, INC.
ARTICLE ONE
-----------
The name of the Corporation is U.S. Remodelers, Inc.
ARTICLE TWO
-----------
The Corporation is to have perpetual existence.
ARTICLE THREE
-------------
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law.
ARTICLE FOUR
------------
Capital Stock
-------------
The aggregate number of shares of capital stock that the Corporation will
have authority to issue is 15,100,000, 15,000,000 of which will be shares of
common stock, having a par value of $0.01 per share (the "Common Stock"), and
100,000 of which will be shares of preferred stock, having a par value of $0.01
per share (the "Preferred Stock").
Preferred Stock
---------------
Preferred Stock may be issued in one or more series as may be determined
from time to time by the Board of Directors. All shares of any one series of
Preferred Stock will be identical except as to the dates of issue and the dates
from which dividends on shares of the series issued on different dates will
cumulate, if cumulative. Authority is hereby expressly granted to the Board of
Directors to authorize the issuance of one or more series of Preferred stock,
and to fix by resolution or resolutions providing for the issue of each such
series the voting powers, designations, preferences, and relative,
participating, optional, redemption, conversion, exchange or other special
rights, qualifications, limitations or restrictions of such series, and the
number of shares in each series, to the full extent now or hereafter permitted
by law.
-2-
<PAGE>
Series A Preferred Stock
------------------------
(a) Designation of Class. Pursuant to the authority conferred upon
the Board of Directors by the Certificate of Incorporation, the Board of
Directors at a meeting adopted a resolution providing for the creation of a
Class of Series A Preferred Stock, par value $0.01 per share (the "Series A
Preferred Stock"). Such resolution was filed with the Secretary of State
of Delaware on December 8, 1997 and sets forth the powers, preferences,
rights, qualifications, limitations and restrictions of the Series A
Preferred Stock as set forth below.
(b) Dividends on Series A Preferred Stock.
1. Payment. The holders of record of the Series A Preferred
-------
Stock (whether singular or plural, the "Holder") shall be entitled to
receive dividends at the rate of $1.00 per share per annum commencing
November 30, 1997, payable when and as declared by the Board of
Directors, out of any funds at the time legally available therefor and
subject to the further limitations set out herein, provided, however,
that if all of the outstanding Series A Preferred Stock is redeemed in
full by the Corporation prior to June 30, 1999, no dividends shall
accrue on the Series A Preferred Stock. All dividends on the Series A
Preferred Stock shall be due semiannually in arrears as of the last
day of June and December of each calendar year, the first dividend
being due and payable on June 30, 1999 and subsequent dividends being
due and payable on the last day of each December and June thereafter.
Each date on which a dividend may be declared is hereafter called the
"Dividend Date," and each semiannual period ending with a Dividend
Date is hereinafter referred to as a "Dividend Period." Dividends
shall be payable on each Dividend Date, provided however, that if such
date on which a dividend is payable is a Saturday, Sunday or legal
holiday, such dividend shall be payable on the next following business
day to the Holder. Dividends on the Series A Preferred Stock shall be
paid only out of those assets of the Corporation legally available
therefor. All dividends shall be paid in the form of cash.
2. Dividends Cumulative. Dividends on the Series A Preferred
--------------------
Stock shall be cumulative, whether or not in any Dividend Period or
Periods there shall be assets of the Corporation legally available for
the payment of such dividends.
3. Ranking with Respect to Dividends. The Series A Preferred
---------------------------------
Stock shall be senior in right of dividend payment to any other class
or series of Preferred Stock or the Common Stock of the Corporation,
unless the Holders of at least two thirds of the outstanding shares of
Series A Preferred Stock expressly consent to the contrary in writing.
Dividends may not be paid on any class or series of stock ranking
junior to the Series A Preferred Stock with respect to dividends
unless all dividends currently payable and all cumulated dividends
with respect to the Series A Preferred Stock have been paid.
-3-
<PAGE>
4. Dividends Where Other Classes or Series are Redeemed.
----------------------------------------------------
Dividends shall be payable under the Series A Preferred Stock before
any sum or sums shall be set aside for the purchase or redemption of
any class or series of stock ranking junior to the Series A Preferred
Stock as to dividends or distribution of assets. If at any time
dividends on the outstanding Series A Preferred Stock at the per annum
rate hereinabove specified from the date of cumulation to the end of
the then current Dividend Period shall not have been paid or declared,
whether in whole or in part, or a sum sufficient for the payment
thereof set apart for such payment, then the amount of the deficiency
shall be fully paid (including interest, if any), or dividends in such
amount declared and a sum sufficient for the payment thereof set apart
for such payment, before any sum shall be paid or set aside for the
purchase or redemption of any class or series of stock ranking junior
to the Series A Preferred Stock as to dividends or distribution of
assets.
5. Date of Cumulation. The term "date of cumulation" as used
------------------
herein with reference to the Series A Preferred Stock shall be deemed
to mean (i) the most recent Dividend Date on which dividends have been
fully paid, or (ii) if no dividends have been paid with respect to
such shares, the date of issuance of the shares of Series A Preferred
Stock.
6. Interest on Accrued And Unpaid Dividend. All accrued and
---------------------------------------
unpaid dividends, whether or not earned or declared, shall bear
interest from the respective Dividend Date until paid at an annual
rate of 10%.
(c) Redemption of Series A Preferred Stock.
1. Mandatory Redemption. Commencing with June 30, 1999, and on
--------------------
the last day of each December and June thereafter on which any of the
Series A Preferred Stock remains outstanding, the Corporation shall
redeem the lesser of 8,000 shares of Series A Preferred Stock
outstanding, or the remaining shares of Series A Preferred Stock
outstanding at a price per share of $10.00, plus accrued and unpaid
dividend on such shares, if any, to and including the date fixed for
redemption (the "Redemption Value").
2. Voluntary Redemption. The Corporation may, at its sole
--------------------
option, redeem all or a part of the shares of Series A Preferred Stock
outstanding, in whole or in part, at any time.
3. Redemption upon Public Offering. The Corporation shall use
-------------------------------
commercially reasonable best efforts to redeem all of the Series A
Preferred Stock at the Redemption Value immediately following the
consummation of a sale by the Corporation of its Common Stock,
pursuant to a registration statement filed with and declared effective
by Securities and Exchange Commission under the Securities Act
-4-
<PAGE>
of 1933, as amended, which results in the Common Stock being
registered under the Securities Exchange Act of 1934, as amended, and
from which the Corporation receives net proceeds $7,500,000 or more.
4. Notice Procedure. The Corporation shall give notice to the
----------------
Holder by certified mail, return receipt requested, at least 60 days
in advance of the date set forth in such notice as the date on which
such redemption is to be effected. The shares shall be redeemed upon
payment by the Corporation to the Holder of the Redemption Value. Any
redemptions hereunder shall be subject to restrictions imposed by
state law regarding the circumstances under which such a redemption
may be effected.
5. Payment Procedures. In order to facilitate the redemption of
------------------
any shares of Series A Preferred Stock, as provided in this paragraph
(c), the directors shall be authorized to cause the transfer books of
the Corporation to be closed not more than 60 days prior to the
designated redemption date. Any notice mailed by the Corporation
shall contain the information required by the applicable state laws
and shall be mailed to the Holder at its address, certified mail,
return receipt requested, as the same shall appear on the books of the
Corporation. If fewer than all the outstanding shares of Series A
Preferred Stock are to be redeemed, the redemption shall be made pro
rata, but to the extent and in such a manner so as to minimize the
number of fractional shares of Series A Preferred Stock which remain
outstanding as a result of such redemption. From and after the date
fixed in any notice from the Corporation as of the date of redemption,
and after all amounts necessary to effect such redemption have been
set aside for such purpose, all rights of the Holder thereof as a
shareholder of the Corporation with respect to the shares redeemed,
except the right to receive the redemption price, shall cease and
terminate.
6. Delivery of Certificates. The Holder shall be entitled to
------------------------
receive the redemption price upon actual delivery to the Corporation
or to such other entity as may be designated by the notice referred to
in subdivision 2 of this paragraph (c) of certificates for the number
of shares to be redeemed, duly endorsed in blank or accompanied by
proper instruments of assignment and transfer duly endorsed in blank.
Series A Preferred Stock redeemed pursuant to the provisions of this
paragraph may be held in the treasury of the Corporation or retired
and canceled and given the status of authorized and unissued preferred
stock.
(d) Conversion into Promissory Note. The Corporation may, at its sole
option, convert and exchange all of the shares of Series A Preferred Stock
outstanding into a promissory note payable to the Holder of the shares of
Series A Preferred Stock so converted (the "Note"), in an original
principal amount equal to the Redemption Value of such outstanding shares
together with all accrued and unpaid dividends thereon, which Note shall
bear interest at the rate of 10% per annum compounded annually. As long
as any principal
-5-
<PAGE>
or accrued, unpaid interest remains outstanding under the Note, the
Corporation commencing June 30, 1999 shall make semiannual payments to the
holder thereof, on the last day of December and June of each year, of no
less than $80,000 plus all accrued and unpaid interest on the Note, or the
remaining balance of principal and accrued, unpaid interest outstanding
under the Note, whichever is less. Not less than 10 nor more than 60 days
prior to the date fixed for the issue of the Note and redemption of an
exchange for shares of Series A Preferred Stock, a notice shall be given by
first class mail, postage prepaid, to the holders of record of shares of
Series A Preferred Stock at the respective addresses as the same shall
appear on the books of the Corporation, specifying the effective date of
the exchange of the Series A Preferred Stock for the Note (the "Exchange
Date") and the place where certificates for shares of Series A Preferred
Stock are to be surrendered for the Note and stating that dividends on
shares of Series A Preferred Stock will cease to accrue on the Exchange
Date, but neither failure to mail such notice, nor any defect therein or in
the mailing thereof, to any particular holder shall effect this sufficiency
of the notice or the validity of the proceeding for redemption and exchange
with respective to the other holders. Any notice which was mailed in the
manner herein provided shall be conclusively presumed to have been duly
given whether or not the holder receives the notice.
(e) Priority of the Series A Preferred Stock in the Event of
Dissolution (i.e., "Liquidation Preference"). The Series A Preferred Stock
shall be preferred over the Common Stock of the Corporation and any class
or series of stock ranking junior to the Series A Preferred Stock as to
distribution of assets in the event of any liquidation, dissolution or
winding up of the Corporation and, in that event, subject to the provisions
of applicable law, the Holder shall be entitled to receive, out of the
assets of the Corporation available for distribution to its shareholders,
$10.00 per share of Series A Preferred Stock, together with the amount of
any dividends accrued and unpaid as of the date of liquidation (the
"Liquidation Preference"). Upon any liquidation, dissolution or winding up
of the Corporation, after payment has been made in full on any other
securities which are senior as to distribution of assets to Series A
Preferred Stock, and after payment shall have been made in full on the
Series A Preferred Stock, as provided in this paragraph (e), but not prior
thereto, the holders of all the remaining capital stock including the
Common Stock or any other series or class of stock ranking junior to the
Series A Preferred Stock as to distribution of assets shall, subject to the
respective terms and provisions of the Certificate of Incorporation of the
Corporation, if any, applying thereto, be entitled to receive any and all
assets remaining to be paid or distributed, and the Holder shall not be
entitled to share therein. The merger or consolidation of the Corporation
with any corporation shall not be deemed to be a liquidation, dissolution
or winding up of the Corporation for the purpose of this paragraph (e).
(f) Legend. The certificates representing the Series A Preferred
Stock shall contain a legend substantially as follows:
-6-
<PAGE>
"A statement of designations, preferences, limitations and relative
rights of these shares is set forth in the Certificate of
Incorporation on file in the office of the Secretary of State of
Delaware and the Corporation will furnish a copy of such statement to
the record holder of this certificate without charge upon written
request to the Corporation at its principal place of business or
registered office.
The sale of securities represented by this certificate has not been
registered under the Securities Act of 1933, as amended (the "Act"),
or under any state securities law and such securities may not be
offered for sale, sold, pledged or otherwise transferred without (1)
registration under the Act and any applicable state securities laws or
(2) an opinion (acceptable to the Corporation) of counsel (acceptable
to the Corporation) that such registration is not required."
(g) Voting Rights.
1. Generally. The Holders shall not be entitled to vote on any
---------
matters to be voted on by the stockholders of the Corporation, except
(i) as may otherwise be expressly permitted herein or by the
Certificate of Incorporation of the Corporation and (ii) that the
Holders shall be entitled to vote as a class upon any proposed
amendment to the Certificate of Incorporation of the Corporation,
whether or not entitled to vote thereon by the provisions of such
Certificate of Incorporation, if the amendment would increase or
decrease the aggregate number of authorized shares of Series A
Preferred Stock, increase or decrease the par value or stated value of
the shares of Series A Preferred Stock, or alter or change the powers,
preferences or special rights of the shares of Series A Preferred
Stock so as to affect them adversely. When required in accordance with
the terms of the preceding sentence, each Holder shall have one vote
for each share of Series A Preferred Stock held of record by such
Holder.
2. Amendment of Certificate of Incorporation or Bylaws. So long
---------------------------------------------------
as any shares of Series A Preferred Stock remain outstanding, the
Corporation shall not, without the prior written approval of the
Holders of at least two thirds of the outstanding shares of Series A
Preferred Stock of the Corporation, amend the Corporation's
Certificate of Incorporation (including without limitation pursuant to
the authorization or designation of a class or series of preferred
stock) or Bylaws so as to adversely affect the rights or preferences
of the holders of the Series A Preferred Stock.
3. Action by Holders. In the event that the Holders of the
-----------------
Series A Preferred Stock are required to or permitted to give their
consent or approval, or to take any action pursuant to their rights
under this paragraph (g), the Holder or Holders of 10% or more of the
outstanding shares of Series A Preferred Stock may, by written notice
personally delivered or mailed to all Holders of Series A Preferred
Stock at their last
-7-
<PAGE>
known addresses and to the President of the Corporation, call a
meeting of the Holders of the Series A Preferred Stock for such
purpose, specifying the date (which shall be no less than ten (10)
days following the date notice is given) and location of such meeting
and the purpose for such meeting. In the event that the Holders of the
Series A Preferred Stock are required to or permitted to give their
consent or approval, or to take any action pursuant to their rights
hereunder, such action may be taken without a meeting and without a
vote if a consent or consents in writing, setting forth the action so
taken, shall be signed by the Holder or Holders of shares of Series A
Preferred Stock having not less than the minimum number of votes that
would be necessary to take such action at a meeting and a copy of such
consent is personally delivered or mailed to all the Holders of Series
A Preferred Stock at their last known addresses and to the President
of the Corporation. If such notice or written consent relates to the
election of directors pursuant to subdivision 2 above, the notice or
written consent shall specify the nature of the event(s) giving rise
to the right to elect directors, and, in the case of action by written
consent, such action shall not be deemed effective until ten (10) days
following the date such written consent is delivered or mailed to the
Holders and the President.
ARTICLE FIVE
------------
No stockholder of the Corporation will, solely by reason of holding shares
of any class, have any preemptive or preferential right to purchase or subscribe
for any shares of the Corporation, now or hereafter to be authorized, or any
notes, debentures, bonds or other securities convertible into or carrying
warrants, rights or options to purchase shares of any class, now or hereafter to
be authorized, whether or not the issuance of any such shares or such notes,
debentures, bonds or other securities would adversely affect the dividend,
voting or any other rights of such stockholder. The Board of Directors may
authorize the issuance of, and the Corporation may issue, shares of any class of
the Corporation, or any notes, debentures, bonds or other securities convertible
into or carrying warrants, rights or options to purchase any such shares,
without offering any shares of any class to the existing holders of any class of
stock of the Corporation.
ARTICLE SIX
-----------
At all meetings of stockholders, a quorum will be present if the holders of
a majority of the shares entitled to vote at the meeting are represented at the
meeting in person or by proxy.
ARTICLE SEVEN
-------------
Stockholders of the Corporation will not have the right of cumulative
voting for the election of directors or for any other purpose.
-8-
<PAGE>
ARTICLE EIGHT
-------------
The Board of Directors is expressly authorized to alter, amend or repeal
the Bylaws of the Corporation or to adopt new Bylaws.
ARTICLE NINE
------------
(a) The Corporation will, to the fullest extent permitted by the Delaware
General Corporation Law, as the same exists or may hereafter be amended,
indemnify any and all persons it has power to indemnify under such law from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by such law. Such indemnification may be provided pursuant to any
Bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his director or officer capacity and as to action in
another capacity while holding such office, will continue as to a person who has
ceased to be a director, officer, employee or agent, and will inure to the
benefit of the heirs, executors and administrators of such a person.
(b) If a claim under the preceding paragraph (a) is not paid in full by
the Corporation within 30 days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant will be entitled to be paid also the expense of
prosecuting such claim. It will be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct that make it permissible under the laws of the
State of Delaware for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense will be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the laws of the State of Delaware nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, will be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
ARTICLE TEN
-----------
To the fullest extent permitted by the laws of the State of Delaware as the
same exist or may hereafter be amended, a director of the Corporation will not
be liable to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director. Any repeal or modification of this Article
will not increase the personal liability of any director of the Corporation for
any act or occurrence taking place before such repeal or modification, or
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
-9-
<PAGE>
The provisions of this Article Ten shall not be deemed to limit or preclude
indemnification of a director by the Corporation for any liability of a director
that has not been eliminated by the provisions of this Article Ten.
ARTICLE ELEVEN
--------------
The Corporation's registered office in the State of Delaware is 1209 Orange
Street, Corporation Trust Center, in the City of Wilmington, County of New
Castle. The name and address of its registered agent is The Corporation Trust
Company, 1209 Orange Street, Wilmington, Delaware.
ARTICLE TWELVE
--------------
The number of directors constituting the Board of Directors of the
Corporation will be determined in accordance with the Bylaws of the Corporation.
-10-
<PAGE>
IN WITNESS WHEREOF, the undersigned does make this Certificate, hereby
declaring and certifying that this is the act and deed of the Corporation, and
the facts herein stated are true, and accordingly, have hereunto set my hand and
caused the Corporate Seal of the Corporation to be hereunto affixed this 11th
day of June, 1998.
/s/ Murray H. Gross
-------------------------
Printed Name: MURRAY H. GROSS
Title: President & Ceo
-11-
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
U. S. REMODELERS, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
OFFICES
-------
<S> <C>
Section 1. Registered Office...................................... 1
Section 2. Other Offices.......................................... 1
ARTICLE II
STOCKHOLDERS
------------
Section 1. Place of Meetings...................................... 1
Section 2. Annual Meeting......................................... 1
Section 3. List of Stockholders................................... 1
Section 4. Special Meetings....................................... 2
Section 5. Notice................................................. 2
Section 6. Quorum................................................. 2
Section 7. Voting................................................. 2
Section 8. Method of Voting....................................... 2
Section 9. Record Date............................................ 3
Section 10. Action by Consent...................................... 3
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 1. Management............................................. 3
Section 2. Qualification; Election; Term.......................... 3
Section 3. Number................................................. 3
Section 4. Removal................................................ 4
Section 5. Vacancies.............................................. 4
Section 6. Place of Meetings...................................... 4
Section 7. Annual Meeting......................................... 4
Section 8. Regular Meetings....................................... 4
Section 9. Special Meetings....................................... 4
Section 10. Quorum................................................. 4
Section 11. Interested Directors................................... 5
Section 12. Committees............................................. 5
Section 13. Action by Consent...................................... 5
Section 14. Compensation of Directors.............................. 5
ARTICLE IV
NOTICE
------
Section 1. Form of Notice......................................... 6
Section 2. Waiver................................................. 6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE V
OFFICERS AND AGENTS
-------------------
<S> <C>
Section 1. In General............................................. 6
Section 2. Election............................................... 6
Section 3. Other Officers and Agents.............................. 6
Section 4. Compensation........................................... 6
Section 5. Term of Office and Removal............................. 6
Section 6. Employment and Other Contracts......................... 7
Section 7. Chairman of the Board of Directors..................... 7
Section 8. President.............................................. 7
Section 9. Vice Presidents........................................ 7
Section 10. Secretary.............................................. 7
Section 11. Assistant Secretaries.................................. 8
Section 12. Treasurer.............................................. 8
Section 13. Assistant Treasurers................................... 8
Section 14. Bonding................................................ 8
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
--------------------------------
Section 1. Form of Certificates................................... 8
Section 2. Lost Certificates...................................... 9
Section 3. Transfer of Shares..................................... 9
Section 4. Registered Stockholders................................ 9
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1. Dividends.............................................. 9
Section 2. Reserves............................................... 10
Section 3. Telephone and Similar Meetings......................... 10
Section 4. Books and Records...................................... 10
Section 5. Fiscal Year............................................ 10
Section 6. Seal................................................... 10
Section 7. Advances of Expenses................................... 10
Section 8. Indemnification........................................ 11
Section 9. Insurance.............................................. 11
Section 10. Resignation............................................ 11
Section 11. Amendment of Bylaws.................................... 12
Section 12. Invalid Provisions..................................... 12
Section 13. Relation to the Certificate of Incorporation........... 12
</TABLE>
<PAGE>
BYLAWS
OF
U. S. REMODELERS, INC.
ARTICLE I
OFFICES
-------
Section 1. Registered Office. The registered office and registered agent
--------- -----------------
of U. S. Remodelers, Inc. (the "Corporation") will be as from time to time set
forth in the Corporation's Certificate of Incorporation or in any certificate
filed with the Secretary of State of the State of Delaware, and the appropriate
county Recorder or Recorders, as the case may be, to amend such information.
Section 2. Other Offices. The Corporation may also have offices at such
--------- -------------
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDERS
------------
Section 1. Place of Meetings. All meetings of the stockholders for the
--------- -----------------
the election of Directors will be held at such place, within or without the
State of Delaware, as may be fixed from time to time by the Board of Directors.
Meetings of stockholders for any other purpose may be held at such time and
place, within or without the State of Delaware, as may be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. An annual meeting of the stockholders will be
--------- --------------
held at 10:00 a.m., local time, on the 3rd Saturday of April of each year, or at
such time as may be determined by the Board of Directors. At each annual meeting
the stockholders will elect a Board of Directors, and transact such other
business as may properly be brought before the meeting.
Section 3. List of Stockholders. At least ten days before each meeting of
--------- --------------------
stockholders, a complete list of the stockholders entitled to vote at said
meeting, arranged in alphabetical order, with the address of and the number of
voting shares registered in the name of each, will be prepared by the officer or
agent having charge of the stock transfer books. Such list will be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
will be specified in the notice of the meeting, or if not so specified at the
place where the meeting is to be held. Such list will be produced and kept open
at the time and place of the meeting during the whole time thereof, and will be
subject to the inspection of any stockholder who may be present.
<PAGE>
Section 4. Special Meetings. Special meetings of the stockholders,
--------- ----------------
for any purpose or purposes, unless otherwise prescribed by law, the Certificate
of Incorporation or these Bylaws, may be called by the Chairman of the Board,
the President or the Board of Directors. Business transacted at all special
meetings will be confined to the purposes stated in the notice of the meeting
unless all stockholders entitled to vote are present and consent.
Section 5. Notice. Written or printed notice stating the place, day
--------- ------
and hour of any meeting of the stockholders and, in case of a special meeting,
the purpose or purposes for which the meeting is called, will be delivered not
less than ten nor more than sixty days before the date of the meeting, either
personally or by mail, by or at the direction of the Chairman of the Board, the
President, the Secretary, or the officer or person calling the meeting, to each
stockholder of record entitled to vote at the meeting. If mailed, such notice
will be deemed to be delivered when deposited in the United States mail,
addressed to the stockholder at his address as it appears on the stock transfer
books of the Corporation, with postage thereon prepaid.
Section 6. Quorum. At all meetings of the stockholders, the presence
--------- ------
in person or by proxy of the holders of a majority of the shares issued and
outstanding and entitled to vote will be necessary and sufficient to constitute
a quorum for the transaction of business except as otherwise provided by law,
the Certificate of Incorporation or these Bylaws. If, however, such quorum is
not present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, will have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum is present or represented. If the
adjournment is for more than 30 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting will
be given to each stockholder of record entitled to vote at the meeting. At such
adjourned meeting at which a quorum is present or represented, any business may
be transacted that might have been transacted at the meeting as originally
notified.
Section 7. Voting. When a quorum is present at any meeting of the
--------- ------
Corporation's stockholders, the vote of the holders of a majority of the shares
entitled to vote on, and voted for or against, any matter will decide any
questions brought before such meeting, unless the question is one upon which, by
express provision of law, the Certificate of Incorporation or these Bylaws, a
different vote is required, in which case such express provision will govern and
control the decision of such question. The stockholders present in person or by
proxy at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
Section 8. Method of Voting. Each outstanding share of the
--------- ----------------
Corporation's capital stock, regardless of class, will be entitled to one vote
on each matter submitted to a vote at a meeting of stockholders, except to the
extent that the voting rights of the shares of any class or classes are limited
or denied by the Certificate of Incorporation, as amended from time to time. At
any meeting of the stockholders, every stockholder having the right to vote will
be entitled to vote in person, or by proxy appointed by an instrument in writing
subscribed by such stockholder and bearing a date not more than three years
prior to such meeting, unless such instrument provides for a longer period.
Each proxy will be revocable unless expressly provided therein to be
-2-
<PAGE>
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Corporation generally. Such
proxy will be filed with the Secretary of the Corporation prior to or at the
time of the meeting. Voting on any question or in any election, other than for
directors, may be by voice vote or show of hands unless the presiding officer
orders, or any stockholder demands, that voting be by written ballot.
Section 9. Record Date. The Board of Directors may fix in advance a
--------- -----------
record date for the purpose of determining stockholders entitled to notice of or
to vote at a meeting of stockholders, which record date will not precede the
date upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date will not be less than ten nor more than sixty
days prior to such meeting. In the absence of any action by the Board of
Directors, the close of business on the date next preceding the day on which the
notice is given will be the record date, or, if notice is waived, the close of
business on the day next preceding the day on which the meeting is held will be
the record date.
Section 10. Action by Consent. Any action required or permitted by
---------- -----------------
law, the Certificate of Incorporation or these Bylaws to be taken at a meeting
of the stockholders of the Corporation may be taken without a meeting if a
consent or consents in writing, setting forth the action so taken, is 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 will be
delivered to the Corporation by delivery to its registered office in Delaware,
its principal place of business or an officer or agent of the Corporation having
custody of the minute book.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 1. Management. The business and affairs of the Corporation
--------- ----------
will be managed by or under the direction of its Board of Directors who may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law, by the Certificate of Incorporation or by these Bylaws
directed or required to be exercised or done by the stockholders.
Section 2. Qualification; Election; Term. None of the Directors need
--------- -----------------------------
be a stockholder of the Corporation or a resident of the State of Delaware. The
Directors will be elected by written ballot, by plurality vote at the annual
meeting of the stockholders, except as hereinafter provided, and each Director
elected will hold office until whichever of the following occurs first: his
successor is elected and qualified, his resignation, his removal from office by
the stockholders or his death.
Section 3. Number. The number of Directors of the Corporation will
--------- ------
be at least one (1) and not more than seven (7). The number of Directors
authorized will be fixed as the Board
-3-
<PAGE>
of Directors may from time to time designate, or if no such designation has been
made, the number of Directors will be the same as the number of members of the
initial Board of Directors as set forth in the Certificate of Incorporation.
Section 4. Removal. Any Director may be removed either for or
--------- -------
without cause, at any special meeting of stockholders by the affirmative vote of
a majority in number of shares of the stockholders present in person or
represented by proxy at such meeting and entitled to vote for the election of
such Director; provided that notice of the intention to act upon such matter has
been given in the notice calling such meeting.
Section 5. Vacancies. Newly created directorships resulting from any
--------- ---------
increase in the authorized number of Directors and any vacancies occurring in
the Board of Directors caused by death, resignation, retirement,
disqualification or removal from office of any Directors or otherwise, may be
filled by the vote of a majority of the Directors then in office, though less
than a quorum, or a successor or successors may be chosen at a special meeting
of the stockholders called for that purpose, and each successor Director so
chosen will hold office until the next election of the class for which such
Director has been chosen or until whichever of the following occurs first: his
successor is elected and qualified, his resignation, his removal from office by
the stockholders or his death.
Section 6. Place of Meetings. Meetings of the Board of Directors,
--------- -----------------
regular or special, may be held at such place within or without the State of
Delaware as may be fixed from time to time by the Board of Directors.
Section 7. Annual Meeting. The first meeting of each newly elected
--------- --------------
Board of Directors will be held without further notice immediately following the
annual meeting of stockholders and at the same place, unless by unanimous
consent, the Directors then elected and serving change such time or place.
Section 8. Regular Meetings. Regular meetings of the Board of
--------- ----------------
Directors may be held without notice at such time and place as is from time to
time determined by resolution of the Board of Directors.
Section 9. Special Meetings. Special meetings of the Board of
--------- ----------------
Directors may be called by the Chairman of the Board or the President on oral or
written notice to each Director, given either personally, by telephone, by
telegram or by mail; special meetings will be called by the Chairman of the
Board, President or Secretary in like manner and on like notice on the written
request of at least two Directors. The purpose or purposes of any special
meeting will be specified in the notice relating thereto.
Section 10. Quorum. At all meetings of the Board of Directors the
---------- ------
presence of a majority of the number of Directors fixed by these Bylaws will be
necessary and sufficient to constitute a quorum for the transaction of business,
and the affirmative vote of at least a majority of the Directors present at any
meeting at which there is a quorum will be the act of the Board of Directors,
except as may be otherwise specifically provided by law, the Certificate of
-4-
<PAGE>
Incorporation or these Bylaws. If a quorum is not present at any meeting of the
Board of Directors, the Directors present thereat may adjourn the meeting from
time to time without notice other than announcement at the meeting, until a
quorum is present.
Section 11. Interested Directors. No contract or transaction between
---------- --------------------
the Corporation and one or more of its Directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of the Corporation's Directors or officers are
directors or officers or have a financial interest, will be void or voidable
solely for this reason, solely because the Director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof that
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (i) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested Directors, even though the disinterested Directors
be less than a quorum, (ii) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified by the Board of Directors, a committee thereof
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee that authorizes the contract or transaction.
Section 12. Committees. The Board of Directors may, by resolution
---------- ----------
passed by a majority of the entire Board, designate committees, each committee
to consist of two or more Directors of the Corporation, which committees will
have such power and authority and will perform such functions as may be provided
in such resolution. Such committee or committees will have such name or names
as may be designated by the Board and will keep regular minutes of their
proceedings and report the same to the Board of Directors when required.
Section 13. Action by Consent. Any action required or permitted to be
---------- -----------------
taken at any meeting of the Board of Directors or any committee of the Board of
Directors may be taken without such a meeting if a consent or consents in
writing, setting forth the action so taken, is signed by all the members of the
Board of Directors or such committee, as the case may be.
Section 14. Compensation of Directors. Directors will receive such
---------- -------------------------
compensation for their services and reimbursement for their expenses as the
Board of Directors, by resolution, may establish; provided that nothing herein
contained will be construed to preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor.
-5-
<PAGE>
ARTICLE IV
NOTICE
------
Section 1. Form of Notice. Whenever by law, the Certificate of
--------- --------------
Incorporation or of these Bylaws, notice is to be given to any Director or
stockholder, and no provision is made as to how such notice will be given, such
notice may be given in writing, by mail, postage prepaid, addressed to such
Director or stockholder at such address as appears on the books of the
Corporation. Any notice required or permitted to be given by mail will be
deemed to be given at the time the same is deposited in the United States mails.
Section 2. Waiver. Whenever any notice is required to be given to
--------- ------
any stockholder or Director of the Corporation as required by law, the
Certificate of Incorporation or these Bylaws, a waiver thereof in writing signed
by the person or persons entitled to such notice, whether before or after the
time stated in such notice, will be equivalent to the giving of such notice.
Attendance of a stockholder or Director at a meeting will constitute a waiver of
notice of such meeting, except where such stockholder or Director attends for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the ground that the meeting has not been lawfully
called or convened.
ARTICLE V
OFFICERS AND AGENTS
-------------------
Section 1. In General. The officers of the Corporation will be
--------- ----------
elected by the Board of Directors and will be a President, a Vice President, a
Secretary and a Treasurer. The Board of Directors may also elect a Chairman of
the Board, additional Vice Presidents, Assistant Vice Presidents and one or more
Assistant Secretaries and Assistant Treasurers. Any two or more offices may be
held by the same person.
Section 2. Election. The Board of Directors, at its first meeting
--------- --------
after each annual meeting of stockholders, will elect the officers, none of whom
need be a member of the Board of Directors.
Section 3. Other Officers and Agents. The Board of Directors may
--------- -------------------------
also elect and appoint such other officers and agents as it deems necessary, who
will be elected and appointed for such terms and will exercise such powers and
perform such duties as may be determined from time to time by the Board.
Section 4. Compensation. The compensation of all officers and agents
--------- ------------
of the Corporation will be fixed by the Board of Directors or any committee of
the Board, if so authorized by the Board.
Section 5. Term of Office and Removal. Each officer of the
--------- --------------------------
Corporation will hold office until his death, his resignation or removal from
office, or the election and qualification
-6-
<PAGE>
of his successor, whichever occurs first. Any officer or agent elected or
appointed by the Board of Directors may be removed at any time, for or without
cause, by the affirmative vote of a majority of the entire Board of Directors,
but such removal will not prejudice the contract rights, if any, of the person
so removed. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board of Directors.
Section 6. Employment and Other Contracts. The Board of Directors
--------- ------------------------------
may authorize any officer or officers or agent or agents to enter into any
contract or execute and deliver any instrument in the name or on behalf of the
Corporation, and such authority may be general or confined to specific
instances. The Board of Directors may, when it believes the interest of the
Corporation will best be served thereby, authorize executive employment
contracts that will have terms no longer than ten years and contain such other
terms and conditions as the Board of Directors deems appropriate. Nothing
herein will limit the authority of the Board of Directors to authorize
employment contracts for shorter terms.
Section 7. Chairman of the Board of Directors. If the Board of
--------- ----------------------------------
Directors has elected a Chairman of the Board, he will preside at all meetings
of the stockholders and the Board of Directors. Except where by law the
signature of the President is required, the Chairman will have the same power as
the President to sign all certificates, contracts and other instruments of the
Corporation. During the absence or disability of the President, the Chairman
will exercise the powers and perform the duties of the President.
Section 8. President. The President will be the chief executive
--------- ---------
officer of the Corporation and, subject to the control of the Board of
Directors, will supervise and control all of the business and affairs of the
Corporation. He will, in the absence of the Chairman of the Board, preside at
all meetings of the stockholders and the Board of Directors. The President will
have all powers and perform all duties incident to the office of President and
will have such other powers and perform such other duties as the Board of
Directors may from time to time prescribe.
Section 9. Vice Presidents. Each Vice President will have the usual
--------- ---------------
and customary powers and perform the usual and customary duties incident to the
office of Vice President, and will have such other powers and perform such other
duties as the Board of Directors or any committee thereof may from time to time
prescribe or as the President may from time to time delegate to him. In the
absence or disability of the President and the Chairman of the Board, a Vice
President designated by the Board of Directors, or in the absence of such
designation the Vice Presidents in the order of their seniority in office, will
exercise the powers and perform the duties of the President.
Section 10. Secretary. The Secretary will attend all meetings of the
---------- ---------
stockholders and record all votes and the minutes of all proceedings in a book
to be kept for that purpose. The Secretary will perform like duties for the
Board of Directors and committees thereof when required. The Secretary will
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors. The Secretary will keep in safe
custody the seal of the Corporation. The Secretary will be under the
supervision of the
-7-
<PAGE>
President. The Secretary will have such other powers and perform such other
duties as the Board of Directors may from time to time prescribe or as the
President may from time to time delegate to him.
Section 11. Assistant Secretaries. The Assistant Secretaries in the
---------- ---------------------
order of their seniority in office, unless otherwise determined by the Board of
Directors, will, in the absence or disability of the Secretary, exercise the
powers and perform the duties of the Secretary. They will have such other
powers and perform such other duties as the Board of Directors may from time to
time prescribe or as the President may from time to time delegate to them.
Section 12. Treasurer. The Treasurer will have responsibility for the
---------- ---------
receipt and disbursement of all corporate funds and securities, will keep full
and accurate accounts of such receipts and disbursements, and will deposit or
cause to be deposited all moneys and other valuable effects in the name and to
the credit of the Corporation in such depositories as may be designated by the
Board of Directors. The Treasurer will render to the Directors whenever they
may require it an account of the operating results and financial condition of
the Corporation, and will have such other powers and perform such other duties
as the Board of Directors may from time to time prescribe or as the President
may from time to time delegate to him.
Section 13. Assistant Treasurers. The Assistant Treasurers in the
---------- --------------------
order of their seniority in office, unless otherwise determined by the Board of
Directors, will, in the absence or disability of the Treasurer, exercise the
powers and perform the duties of the Treasurer. They will have such other
powers and perform such other duties as the Board of Directors may from time to
time prescribe or as the President may from time to time delegate to them.
Section 14. Bonding. The Corporation may secure a bond to protect the
---------- -------
Corporation from loss in the event of defalcation by any of the officers, which
bond may be in such form and amount and with such surety as the Board of
Directors may deem appropriate.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
--------------------------------
Section 1. Form of Certificates. Certificates, in such form as may
--------- --------------------
be determined by the Board of Directors, representing shares to which
stockholders are entitled will be delivered to each stockholder. Such
certificates will be consecutively numbered and will be entered in the stock
book of the Corporation as they are issued. Each certificate will state on the
face thereof the holder's name, the number, class of shares, and the par value
of such shares or a statement that such shares are without par value. They will
be signed by the President or a Vice President and the Secretary or an Assistant
Secretary, and may be sealed with the seal of the Corporation or a facsimile
thereof. If any certificate is countersigned by a transfer agent, or an
assistant transfer agent or registered by a registrar, either of which is other
than the Corporation or an employee of the Corporation, the signatures of the
Corporation's officers may be facsimiles. In case any officer or officers who
have signed, or whose facsimile signature or signatures have been used on such
certificate or certificates, ceases to be such officer or officers of the
-8-
<PAGE>
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates have been delivered by the Corporation or its
agents, such certificate or certificates may nevertheless be adopted by the
Corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature or
signatures have been used thereon had not ceased to be such officer or officers
of the Corporation.
Section 2. Lost Certificates. The Board of Directors may direct that
--------- -----------------
a new certificate be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may require the owner of such lost or destroyed certificate, or his
legal representative, to advertise the same in such manner as it may require
and/or to give the Corporation a bond, in such form, in such sum, and with such
surety or sureties as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost or destroyed. When a certificate has been lost, apparently destroyed
or wrongfully taken, and the holder of record fails to notify the Corporation
within a reasonable time after such holder has notice of it, and the Corporation
registers a transfer of the shares represented by the certificate before
receiving such notification, the holder of record is precluded from making any
claim against the Corporation for the transfer of a new certificate.
Section 3. Transfer of Shares. Shares of stock will be transferable
--------- ------------------
only on the books of the Corporation by the holder thereof in person or by such
holder's duly authorized attorney. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate representing shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it will be the duty of the Corporation or the transfer
agent of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 4. Registered Stockholders. The Corporation will be entitled
--------- -----------------------
to treat the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, will not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it has express or other notice thereof, except as
otherwise provided by law.
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the outstanding shares of the
--------- ---------
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting. Dividends may be declared and paid in cash, in property, or in shares
of the Corporation, subject to the provisions of the General Corporation Law of
the State of Delaware and the Certificate of Incorporation. The Board of
Directors may
-9-
<PAGE>
fix in advance a record date for the purpose of determining stockholders
entitled to receive payment of any dividend, such record date will not precede
the date upon which the resolution fixing the record date is adopted, and such
record date will not be more than sixty days prior to the payment date of such
dividend. In the absence of any action by the Board of Directors, the close of
business on the date upon which the Board of Directors adopts the resolution
declaring such dividend will be the record date.
Section 2. Reserves. There may be created by resolution of the Board
--------- --------
of Directors out of the surplus of the Corporation such reserve or reserves as
the Directors from time to time, in their discretion, deem proper to provide for
contingencies, or to equalize dividends, or to repair or maintain any property
of the Corporation, or for such other purpose as the Directors may deem
beneficial to the Corporation, and the Directors may modify or abolish any such
reserve in the manner in which it was created. Surplus of the Corporation to
the extent so reserved will not be available for the payment of dividends or
other distributions by the Corporation.
Section 3. Telephone and Similar Meetings. Stockholders, directors
--------- ------------------------------
and committee members may participate in and hold meetings by means of
conference telephone or similar communications equipment by which all persons
participating in the meeting can hear each other. Participation in such a
meeting will constitute presence in person at the meeting, except where a person
participates in the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting has not been lawfully called or convened.
Section 4. Books and Records. The Corporation will keep correct and
--------- -----------------
complete books and records of account and minutes of the proceedings of its
stockholders and Board of Directors, and will keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
Section 5. Fiscal Year. The fiscal year of the Corporation shall end
--------- -----------
on December 31 of each year.
Section 6. Seal. The Corporation may have a seal, and the seal may
--------- ----
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. Any officer of the Corporation will have authority to
affix the seal to any document requiring it.
Section 7. Advances of Expenses. The Corporation will advance to its
--------- --------------------
directors and officers expenses incurred by them in connection with any
"Proceeding," which term includes any threatened, pending or completed action,
suit or proceeding, whether brought by or in the right of the Corporation or
otherwise and whether of a civil, criminal, administrative or investigative
nature (including all appeals therefrom), in which a director or officer may be
or may have been involved as a party or otherwise, by reason of the fact that he
is or was a director or officer of the Corporation, by reason of any action
taken by him or of any inaction on his part while acting as such, or by reason
of the fact that he is or was serving at the request
-10-
<PAGE>
of the Corporation as a director, officer, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise ("Official," which term also includes directors and officers of the
Corporation in their capacities as directors and officers of the Corporation),
whether or not he is serving in such capacity at the time any liability or
expense is incurred; provided that the Official undertakes to repay all amounts
advanced unless:
(i) in the case of all Proceedings other than a Proceeding by or in
the right of the Corporation, the Official establishes to the satisfaction
of the disinterested members of the Board of Directors that he acted in
good faith or in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation and, with respect to any criminal
proceeding, that he did not have reasonable cause to believe his conduct
was unlawful; provided that the termination of any such Proceeding by
judgment, order of court, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not by itself create a presumption as
to whether the Official acted in good faith or in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation
or, with respect to any criminal proceeding, as to whether he had
reasonable cause to believe his conduct was unlawful; or
(ii) in the case of a Proceeding by or in the right of the
Corporation, the Official establishes to the satisfaction of the
disinterested members of the Board of Directors that he acted in good faith
or in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation; provided that if in such a Proceeding the
Official is adjudged to be liable to the Corporation, all amounts advanced
to the Official for expenses must be repaid except to the extent that the
court in which such adjudication was made shall determine upon application
that despite such adjudication, in view of all the circumstances, the
Official is fairly and reasonably entitled to indemnity for such expenses
as the court may deem proper.
Section 8. Indemnification. The Corporation will indemnify its directors
--------- ---------------
to the fullest extent permitted by the General Corporation Law of the State of
Delaware and may, if and to the extent authorized by the Board of Directors, so
indemnify its officers and any other person whom it has the power to indemnify
against any liability, reasonable expense or other matter whatsoever.
Section 9. Insurance. The Corporation may at the discretion of the Board
--------- ---------
of Directors purchase and maintain insurance on behalf of the Corporation and
any person whom it has the power to indemnify pursuant to law, the Certificate
of Incorporation, these Bylaws or otherwise.
Section 10. Resignation. Any director, officer or agent may resign by
---------- -----------
giving written notice to the President or the Secretary. Such resignation will
take effect at the time specified therein or immediately if no time is specified
therein. Unless otherwise specified therein, the acceptance of such resignation
will not be necessary to make it effective.
-11-
<PAGE>
Section 11. Amendment of Bylaws. These Bylaws may be altered, amended, or
---------- -------------------
repealed at any meeting of the Board of Directors at which a quorum is present,
by the affirmative vote of a majority of the Directors present at such meeting.
Section 12. Invalid Provisions. If any part of these Bylaws is held
---------- ------------------
invalid or inoperative for any reason, the remaining parts, so far as possible
and reasonable, will be valid and operative.
Section 13. Relation to the Certificate of Incorporation. These Bylaws are
---------- --------------------------------------------
subject to, and governed by, the Certificate of Incorporation of the
Corporation.
-12-
<PAGE>
EXHIBIT 4.1
Exhibit 4.1
See "Description of Securities -- Common Stock"
<PAGE>
EXHIBIT 4.2
WARRANT AGREEMENT
THIS WARRANT AGREEMENT ("Agreement") is made and entered into as of the
____ day of _______________________1998, by and between U.S. Remodelers, Inc., a
Delaware corporation (the "Company"), and ____________________________, as
warrant agent (the "Warrant Agent").
WHEREAS, the Company proposes to offer and sell a maximum of 1,610,000
Units (the "Units")(which includes 210,000 Units pursuant to the Underwriter's
over-allotment option), each Unit comprised of one share of common stock, par
value $.01 per share (the "Common Stock") and one redeemable common stock
purchase warrant (the "Warrant"), at a purchase price of $5.125 per Unit, or
$5.00 per share of Common Stock and $.125 per Warrant pursuant to a Registration
Statement on Form SB-2 (the "Prospectus"), File Number ____________, filed with
the Securities and Exchange Commission; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, registration, registration of transfer, exchange and exercise of the
Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
1. Appointment of Warrant Agent. The Company hereby appoints the Warrant
----------------------------
Agent to act as agent for the Company in accordance with the instructions
hereinafter set forth in this Agreement, and the Warrant Agent hereby accepts
such appointment.
2. Form of Warrant. The text and the terms of the Warrant, and the form
---------------
of election to purchase shares of Common Stock appearing on the reverse side
thereof shall be substantially as set forth in Exhibit A, attached hereto and
---------
made a part hereof. The Warrants shall be executed on behalf of the Company by
the manual or facsimile signature of the Chairman, Vice Chairman of the Company
or President or Chief Executive Officer and by the manual or facsimile signature
of the secretary or assistant secretary of the Company under its corporate seal,
affixed or in facsimile.
The Warrants shall be dated by the Warrant Agent as of the initial date of
issuance thereof, and upon transfer or exchange, the Warrant shall be dated as
of such subsequent issuance date.
The Warrants shall expire at 5:00 p.m. (New York time) on ___________,
2003. If such date shall, in the State of New York, be a holiday or a day in
which banks are authorized to close, then the Warrants shall expire the next
following day which in the State of New York is not a holiday or a day on which
banks are authorized to close.
<PAGE>
NO. W _____________ VOID AFTER _____________, 2003
_________ WARRANTS
REDEEMABLE COMMON STOCK PURCHASE WARRANT
CERTIFICATE TO PURCHASE ONE SHARE OF COMMON STOCK
U.S. REMODELERS, INC.
CUSIP ___________
THIS CERTIFIES THAT, FOR VALUE RECEIVED the holder hereof or registered
assigns (the "Registered Holder") is the owner of the number of Redeemable
Common Stock Purchase Warrants (the "Warrants") specified above. Each Warrant
initially entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock,
par value $.01 per share, of U.S. Remodelers, Inc., a Delaware corporation (the
"Company"), at any time between ______________________, 1998 (the "Initial
Warrant Exercise Date"), and the Expiration Date (as hereinafter defined) upon
the presentation and surrender of this Warrant Certificate with the Election to
Purchase on the reverse hereof duly executed, at the corporate office of
______________________________, as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $6.25 subject to adjustment (the "Purchase
Price"), in lawful money of the United States of America in cash or by check
made payable to the Warrant Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated
___________________, 1998, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
1
<PAGE>
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
_______________________, 2003. If such date shall in the State of New York be a
holiday or a day on which the banks are authorized to close, then the Expiration
Date shall mean 5:00 p.m. (New York time) the next following day which in the
State of New York is not a holiday or a day on which banks are authorized to
close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current, if
required under the Act, while any of the Warrants are outstanding, and deliver a
prospectus which complies with Section 10(a)(3) of the Act to the Registered
Holder exercising this Warrant. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
of Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at the redemption price of $.05 per
Warrant, on not less than 30 nor more than 60 days written notice ("Notice of
Redemption") if the closing price for the Common Stock for seven trading days
during a 10 consecutive trading day period ending not more than 15 days prior to
the date notice of redemption is mailed equals or exceeds $8.75 per share (175%
of the initial offering price to the public) subject to adjustment under certain
circumstances and provided there is then a current registration statement under
the Securities Act of 1933, as amended, with respect to the issuance and sale of
Common Stock upon the exercise of the Warrants. On and after the date fixed for
redemption, the Registered Holder shall have no rights with respect to the
Warrants except to receive the $.05 per Warrant upon surrender of this Warrant
Certificate.
2
<PAGE>
Under certain circumstances, the Representatives (as that term is defined
in the Warrant Agreement) or their designees collectively shall be entitled upon
the exercise or redemption of the Warrants to receive a fee equal to 5% of the
gross proceeds received by the Company from the exercise of the Warrants and 5%
of the aggregate redemption for the Warrants represented hereby.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of Delaware without giving effect to the conflicts of
laws principles thereof.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: _______________, 1998
U.S. REMODELERS, INC.
By:________________________________
Name:______________________________
Title______________________________
By:________________________________
Name:______________________________
Title______________________________
COUNTERSIGNED:
***
as Warrant Agent
By:_________________________
Name:_______________________
Title:______________________
4
<PAGE>
ELECTION TO PURCHASE
--------------------
(To be signed only upon exercise of Warrant)
TO: U.S. Remodelers, Inc.
1341 West Mockingbird Lane, Suite 900E
Dallas, Texas 75247
The undersigned, the Holder of Warrant Certificate Number ____ (the
"Warrant"), representing ______________ Warrants of U.S. Remodelers, Inc. (the
"Company"), which Warrant Certificate is being delivered herewith, hereby
irrevocably elects to exercise the purchase right provided by the Warrant
Certificate for, and to purchase thereunder, _____________ shares of Common
Stock of the Company, and herewith makes payment of $____________ therefor, and
requests that the certificates for such securities be issued in the name of, and
delivered to, _____________________________________________________________
whose address is ________________________________________________________, all
in accordance with the Warrant Agreement and the Warrant Certificate.
Dated:____________________________
______________________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
______________________________________
______________________________________
(Address)
5
<PAGE>
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED______________________________________________________________
hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint
________________________________________________ Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, and full
power of substitution.
Dated: Signature:
_______________________ ______________________________________
(Signature must conform in all
respects to name of holder as
specified on the fact of the
Warrant Certificate)
______________________________________
(Insert Social Security or
Other Identifying Number of
Assignee)
6
<PAGE>
EXHIBIT 4.3
NO. W _____________ VOID AFTER _____________, 2003
_________ WARRANTS
REDEEMABLE COMMON STOCK PURCHASE WARRANT
CERTIFICATE TO PURCHASE ONE SHARE OF COMMON STOCK
U.S. REMODELERS, INC.
CUSIP ___________
THIS CERTIFIES THAT, FOR VALUE RECEIVED the holder hereof or registered
assigns (the "Registered Holder") is the owner of the number of Redeemable
Common Stock Purchase Warrants (the "Warrants") specified above. Each Warrant
initially entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock,
par value $.01 per share, of U.S. Remodelers, Inc., a Delaware corporation (the
"Company"), at any time between ______________________, 1998 (the "Initial
Warrant Exercise Date"), and the Expiration Date (as hereinafter defined) upon
the presentation and surrender of this Warrant Certificate with the Election to
Purchase on the reverse hereof duly executed, at the corporate office of
______________________________, as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $6.25 subject to adjustment (the "Purchase
Price"), in lawful money of the United States of America in cash or by check
made payable to the Warrant Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated
___________________, 1998, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
1
<PAGE>
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
_______________________, 2003. If such date shall in the State of New York be a
holiday or a day on which the banks are authorized to close, then the Expiration
Date shall mean 5:00 p.m. (New York time) the next following day which in the
State of New York is not a holiday or a day on which banks are authorized to
close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current, if
required under the Act, while any of the Warrants are outstanding, and deliver a
prospectus which complies with Section 10(a)(3) of the Act to the Registered
Holder exercising this Warrant. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
of Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at the redemption price of $.05 per
Warrant, on not less than 30 nor more than 60 days written notice ("Notice of
Redemption") if the closing price for the Common Stock for seven trading days
during a 10 consecutive trading day period ending not more than 15 days prior to
the date notice of redemption is mailed equals or exceeds $8.75 per share (175%
of the initial offering price to the public) subject to adjustment under certain
circumstances and provided there is then a current registration statement under
the Securities Act of 1933, as amended, with respect to the issuance and sale of
Common Stock upon the exercise of the Warrants. On and after the date fixed for
redemption, the Registered Holder shall have no rights with respect to the
Warrants except to receive the $.05 per Warrant upon surrender of this Warrant
Certificate.
2
<PAGE>
Under certain circumstances, the Representatives (as that term is defined
in the Warrant Agreement) or their designees collectively shall be entitled upon
the exercise or redemption of the Warrants to receive a fee equal to 5% of the
gross proceeds received by the Company from the exercise of the Warrants and 5%
of the aggregate redemption for the Warrants represented hereby.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of Delaware without giving effect to the conflicts of
laws principles thereof.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: _______________, 1998
U.S. REMODELERS, INC.
By:
Name: _________________________
Title: _________________________
By:
Name: _________________________
Title: _________________________
COUNTERSIGNED:
***
as Warrant Agent
By:
Name:
Title:
4
<PAGE>
ELECTION TO PURCHASE
--------------------
(To be signed only upon exercise of Warrant)
TO: U.S. Remodelers, Inc.
1341 West Mockingbird Lane, Suite 900E
Dallas, Texas 75247
The undersigned, the Holder of Warrant Certificate Number ____ (the
"Warrant"), representing ______________ Warrants of U.S. Remodelers, Inc. (the
"Company"), which Warrant Certificate is being delivered herewith, hereby
irrevocably elects to exercise the purchase right provided by the Warrant
Certificate for, and to purchase thereunder, _____________ shares of Common
Stock of the Company, and herewith makes payment of $____________ therefor, and
requests that the certificates for such securities be issued in the name of, and
delivered to, _____________________________________________________________
whose address is ________________________________________________________, all
in accordance with the Warrant Agreement and the Warrant Certificate.
Dated:____________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
(Address)
5
<PAGE>
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________________________
Attorney, to transfer the within Warrant Certificate on the books of the within-
named Company, and full power of substitution.
Dated: Signature:
_______________________
(Signature must conform in all
respects to name of holder as
specified on the fact of the
Warrant Certificate)
(Insert Social Security or
Other Identifying Number of
Assignee)
6
<PAGE>
EXHIBIT 4.4
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
-------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "U.S. REMODELERS, INC.", FILED IN THIS OFFICE ON THE EIGHTH DAY
OF DECEMBER, A.D. 1997, AT 2 O'CLOCK P.M.
/s/ EDWARD J. FREEL
-----------------------------
[SEAL OF DELAWARE Edward J. Freel,
APPEARS HERE]] Secretary of State
AUTHENTICATION: 8797223
DATE: 12-08-97
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES,
RIGHTS AND LIMITATIONS OF
SERIES A PREFERRED STOCK
OF
U.S. REMODELERS, INC.
Pursuant to Section 151 of the Delaware General Corporation Law and Article
Four of its Certificate of Incorporation, U.S. Remodelers, Inc., a corporation
organized and existing under the laws of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY that pursuant to the authority conferred upon the Board
of Directors of the Corporation by the Certificate of Incorporation of the
Corporation and pursuant to Section 151 of the Delaware General Corporation Law,
said Board of Directors, at a meeting held November 26, 1997, adopted a
resolution providing for the creation of a class of Series A Preferred Stock
consisting of 80,000 shares of Series A Preferred Stock, which resolution is and
reads as follows:
RESOLVED, that, pursuant to the authority provided in the Corporation's
Certificate of Incorporation and expressly granted to and vested in the Board of
Directors of the Corporation, this Board of Directors hereby creates out of the
Preferred Stock of the Corporation, par value one cent ($0.01) per share, its
class of Preferred Stock consisting of 80,000 shares, and this Board of
Directors hereby fixes the designation and the powers, preferences and rights,
and the qualifications, limitations or restrictions thereof, to the extent not
otherwise provided in the Corporation's Certificate of Incorporation, as
amended, of the shares of such class as follows:
(a) Designation of Class. The designation of the class of Preferred Stock
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created by this resolution shall be "Series A Preferred Stock."
(b) Dividends on Series A Preferred Stock.
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1. Payment. The holders of record of the Series A Preferred Stock
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(whether singular or plural, the "Holder") shall be entitled to
receive dividends at the rate of $1.00 per share per annum commencing
November 30, 1997, payable when and as declared by the Board of
Directors, out of any funds at the time legally available therefor and
subject to the further limitations set out herein, provided, however,
that if all of the outstanding Series A Preferred Stock is redeemed in
full by the Corporation prior to June 30, 1999, no dividends shall
accrue on the Series A Preferred Stock. All dividends on the Series A
Preferred Stock shall be due semiannually in arrears as of the last
day of June and December of each calendar year, the first dividend
being due
Certificate of Designations Page 1
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES,
RIGHTS AND LIMITATIONS OF
SERIES A PREFERRED STOCK
OF
U.S. REMODELERS, INC.
Pursuant to Section 151 of the Delaware General Corporation Law and Article
Four of its Certificate of Incorporation, U.S. Remodelers, Inc., a corporation
organized and existing under the laws of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY that pursuant to the authority conferred upon the Board
of Directors of the Corporation by the Certificate of Incorporation of the
Corporation and pursuant to Section 151 of the Delaware General Corporation Law,
said Board of Directors, at a meeting held November 26, 1997, adopted a
resolution providing for the creation of a class of Series A Preferred Stock
consisting of 80,000 shares of Series A Preferred Stock, which resolution is and
reads as follows:
RESOLVED, that, pursuant to the authority provided in the Corporation's
Certificate of Incorporation and expressly granted to and vested in the Board of
Directors of the Corporation, this Board of Directors hereby creates out of the
Preferred Stock of the Corporation, par value one cent ($0.01) per share, its
class of Preferred Stock consisting of 80,000 shares, and this Board of
Directors hereby fixes the designation and the powers, preferences and rights,
and the qualifications, limitations or restrictions thereof, to the extent not
otherwise provided in the Corporation's Certificate of Incorporation, as
amended, of the shares of such class as follows:
(a) Designation of Class. The designation of the class of Preferred Stock
--------------------
created by this resolution shall be "Series A Preferred Stock."
(b) Dividends on Series A Preferred Stock.
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1. Payment. The holders of record of the Series A Preferred Stock
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(whether singular or plural, the "Holder") shall be entitled to
receive dividends at the rate of $1.00 per share per annum commencing
November 30, 1997, payable when and as declared by the Board of
Directors, out of any funds at the time legally available therefor and
subject to the further limitations set out herein, provided, however,
that if all of the outstanding Series A Preferred Stock is redeemed in
full by the Corporation prior to June 30, 1999, no dividends shall
accrue on the Series A Preferred Stock. All dividends on the Series A
Preferred Stock shall be due semiannually in arrears as of the last
day of June and December of each calendar year, the first dividend
being due
Certificate of Designations Page 1
<PAGE>
and payable on June 30, 1999 and subsequent dividends being
due and payable on the last day of each December and June thereafter.
Each date on which a dividend may be declared is hereafter called the
"Dividend Date," and each semiannual period ending with a Dividend
Date is hereinafter referred to as a "Dividend Period." Dividends
shall be payable on each Dividend Date, provided however, that if such
date on which a dividend is payable is a Saturday, Sunday or legal
holiday, such dividend shall be payable on the next following business
day to the Holder. Dividends on the Series A Preferred Stock shall be
paid only out of those assets of the Corporation legally available
therefor. All dividends shall be paid in the form of cash.
2. Dividends Cumulative. Dividends on the Series A Preferred Stock shall
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be cumulative, whether or not in any Dividend Period or Periods there
shall be assets of the Corporation legally available for the payment
of such dividends.
3. Ranking with Respect to Dividends. The Series A Preferred Stock shall
---------------------------------
be senior in right of dividend payment to any other class or series of
Preferred Stock or the Common Stock of the Corporation, unless the
Holders of at least two thirds of the outstanding shares of Series A
Preferred Stock expressly consent to the contrary in writing.
Dividends may not be paid on any class or series of stock ranking
junior to the Series A Preferred Stock with respect to dividends
unless all dividends currently payable and all cumulated dividends
with respect to the Series A Preferred Stock have been paid.
4. Dividends Where Other Classes or Series are Redeemed. Dividends shall
----------------------------------------------------
be payable under the Series A Preferred Stock before any sum or sums
shall be set aside for the purchase or redemption of any class or
series of stock ranking junior to the Series A Preferred Stock as to
dividends or distribution of assets. If at any time dividends on the
outstanding Series A Preferred Stock at the per annum rate hereinabove
specified from the date of cumulation to the end of the then current
Dividend Period shall not have been paid or declared, whether in whole
or in part, or a sum sufficient for the payment thereof set apart for
such payment, then the amount of the deficiency shall be fully paid
(including interest, if any), or dividends in such amount declared and
a sum sufficient for the payment thereof set apart for such payment,
before any sum shall be paid or set aside for the purchase or
redemption of any class or series of stock ranking junior to the
Series A Preferred Stock as to dividends or distribution of assets.
5. Date of Cumulation. The term "date of cumulation" as used herein with
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reference to the Series A Preferred Stock shall be deemed to mean (i)
the most recent Dividend Date on which dividends have been fully paid,
or (ii) if no dividends have been paid
Certificate of Designations Page 2
<PAGE>
with respect to such shares, the date of issuance of the shares of
Series A Preferred Stock.
6. Interest on Accrued And Unpaid Dividend. All accrued and unpaid
---------------------------------------
dividends, whether or not earned or declared, shall bear interest from
the respective Dividend Date until paid at an annual rate of 10%.
(c) Redemption of Series A Preferred Stock.
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1. Mandatory Redemption. Commencing with June 30, 1999, and on the last
--------------------
day of each December and June thereafter on which any of the Series A
Preferred Stock remains outstanding, the Corporation shall redeem the
lesser of 8,000 shares of Series A Preferred Stock outstanding, or the
remaining shares of Series A Preferred Stock outstanding at a price
per share of $10.00, plus accrued and unpaid dividend on such shares,
if any, to and including the date fixed for redemption (the
"Redemption Value").
2. Voluntary Redemption. The Corporation may, at its sole option, redeem
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all or a part of the shares of Series A Preferred Stock outstanding,
in whole or in part, at any time.
3. Redemption upon Public Offering. The Corporation shall use
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commercially reasonable best efforts to redeem all of the Series A
Preferred Stock at the Redemption Value immediately following the
consummation of a sale by the Corporation of its common stock, par
value $0.01 (the "Common Stock"), pursuant to a registration statement
filed with and declared effective by Securities and Exchange
Commission under the Securities Act of 1933, as amended, which results
in the Common Stock being registered under the Securities Exchange Act
of 1934, as amended, and from which the Corporation receives net
proceeds $7,500,000 or more.
4. Notice Procedure. The Corporation shall give notice to the Holder by
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certified mail, return receipt requested, at least 60 days in advance
of the date set forth in such notice as the date on which such
redemption is to be effected. The shares shall be redeemed upon
payment by the Corporation to the Holder of the Redemption Value. Any
redemptions hereunder shall be subject to restrictions imposed by
state law regarding the circumstances under which such a redemption
may be effected.
5. Payment Procedures. In order to facilitate the redemption of any
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shares of Series A Preferred Stock, as provided in this paragraph (c),
the directors shall be authorized to cause the transfer books of the
Corporation to be closed not more than 60 days prior to the designated
redemption date. Any notice mailed by the Corporation shall
Certificate of Designations Page 3
<PAGE>
contain the information required by the applicable state laws and
shall be mailed to the Holder at its address, certified mail, return
receipt requested, as the same shall appear on the books of the
Corporation. If fewer than all the outstanding shares of Series A
Preferred Stock are to be redeemed, the redemption shall be made pro
rata, but to the extent and in such a manner so as to minimize the
number of fractional shares of Series A Preferred Stock which remain
outstanding as a result of such redemption. From and after the date
fixed in any notice from the Corporation as of the date of redemption,
and after all amounts necessary to effect such redemption have been
set aside for such purpose, all rights of the Holder thereof as a
shareholder of the Corporation with respect to the shares redeemed,
except the right to receive the redemption price, shall cease and
terminate.
6. Delivery of Certificates. The Holder shall be entitled to receive the
------------------------
redemption price upon actual delivery to the Corporation or to such
other entity as may be designated by the notice referred to in
subdivision 2 of this paragraph (c) of certificates for the number of
shares to be redeemed, duly endorsed in blank or accompanied by proper
instruments of assignment and transfer duly endorsed in blank. Series
A Preferred Stock redeemed pursuant to the provisions of this
paragraph may be held in the treasury of the Corporation or retired
and canceled and given the status of authorized and unissued preferred
stock.
(d) Conversion into Promissory Note. The Corporation may, at its sole
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option, convert and exchange all of the shares of Series A Preferred Stock
outstanding into a promissory note payable to the Holder of the shares of
Series A Preferred Stock so converted (the "Note"), in an original
principal amount equal to the Redemption Value of such outstanding shares
together with all accrued and unpaid dividends thereon, which Note shall
bear interest at the rate of 10% per annum compounded annually. As long
as any principal or accrued, unpaid interest remains outstanding under the
Note, the Corporation commencing June 30, 1999 shall make semiannual
payments to the holder thereof, on the last day of December and June of
each year, of no less than $80,000 plus all accrued and unpaid interest on
the Note, or the remaining balance of principal and accrued, unpaid
interest outstanding under the Note, whichever is less. Not less than 10
nor more than 60 days prior to the date fixed for the issue of the Note and
redemption of an exchange for shares of Series A Preferred Stock, a notice
shall be given by first class mail, postage prepaid, to the holders of
record of shares of Series A Preferred Stock at the respective addresses as
the same shall appear on the books of the Corporation, specifying the
effective date of the exchange of the Series A Preferred Stock for the Note
(the "Exchange Date") and the place where certificates for shares of Series
A Preferred Stock are to be surrendered for the Note and stating that
dividends on shares of Series A Preferred Stock will cease to accrue on the
Exchange Date, but neither failure to mail such notice, nor any defect
therein or in the mailing thereof, to any particular holder shall effect
this sufficiency of the notice or the validity of the proceeding for
redemption and
Certificate of Designations Page 4
<PAGE>
exchange with respective to the other holders. Any notice which was mailed
in the manner herein provided shall be conclusively presumed to have been
duly given whether or not the holder receives the notice.
(e) Priority of the Series A Preferred Stock in the Event of Dissolution
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(i.e., "Liquidation Preference"). The Series A Preferred Stock shall be
--------------------------------
preferred over the Common Stock of the Corporation and any class or series
of stock ranking junior to the Series A Preferred Stock as to distribution
of assets in the event of any liquidation, dissolution or winding up of the
Corporation and, in that event, subject to the provisions of applicable
law, the Holder shall be entitled to receive, out of the assets of the
Corporation available for distribution to its shareholders, $10.00 per
share of Series A Preferred Stock, together with the amount of any
dividends accrued and unpaid as of the date of liquidation (the
"Liquidation Preference"). Upon any liquidation, dissolution or winding up
of the Corporation, after payment has been made in full on any other
securities which are senior as to distribution of assets to Series A
Preferred Stock, and after payment shall have been made in full on the
Series A Preferred Stock, as provided in this paragraph (e), but not prior
thereto, the holders of all the remaining capital stock including the
Common Stock or any other series or class of stock ranking junior to the
Series A Preferred Stock as to distribution of assets shall, subject to the
respective terms and provisions of the Certificate of Incorporation of the
Corporation, if any, applying thereto, be entitled to receive any and all
assets remaining to be paid or distributed, and the Holder shall not be
entitled to share therein. The merger or consolidation of the Corporation
with any corporation shall not be deemed to be a liquidation, dissolution
or winding up of the Corporation for the purpose of this paragraph (e).
(f) Legend. The certificates representing the Series A Preferred Stock
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shall contain a legend substantially as follows:
"A statement of designations, preferences, limitations and relative
rights of these shares is set forth in the Certificate of
Incorporation on file in the office of the Secretary of State of
Delaware and the Corporation will furnish a copy of such statement to
the record holder of this certificate without charge upon written
request to the Corporation at its principal place of business or
registered office.
The sale of securities represented by this certificate has not been
registered under the Securities Act of 1933, as amended (the "Act"),
or under any state securities law and such securities may not be
offered for sale, sold, pledged or otherwise transferred without (1)
registration under the Act and any applicable state securities laws or
(2) an opinion (acceptable to the Corporation) of counsel (acceptable
to the Corporation) that such registration is not required."
Certificate of Designations Page 5
<PAGE>
(g) Voting Rights.
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1. Generally. The Holders shall not be entitled to vote on any matters
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to be voted on by the stockholders of the Corporation, except (i) as
may otherwise be expressly permitted herein or by the Certificate of
Incorporation of the Corporation and (ii) that the Holders shall be
entitled to vote as a class upon any proposed amendment to the
Certificate of Incorporation of the Corporation, whether or not
entitled to vote thereon by the provisions of such Certificate of
Incorporation, if the amendment would increase or decrease the
aggregate number of authorized shares of Series A Preferred Stock,
increase or decrease the par value or stated value of the shares of
Series A Preferred Stock, or alter or change the powers, preferences
or special rights of the shares of Series A Preferred Stock so as to
affect them adversely. When required in accordance with the terms of
the preceding sentence, each Holder shall have one vote for each share
of Series A Preferred Stock held of record by such Holder.
2. Amendment of Certificate of Incorporation or Bylaws. So long as any
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shares of Series A Preferred Stock remain outstanding, the Corporation
shall not, without the prior written approval of the Holders of at
least two thirds of the outstanding shares of Series A Preferred Stock
of the Corporation, amend the Corporation's Certificate of
Incorporation (including without limitation pursuant to the
authorization or designation of a class or series of preferred stock)
or Bylaws so as to adversely affect the rights or preferences of the
holders of the Series A Preferred Stock.
3. Action by Holders. In the event that the Holders of the Series A
-----------------
Preferred Stock are required to or permitted to give their consent or
approval, or to take any action pursuant to their rights under this
paragraph (g), the Holder or Holders of 10% or more of the outstanding
shares of Series A Preferred Stock may, by written notice personally
delivered or mailed to all Holders of Series A Preferred Stock at
their last known addresses and to the President of the Corporation,
call a meeting of the Holders of the Series A Preferred Stock for such
purpose, specifying the date (which shall be no less than ten (10)
days following the date notice is given) and location of such meeting
and the purpose for such meeting. In the event that the Holders of
the Series A Preferred Stock are required to or permitted to give
their consent or approval, or to take any action pursuant to their
rights hereunder, such action may be taken without a meeting and
without a vote if a consent or consents in writing, setting forth the
action so taken, shall be signed by the Holder or Holders of shares of
Series A Preferred Stock having not less than the minimum number of
votes that would be necessary to take such action at a meeting and a
copy of such consent is personally delivered or mailed to all the
Holders of Series A Preferred Stock at their last known addresses and
to the President of the Corporation. If such notice or written
consent
Certificate of Designations Page 6
<PAGE>
relates to the election of directors pursuant to subdivision 2
above, the notice or written consent shall specify the nature of the
event(s) giving rise to the right to elect directors, and, in the case
of action by written consent, such action shall not be deemed
effective until ten (10) days following the date such written consent
is delivered or mailed to the Holders and the President.
IN WITNESS WHEREOF, U.S. Remodelers, Inc. has caused this Certificate to be
signed by its President this 4th day of December, 1997.
/s/ Murray Gross
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Murray Gross, President
Certificate of Designations Page 7
<PAGE>
EXHIBIT 4.5
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (this "Agreement") is
entered into effective as of the 27th day of May, 1998, by and among U.S.
Remodelers, Inc. (the "Corporation"), a Delaware corporation, and the
undersigned stockholders (the "Stockholders"). This Agreement amends and
restates in its entirety that certain Stockholder's Agreement, dated March 24,
1997, by and among the Corporation and the Stockholders (the "Stockholders
Agreement").
RECITALS:
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WHEREAS, the Corporation's Stockholders entered into the Stockholders'
Agreement which provides that new stockholders must execute a counterpart of the
Stockholders' Agreement; and
WHEREAS, the Corporation desires to sell to Robert A DeFronzo ("DeFronzo")
and DeFronzo desires to acquire from the Corporation 2,777 shares of Stock (the
"Shares"); and
WHEREAS, the Stockholders, including DeFronzo, own collectively all of the
duly authorized, validly issued, fully paid and non-assessable shares of the
Common Stock, par value $0.01 per share (the "Stock") of the Corporation; and
WHEREAS, the Stockholders and the Corporation desire to modify certain
voting agreements in the Stockholder Agreement and agree upon certain terms,
conditions and restrictions with respect to the Stock, as well as certain other
matters pertaining to the business affairs of the Corporation, all as
hereinafter set forth; and
WHEREAS, the Corporation and the Stockholders desire to make DeFronzo a
party to this Agreement as a condition of his purchase of the Shares; and
WHEREAS, the Corporation acquired the shares of Stock owned by Curtis Baker
pursuant to Section 12.1 of the Stockholders' Agreement.
NOW, THEREFORE, for and in consideration of the sum of the mutual
covenants, agreements, terms and conditions contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Stockholders and the Corporation do hereby agree as follows:
1. Definitions. As used throughout this Agreement, the following listed words
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shall have the meanings stated as follows:
<PAGE>
(a) Book Value: The term "Book Value" shall mean the stockholders'
equity of the Corporation per one share of Stock as of the date of the
Corporation's most recently regularly prepared financial statements.
(b) Director Designee: The term "Director Designee" shall mean those
persons designated by: (a) About Face Limited (b) Sonostar Ventures, Inc.,
Kiernan Family Trust and Garden State Brickface, Inc. and (c) David A. Yoho
Revocable Trust, dated January 19, 1995 for election to the Board pursuant to
Section 10.1.
(c) Delivery: The word "Delivery" (and the forms thereof, such as
deliver, delivered, and delivering) shall mean the actual physical delivery of a
writing to a person or the person's agent or the delivery to a person by
overnight courier or telecopier or, if delivered by writing in the United States
mail, via certified mail, return receipt requested, postage prepaid, properly
addressed to the person to whom delivery is to be made, delivery shall be deemed
to have been made on the third business day following the date on which it is so
mailed or, if earlier, on the date it is actually delivered.
(d) Executor: The word "Executor" shall mean the qualified personal
representative of a decedent's estate, whether male or female, or corporate,
including a dependent executor, an independent executor, an administrator, and a
temporary administrator, and shall be construed to include the plural when two
or more personal representatives are qualified.
(e) Fair Market Value: The term "Fair Market Value" means the fair
value as determined by the Board of Directors of the Corporation (the "Board")
within 10 days from the date the Notice is given, unless the applicable Offering
Stockholder (as defined in Section 3.3 below) or the applicable Management
Investor (as defined in Section 12.1), as the case may be, shall disagree in
writing with such determination within five days after receipt of notice
specifying the Board's determination of Fair Market Value. In such case, the
Offering Stockholder or Management Investor shall select an independent
investment banking firm, which shall be a recognized international, national or
regional firm with the capability to make business valuations, from a list of
three such firms proposed by the Corporation. Such investment banking firm
shall then review all facts and circumstances deemed appropriate by it and shall
determine the "Fair Market Value" within 10 days from the date such firm is
selected by such Offering Stockholder or Management Investor (such date of the
final determination of Fair Market Value is referred to as the "Final
Determination Date"). The determination of such firm shall be final and binding
upon the parties hereto. The Corporation and such Offering Stockholder or
Management Investor shall equally bear the fees and expenses of the investment
banking firm.
(f) Party: The word "Party" shall include the Corporation and all
Stockholders who are parties hereto.
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<PAGE>
(g) Person: The word "Person" shall mean both natural persons and
legal entities, and specifically shall include corporations, partnerships,
limited partnerships, trusts, and all other forms of business organizations
which may exist under the laws of the State of Delaware or any other state, or
the United States.
(h) Spouse: The word "Spouse" shall mean the spouse of a Stockholder
who is an individual.
2. Purpose. The purpose of this Agreement is to ensure that control of
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the Corporation shall be and remain in the hands of the Stockholders whose names
are subscribed hereto, or any number of them, and this purpose shall be
effectuated by ensuring that no Stock of the Corporation which is subject to
this Agreement shall pass into the hands of any person other than a Stockholder
of the Corporation, except in the manner provided for in this Agreement.
3. Lifetime Transfers and Sales:
----------------------------
3.1. Permitted Transfers. Subject to the remaining provisions of this
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Agreement, any Stockholder will be permitted (upon the occurrence of the
indicated events) to transfer by sale, assignment, gift, bequest, devise or
otherwise, full title to all or part of his Stock to any of the persons or
entities (a "Permitted Transferee") listed below (the "Permitted Transfers"):
(i) Upon the death or disability of any Stockholder, to his Executor,
administrator, conservator or guardian;
(ii) Upon divorce, to such Stockholder's former Spouse;
(iii) To a financial institution operating in the United States having
capital and surplus in excess of $35,000,000 by bona fide pledge or to such
financial institution in the event of a default of such pledge;
(iv) To such Stockholder's Spouse, descendants or parents (directly or by
trust for the benefit of such individuals) or such other individual approved in
advance in writing by the Corporation;
(v) To a charity approved in advance in writing by the Corporation;
(vi) By distribution, to the securityholders of such Stockholder; or
(vii) Sale to the Corporation by Robert A. DeFronzo and his Permitted
Transferees pursuant to that certain Securities Purchase Agreement, dated
January 1, 1998, by and between the Corporation and Robert A. DeFronzo.
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<PAGE>
Each Permitted Transferee (including financial institutions foreclosing on
pledged Stock) will receive and hold such Stock subject to all of the terms and
restrictions of this Agreement.
3.2 Transfer or Sale. Except for Permitted Transfers, no Stockholder
----------------
shall transfer, sell, convey, assign, partition, give, or otherwise dispose of
by inter vivos transfer any Stock unless said Stock has first been offered for
sale to, and the offer rejected by, the other parties as provided in this
Agreement.
3.3 Sale. In the event a Stockholder receives a bona fide offer for the
----
purchase of all of his shares of Stock, or any part thereof, or any right or
interest therein, such Stockholder (hereinafter referred to as the "Offering
Stockholder") shall either reject such offer or deliver notice of the offer to
all other holders of Stock in the manner set forth in Section 17.1 hereof, and
to the Secretary of the Corporation. The notice shall set forth the name of the
proposed transferee, the number of shares to be transferred, the price per
share, and all other terms and conditions of the proposed transfer. The notice
shall be in writing and shall be delivered to all holders of Stock and the
Secretary of the Corporation at substantially the same time. The notice shall
be deemed an offer by the Offering Stockholder to sell all Stock covered by the
notice to the Corporation and all other holders of Stock at the same price and
on the same terms and conditions as set forth in the notice and in accordance
with the provisions of this Agreement.
3.4 Exercise of Corporate Option. Upon receipt of such notice, the
----------------------------
Corporation shall have the exclusive right and option to purchase all or any
part of the shares of the Offering Stockholder described in the notice, subject
to the conditions of Section 3.6. The Corporation shall have twenty (20) days
from the date the written notice is actually received by it to accept the offer
and thereby purchase all or any part of the Stock of the Offering Stockholder
covered by the notice. Said acceptance must be made in writing and delivered to
the Offering Stockholder and all other holders of Stock within said twenty-day
period, and failure to accept in said manner and within said time shall
constitute a rejection.
3.5 Exercise of Stockholders' Option. Subject to the Corporation's first
--------------------------------
right of refusal as provided in Section 3.4 above, within thirty (30) days after
the delivery of the notice described in Section 3.3 by the Offering Stockholder
to the Corporation and the remaining holders of Stock, such remaining holders
shall have the option of accepting the Offering Stockholder's offer, subject to
the conditions of Section 3.6. Each such remaining holder shall be entitled to
purchase any or all of the offered shares (not purchased by the Corporation);
provided, however, if the total number of shares of Stock specified in the
written notices of election which are timely delivered by the remaining holders
to the Offering Stockholder and the Secretary of the Corporation exceeds the
number of shares available for purchase by the remaining holders, each remaining
holder shall have a priority right to purchase that portion of the shares
available to the remaining holders which bears the same ratio to the number of
such available shares as the number of shares of Stock held by such remaining
holder bears to the total number of shares of Stock held by all remaining
holders electing to purchase. Any shares not purchased on such a priority basis
shall
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<PAGE>
be allocated to the remaining holders who have elected to purchase shares in
excess of their priority right based upon the number of shares of Stock held by
each of such remaining holders as compared to the number of shares of Stock held
by all remaining holders who have elected to purchase shares in excess of their
respective priority rights. Said acceptance must be made in writing and
delivered to the Offering Stockholder and the Secretary of the Corporation
within said thirty-day period, and failure to accept in said manner and within
said time shall constitute a rejection.
3.6 All Shares Offered Must be Purchased. All shares offered for sale
------------------------------------
pursuant to the provisions of Section 3.3 must be purchased by the Corporation
or the remaining holders of Stock under the provisions of Section 3.4 and 3.5,
or such offer shall become null and void, and the Offering Stockholder may then
freely transfer and sell the shares to the proposed transferee pursuant to the
terms and conditions of the bona fide offer, without further restriction. If
the terms and conditions of the bona fide offer are changed in any respect, or
if the proposed transferee is changed, then the Offering Stockholder must again
comply with the provisions of Sections 3.3 through 3.5.
3.7 Purchase Price. The price to be paid for each share of Stock
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purchased pursuant to the terms of Sections 3.3 through 3.5 of this Agreement,
whether purchased by the Corporation or by the remaining holders, shall be the
price set forth in the original bona fide offer to the Offering Stockholder.
Payment shall be made in the same manner as set forth in the bona fide offer
(except in the case of payments other than in cash or securities, in which case
payment shall be equal to the fair market value of such other consideration).
3.8 Failure to Exercise. If neither the Corporation nor the Stockholders
-------------------
(other than the Offering Stockholder) elect to purchase all of the Stock offered
by the Offering Stockholder within the period provided, all of offered Stock may
be disposed of by the Offering Stockholder, subject to the provisions of Section
3.10 hereof, to the prospective transferee named in the notice described in
Section 3.3 hereof for the price and on the terms and conditions set forth in
such notice at any time within ninety (90) days after the expiration of the
thirty day period provided for in Section 3.5 hereof. Any offered Stock not so
disposed of within such ninety day period shall remain subject to all of the
provisions of this Agreement.
3.9 Transfer Other than by Sale. Other than a transfer contemplated by
---------------------------
Section 3.1(iv), in the event a Stockholder who is an individual intends a
lifetime transfer of shares of Stock, other than a sale of such shares,
including transfers by gift, into trust, or otherwise, the notices and options
provided for in Sections 3.3 through 3.6 of this Agreement shall apply, and the
purchase price shall be the value per share as determined under Section 9 below.
3.10 Transfers Between Stockholders. The restrictions set forth in the
------------------------------
immediately foregoing Sections 3.1 through 3.9 shall apply with equal force to a
proposed transfer to another Stockholder as to a proposed transfer to an
unaffiliated third party.
-5-
<PAGE>
3.11 Binding Effect on Transferee. As a condition of any transfer, sale or
----------------------------
disposition under this Section 3, each person to whom such securities are to be
transferred, sold or otherwise delivered must execute and deliver to the
Corporation a copy of this Agreement (and if such transferee is married, such
transferor's Spouse shall execute and deliver to the Corporation a copy of this
Agreement).
4. Death of A Stockholder.
----------------------
4.1 Option and Notice at Death. In the event of the death of any
--------------------------
Stockholder who is an individual (the "Deceased Stockholder"), the Corporation
and all of the remaining holders of Stock shall then have the option to purchase
the Deceased Stockholder's interest in Stock from his estate whether it is
community property or separate property. If the Deceased Stockholder is
survived by his Spouse, the option to purchase granted to the Corporation and to
the other holders of Stock shall include any Stock owned by the Deceased
Stockholder's surviving Spouse whether it is community property or her separate
property. Within ninety (90) days after the Executor of the Deceased
Stockholder's estate has qualified, the Executor of the Deceased Stockholder's
estate shall deliver to all other holders of Stock and to the Secretary of the
Corporation written notice, in the manner set forth in Section 17.1 hereof,
stating the number of shares of Stock owned by the Deceased Stockholder's estate
and by the Deceased Stockholder's surviving Spouse. The notice shall be deemed
an offer by the Executor and the Deceased Stockholder's surviving Spouse to sell
all Stock covered by the notice to the remaining holders of Stock and to the
Corporation at the price and on the terms herein set out and in accordance with
the provisions of this Agreement.
4.2 Exercise of Corporate Option. Upon receipt of such notice, the
----------------------------
Corporation shall have the exclusive right and option to purchase all or any
part of the shares of the Deceased Stockholder and the Deceased Stockholder's
surviving Spouse described in the notice, subject to the conditions of Section
4.4. The Corporation shall have twenty (20) days from the date the written
notice is actually received by it to accept the offer and thereby purchase all
or any part of the Stock of the Deceased Stockholder and the Deceased
Stockholder's surviving Spouse covered by the notice. Said acceptance must be
made in writing and delivered to the Executor of the Deceased Stockholder's
estate and all other holders of Stock within said twenty-day period, and failure
to accept in said manner and within said time shall constitute a rejection.
4.3 Exercise of Stockholder's Option. Subject to the Corporation's first
--------------------------------
right of refusal as provided in Section 4.2 above, within thirty (30) days after
the delivery of the notice described in Section 4.1, by the Executor of the
Deceased Stockholder's Estate to the Corporation and the remaining holders, the
remaining holders shall have the option of accepting such offer and thereby
agree to purchase the Stock of the Deceased Stockholder and the Deceased
Stockholder's surviving Spouse covered by the offer, subject to the conditions
of Section 4.4. Each such Stockholder shall be entitled to purchase any or all
of the offered shares of Stock (not purchased by the Corporation); provided,
however, if the total number of shares of Stock specified in the written
-6-
<PAGE>
notices of election which are timely delivered by the remaining holders to the
Executor of the Deceased Stockholder's estate and the Secretary of the
Corporation exceeds the number of shares available for purchase by the remaining
holders, each remaining holder shall have a priority right to purchase any or
all of the shares available to the remaining holders which bears the same ratio
to the number of such available shares as the number of shares of Stock held by
such remaining holder bears to the total number of shares of Stock held by all
remaining holders electing to purchase. Any shares not purchased on such a
priority basis shall be allocated to the remaining holders who have elected to
purchase shares in excess of their priority right based upon the number of
shares of Stock held by each of such remaining holders as compared to the number
of shares of Stock held by all remaining holders who have elected to purchase
shares in excess of their respective priority right. Said acceptance must be
made in writing and delivered to the Executor of the Deceased Stockholder's
estate and the Secretary of the Corporation within said thirty-day period, and
failure to accept in said manner and within said time shall constitute a
rejection.
4.4 Shares Not Purchased. If any shares offered for sale pursuant to the
--------------------
provisions of Section 4.1 are not purchased by the Corporation or the remaining
holders of Stock under the provisions of Sections 4.2 and 4.3, or if such offer
shall become null and void, the Deceased Stockholder's estate, Executor,
administrator, heirs, or devisees and the Deceased Stockholder's Spouse may
continue ownership of all such unsold shares subject to the provisions of this
Agreement.
4.5 Purchase Price. The price to be paid for each share of Stock purchased
--------------
pursuant to the terms of Sections 4.1 through 4.3 of this Agreement, whether
purchased by the Corporation or by the remaining holders of Stock, shall be the
value per share as determined under Section 9 hereof.
4.6 Simultaneous Death. In the event of a simultaneous death of a
------------------
Stockholder who is an individual and his Spouse, the estate of the Deceased
Spouse shall sell its interest in the Stock, as if the Deceased Spouse had
survived the Deceased Stockholder, under the terms and provisions of this
Section 4 and not under the terms of Section 5.
5. Death of a Spouse
-----------------
5.1 Right of Refusal of Surviving Spouse. If any Spouse (the "Deceased
------------------------------------
Spouse") should predecease their husband or wife who is a party to this
Agreement, and if the Deceased Spouse's survivor (the "Surviving Stockholder")
does not acquire under the Will of the Deceased Spouse or by inheritance,
ownership of the Deceased Spouse's entire interest in all shares subject to this
Agreement, the Surviving Stockholder shall have the prior right to purchase all
or any part of the Deceased Spouse's interest in the Stock from the Deceased
Spouse's estate, and the Executor, administrator, heirs, or devisees of the
estate shall be obligated to sell all or any part of the Deceased Spouse's
interest in such Stock to the Surviving Stockholder for the price and on
-7-
<PAGE>
the terms herein set out and in accordance with the provisions of this
Agreement. The exercise of such prior right to purchase by the surviving
Stockholder must be made in writing and delivered to the Executor,
administrator, heirs, or devisees of the Deceased Spouse's estate within ninety
(90) days after such Executor has qualified, and failure to exercise the prior
right to purchase in said manner and within said time shall constitute a
termination of such prior right.
5.2 Option and Notice at Death Where Stock Not Entirely Purchased by
----------------------------------------------------------------
Surviving Stockholder. If the Surviving Stockholder does not exercise his or
- ---------------------
her prior right to purchase all of the Deceased Spouse's interest in such Stock,
or exercises his or her prior right only with respect to a part of the Deceased
Spouse's interest in such Stock, the Corporation and all other holders of Stock,
excluding the Surviving Stockholder of the Deceased Spouse, shall then have the
option to purchase the Deceased Spouse's remaining interest in Stock from the
estate. Within ten (10) days after the expiration of the aforementioned ninety
day period, the Executor of the Deceased Spouse's estate shall deliver to the
Secretary of the Corporation and all other holders of Stock other than the
Surviving Stockholder written notice, in the manner set forth in Section 16.1
hereof, stating the number of shares or interest of the Deceased Spouse in the
Stock that the Surviving Stockholder did not acquire under the Will of the
Deceased Spouse or by inheritance and did not elect to purchase. The notice
shall be deemed an offer by the Executor to sell all Stock or interest in Stock
covered by the notice to the Corporation and all other holders of Stock other
than the Surviving Stockholder at the price and on the terms herein set out and
in accordance with the provisions of this Agreement.
5.3 Exercise of Corporate Option. Upon receipt of the notice, the
----------------------------
Corporation shall have the exclusive right and option to purchase all or any
part of the shares or interest of the Deceased Spouse described in the notice,
subject to the conditions of Section 5.5. The Corporation shall have twenty (20)
days from the date the written notice is actually received by it to accept the
offer and thereby purchase all or any part of the Stock or interest of the
Deceased Spouse covered by the notice. Acceptance must be made in writing and
delivered to the Executor of the Deceased Spouse's estate and all other holders
of Stock within the twenty-day period, and failure to accept in this manner and
within such time shall constitute a rejection.
5.4 Exercise of Other Stockholder's Option. Subject to the Corporation's
--------------------------------------
first right of refusal as provided in Section 5.3 above, within thirty (30) days
after the delivery of the notice described in Section 5.2 by the Executor of the
Deceased Spouse's estate to the Corporation and the remaining holders of Stock,
such remaining holders shall have the option of accepting such offer and thereby
agree to purchase the Stock or interest of the Deceased Spouse covered by the
offer, subject to the conditions of Section 5.5. Each such Stockholder shall be
entitled to purchase any or all of the offered shares or interest not purchased
by either the Surviving Stockholder or the Corporation; provided, however, if
the total number of shares of Stock specified in the written notices of election
which are timely delivered by the remaining holders to the Executor of the
Deceased Stockholder's estate and the Secretary of the Corporation exceeds the
number of shares available for purchase by the remaining holders, each remaining
holder shall have a priority right
-8-
<PAGE>
to purchase any or all of the shares available to the remaining holders which
bears the same ratio to the number of such available shares as the number of
shares of Stock held by such remaining holder bears to the total number of
shares of Stock held by all remaining holders electing to purchase. Any shares
not purchased on such a priority basis shall be allocated to the remaining
holders who have elected to purchase shares in excess of their priority right
based upon the number of shares of Stock held by each of such remaining holders
as compared to the number of shares of Stock held by all remaining holders who
have elected to purchase shares in excess of their respective priority right.
Acceptance must be made in writing and delivered to the Executor of the Deceased
Spouse's estate and the Secretary of the Corporation within the thirty-day
period, and failure to accept in this manner and within such time shall
constitute a rejection.
5.5 Shares Not Purchased. If any shares or interests offered for sale
--------------------
pursuant to the provisions of Section 5.1 are not purchased by the Corporation
or the holders of Stock (excluding the Surviving Stockholder) under the
provisions of Sections 5.3 and 5.4, or such offer shall become null and void,
the Deceased Spouse's estate, Executor, administrator, heirs, or devisees may
continue ownership of all such unsold shares or interests subject to the
provisions of this Agreement.
5.6 Purchase Price. The price to be paid for each share of Stock
--------------
purchased or for an interest in a proportionate part thereof pursuant to the
terms of Sections 5.1 through 5.4 of this Agreement whether purchased by the
Surviving Stockholder, the Corporation, or the holders of Stock other than the
Surviving Stockholder, shall be the value per share determined under Section 9
hereof.
6. Divorce
-------
6.1 Prior Right of Stockholder. If any Stockholder who is an individual
--------------------------
and his or her Spouse should be divorced, the Stockholder who is a party to the
divorce proceedings (the "Divorcing Stockholder" or "Divorced Stockholder")
shall have the prior right to purchase all or any part of their Spouse's
interest in the Stock, and the Divorcing Stockholder's Spouse shall be obligated
to sell all or any part of their interest in such Stock to the Divorcing
Stockholder for the price and on the terms herein set out and in accordance with
the provisions of this Agreement. The exercise of such prior right to purchase
by the Divorcing Stockholder must be made in writing and delivered to their
Spouse on or before the date the final decree of divorce is entered, and failure
to exercise the prior right to purchase in this manner and within the specified
time shall constitute a termination of such prior right.
6.2 Option and Notice of Divorce Where Stock Not Entirely Purchased by
------------------------------------------------------------------
Divorced Stockholder. If the Divorced Stockholder does not exercise their prior
- --------------------
right to purchase all of the Spouse's interest in such Stock, or exercises this
prior right only with respect to a part of the Spouse's interest in such Stock,
the Corporation and all other holders of Stock, excluding the Divorced
Stockholder, shall then have the option to purchase the Divorced Stockholder's
Spouse's
-9-
<PAGE>
remaining interest in the Stock from the Divorced Stockholder's Spouse. Within
ten (10) days after the date the final decree of divorce is entered, the
Divorced Stockholder shall deliver to the Secretary of the Corporation and all
of the other holders of Stock written notice, in the manner set forth in Section
17.1 hereof, stating the number of shares or interest of the Divorced
Stockholder's Spouse in the Stock that the Divorced Stockholder did not elect to
purchase and did not receive in the property settlement of the divorce, if any,
and copies of said written notice shall be delivered to the Divorced
Stockholder's former Spouse. The notice shall be deemed an offer by the Divorced
Stockholder's Spouse to sell all Stock or interest in Stock covered by the
notice to the Corporation and all other holders of Stock, other than the
Divorced Stockholder, at the price and on the terms herein set out and in
accordance with the provisions of this Agreement.
6.3 Exercise of Corporate Option. Upon receipt of such notice, the
----------------------------
Corporation shall have the exclusive right and option to purchase all or any
part of the shares or interest of the Divorced Stockholder's Spouse described in
the notice, subject to the provisions of Section 6.5. The Corporation shall have
twenty (20) days from the date the written notice is actually received by it to
accept the offer and thereby purchase all or any part of the Stock or interest
of the Divorced Stockholder's Spouse covered by the notice. Acceptance must be
made in writing and delivered to the Divorced Stockholder's Spouse and all other
holders of Stock within the twenty-day period, and failure to accept in this
manner and within such time shall constitute a rejection.
6.4 Exercise of Other Stockholders' Option. Subject to the Corporation's
--------------------------------------
first right of refusal as provided in Section 6.3 above, within thirty (30) days
after the delivery of the notice described in Section 6.2 by the Divorced
Stockholder to the Corporation and the remaining holders of Stock, such
remaining holders shall have the option of accepting the Divorced Stockholder's
Spouse's offer and thereby agree to purchase the Stock or interest of the
Divorced Stockholder's Spouse covered by the offer. Each such remaining holder
shall be entitled to purchase any or all of the offered shares or interest (not
purchased by either the Divorced Stockholder or the Corporation); provided,
however, if the total number of shares of Stock specified in the written notices
of election which are timely delivered by the remaining holders to the Divorced
Stockholder and the Secretary of the Corporation exceeds the number of shares
available for purchase by the remaining holders, each remaining holder shall
have a priority right to purchase any or all of the shares available to the
remaining holders which bears the same ratio to the number of such available
shares as the number of shares of Stock held by such remaining holder bears to
the total number of shares of Stock held by all remaining holders electing to
purchase. Any shares not purchased on such a priority basis shall be allocated
to the remaining holders who have elected to purchase shares in excess of their
priority right based upon the number of shares of Stock held by each of such
remaining holders as compared to the number of shares of Stock held by all
remaining holders who have elected to purchase shares in excess of their
respective priority right. Acceptance must be made in writing and delivered to
the Divorced Stockholder's Spouse and the Secretary of the Corporation within
the thirty-day period, and failure to accept in such manner and within the
specified time shall constitute a rejection.
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<PAGE>
6.5 All Shares to Corporation and Stockholders Must be Purchased. If all
------------------------------------------------------------
shares or interests offered for sale pursuant to the provisions of Section 6.1
are not purchased by the Corporation or the Stockholders (excluding the Divorced
Stockholder) under the provisions of Sections 6.3 and 6.4, or if such offer
shall become null and void, the Divorced Stockholder's Spouse may continue
ownership of all such shares or interests subject to the provisions of this
Agreement, provided, however, that the Divorcing Stockholder, and not the
Divorcing Stockholder's Spouse, shall retain the right to vote such Shares or
interests and, upon request, the Divorcing Stockholder's Spouse shall execute
and deliver all documents deemed reasonably necessary by the Corporation, in its
sole discretion, to evidence such voting agreement.
6.6 Purchase Price. The price to be paid for each share of Stock or for
--------------
an interest in a proportionate part thereof purchased pursuant to the terms of
Sections 6.1 through 6.4 of this Agreement, whether purchased by the Divorced
Stockholder, the Corporation, or the holders of Stock other than the Divorced
Stockholder, shall be the value per share as determined under Section 9 of this
Agreement.
7. Exercise of Corporate Option.
----------------------------
7.1 Resolution. Any option to purchase shares of Stock granted to the
----------
Corporation by the terms of the foregoing Sections 3, 4, 5 and 6 may be
exercised only by a resolution of its Board of Directors, adopted by the
majority vote of all members thereof, excluding any member who owns, or whose
Spouse or Deceased Spouse's estate owns, any of the shares or any interest in
the shares covered by the option.
7.2 Surplus. The Corporation may exercise any option to purchase shares
-------
of Stock granted in the foregoing Sections 3, 4, 5 and 6 only in the event that
the Corporation shall have sufficient surplus to permit it lawfully to do so.
If the Corporation shall exercise any option to purchase Stock granted in the
foregoing and, prior to the time payment is made for such Stock, it shall be
determined that the surplus of the Corporation is insufficient to permit it
lawfully to purchase any or all of such Stock, the Corporation shall make
payment for only that number of shares which its surplus allows, and the
exercise of the option with respect to the remaining shares shall be rescinded.
The remaining shares for which the Corporation is unable to lawfully make
payment shall then be offered to the applicable holders of Stock as provided in
the foregoing Sections 3, 4, 5 and 6.
8. Terms of Purchase; Closing.
--------------------------
8.1 Payment. The purchase price of any shares of Stock purchased pursuant
-------
to an option or offer provided for by this Agreement under Sections 3.8, 4, 5
and 6 shall be paid in cash and on the terms set forth herein. Failure by any
party who elects to purchase shares of Stock pursuant to this Agreement to
tender the entire amount of the purchase price in cash or such other terms as
may be required by this Agreement on the closing day (as provided in Section 8.2
below)
-11-
<PAGE>
shall have the effect of removing all restrictions on transfer from that portion
of Stock for which cash payment is not tendered, subject only to the provisions
on insufficiency of corporate assets set forth in Section 7 above, thus the
offering Stockholder may thereafter hold or transfer such shares without
complying with the terms of this Agreement.
8.2 Closing. The purchase and sale of all Stock purchased pursuant to an
-------
option or offer provided for by this Agreement shall be closed within a period
of thirty (30) days from the day the last option is exercised or the offer is
accepted.
9. Purchase Price.
--------------
9.1 Purchase Price. The price to be paid pursuant to Sections 3.9, 4, 5
--------------
and 6 for each of the shares of Stock subject to this Agreement shall be an
amount equal to the Fair Market Value of such shares at the time of such sale.
10. Voting Agreement.
----------------
10.1 Agreement to Vote Shares. During the term of this Agreement, each
------------------------
Stockholder agrees to vote all of his shares of Stock now or hereafter owned by
such Stockholder in order to assure that: (a) the Board of Directors shall
consist of not more than seven (7) members and (b) the following are elected to
the Board of Directors; (i) up to three designees of About Face Limited, (ii) up
to two designees of Sonostar Ventures, L.L.C., Kiernan Family Trust and Garden
State Brickface, Inc. ("Sonostar Group"), (c) one designee of David A. Yoho
Revocable Trust, dated January 19, 1995 ("Yoho Trust") and (d) one individual
designated by the Board of Directors; provided, however, that should any party,
while such party has the right to designate one or more directors under the
terms hereof, fail to designate a representative or representatives to serve on
the Board of Directors of the Corporation, the other holders of Stock shall have
the right to nominate for election a replacement member to serve on the Board of
Directors of the Corporation; provided, further, that a failure by a party to
exercise their right to designate a Director Designee shall not act as a waiver
of such right. Each Stockholder acknowledges that the initial designees of
About Face Limited are Murray Gross, Ronald I. Wagner and Marc Beresin, the
initial designees of the Sonostar Group are Greg Kiernan and David Moore, the
initial designee of Yoho Trust is David A. Yoho, and the initial designee of the
Board of Directors is Charles D. Maguire, Jr.
10.2 Replacement of Designees. If any Director Designee elected to serve
------------------------
as a director pursuant to Section 10.1 resigns or otherwise ceases to become a
director of the Corporation and a vote of the Stockholders is required to fill
the vacancy, or, if the designator of a Director Designee desires to remove and
replace such Director Designee, each Stockholder agrees that it will promptly
take all action requested and required to fill such vacancy, or to remove and
replace such Director Designee, as the case may be.
-12-
<PAGE>
11. Impairment. Each Stockholder agrees that it will not vote its shares
----------
of Stock to amend the Certificate of Incorporation or Bylaws of the Corporation
in a manner that would change the number of Directors constituting the Board of
Directors, change the voting rights of its members, or otherwise impair the
power or capacity of the designees selected by About Face Limited, the Sonostar
Group or the Yoho Trust.
12. Special Provisions Applicable to Management Investors.
-----------------------------------------------------
12.1 Corporation's Purchase Option. After March 24, 1999 or, if earlier,
-----------------------------
the date a Management Investor (as defined herein) is no longer employed by the
Corporation, the Corporation shall have the option (the "Call Option") to
purchase from Stephen Thompson, David Vargas, Joanne Feeney, David Silverman and
Paul Kalisz (or their heirs, executors, administrators, transferees, successors
or assigns, as the case may be) (individually, a "Management Investor" and
collectively, the "Management Investors") any or all of the shares of Stock then
owned by such Management Investor at a purchase price per share equal to 120% of
the Book Value. The Call Option may be exercised only once, and shall be
exercised by written notice to such Management Investor (or his heirs, executors
or administrators) signed by an officer of the Corporation. Such notice shall
set forth a time and place of closing no later than sixty (60) days after the
date of such notice.
12.2 Management Investor's Put Option. After the second anniversary of the
--------------------------------
date of this Agreement, each Management Investor shall have the option (the "Put
Option") to require the Corporation to purchase any or all of the shares of
Stock owned by such Management Investor at a purchase price per share equal to
110% of the Book Value; provided, however, that the obligation of the
Corporation to purchase such shares shall be contingent upon the Corporation
having sufficient surplus to acquire such shares. Each Management Investor's
Put Option may be exercised only once, and shall be exercised by written notice
to the Corporation signed by the Management Investor.
13. Right of First Refusal on Sale of Securities by the Corporation.
---------------------------------------------------------------
13.1 Right to Participate in Sales of Additional Securities. The
------------------------------------------------------
Corporation agrees that it will not issue any new Stock or securities
convertible into or exchangeable for Stock without compliance with this Section
13, except as permitted under this Section 13. If the Corporation receives a
bona fide offer for the purchase of any Stock, or other securities convertible
into or exchangeable for Stock, the Corporation agrees to submit a written offer
to each Stockholder identifying the proposed purchaser and terms of the proposed
sale, and offering to each Stockholder the opportunity to purchase such
securities (subject to the limitations outlined below) on the same terms and
conditions as the Corporation proposes to sell such securities to such other
purchaser. Each Stockholder will have the right to purchase its pro rata share
of such securities offered to the Stockholders, based on the ratio which the
number of shares of Stock owned or obtainable by such Stockholder bears to the
total number of shares of Stock outstanding on the
-13-
<PAGE>
date of the notice. The Corporation's offer to the Stockholder will remain open
for thirty (30) days from the date notice of such offer is given to the
Stockholder pursuant to Section 17.1 of this Agreement. Any shares offered to
the Stockholders that are not purchased by the Stockholders may be sold by the
Corporation to the proposed purchaser pursuant to the terms of the proposed sale
at any time within one hundred twenty (120) days following the expiration of the
last period indicated above during which the Stockholders may exercise their
right to purchase. Any sale after the 120-day period or to other than the
proposed purchaser on the terms stated in the offer must again comply with this
Section 13.1.
13.2 Offers Not Covered. The Corporation may issue the following
------------------
securities without providing the Stockholders a right of first refusal pursuant
to this Section 13:
(a) shares of Stock issued pursuant to the exercise of rights by the
participants of a stock purchase or option plan or other like arrangement
approved by the Board of Directors of the Corporation;
(b) shares of Stock issued pursuant to any plan of acquisition or
merger approved by the Board of Directors of the Corporation;
(c) shares issued as stock dividends, or pursuant to stock splits,
recapitalizations or other similar events that do not affect in an adverse way
the relative rights of the Corporation's shareholders;
(d) shares of Stock or other securities issued in a public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (an "IPO"), covering the offer and sale of Stock;
(e) shares of Stock or other securities issued after the Corporation
becomes subject to the reporting requirements of the Securities Exchange Act of
1934, as amended.
(f) promissory notes which provide for the issuance of shares of Stock
or other equity securities as part of a bridge financing in contemplation of an
IPO.
13.3 Prohibited Offers. The Corporation may not issue options or other
-----------------
securities convertible into Stock which, upon conversion or exercise of such
securities, would, in the aggregate, result in the issuance of an amount of
shares of Stock greater than ten percent (10%) of the number of shares of Stock
outstanding at the time of conversion or exercise of such securities without the
prior written agreement of the holders of at least 70% of the Stock then subject
to this Agreement;
-14-
<PAGE>
14. Restrictions Noted on Stock Certificates.
----------------------------------------
There shall be typed in capital letters upon every certificate evidencing a
share of Stock subject to this Agreement the following statement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER FEDERAL OR
STATE SECURITIES LAWS. THESE SHARES MAY NOT BE OFFERED, SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED, OR OTHERWISE DISTRIBUTED
EXCEPT: (1) UPON REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND ANY OTHER APPLICABLE FEDERAL OR STATE SECURITIES LAWS, OR
(2) UPON DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL
ACCEPTABLE TO THE CORPORATION THAT REGISTRATION IS NOT REQUIRED FOR
SUCH OFFER, SALE, TRANSFER, ASSIGNMENT, PLEDGE, HYPOTHECATION, OR
OTHER DISTRIBUTION.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY, ENCUMBRANCES AND VOTING IMPOSED BY AN
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT, DATED MAY 27, 1998,
INCLUDING ANY AMENDMENTS THEREOF, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE CORPORATION, AND THE CORPORATION WILL FURNISH TO THE
RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE A COPY OF SUCH
AGREEMENT UPON WRITTEN REQUEST TO THE CORPORATION AT ITS PRINCIPAL
PLACE OF BUSINESS OR REGISTERED OFFICE.
and each holder of shares of Stock issued prior to the date hereof agrees to
deliver all certificates representing such shares to the Corporation for the
purpose of endorsing said legend thereon.
15. Irrevocability. This Agreement is not revocable at, upon or by reason
--------------
of a unilateral decision or death or dissolution of any party hereto; rather the
parties agree an acknowledge that this Agreement shall not terminate except
pursuant to the provisions of Sections 16 and 17.9 hereof.
-15-
<PAGE>
16. Termination of Agreement. This Agreement shall terminate upon the
------------------------
happening of any of the following events: (a) the written agreement of the
holders of at least 70% of the Stock then subject to this Agreement, (b) the
dissolution, bankruptcy, or insolvency of the Corporation, (c) at such time as
only one Stockholder remains, the shares of all others having been transferred
or redeemed, or (d) immediately prior to the consummation of a public offering
of Common Stock registered with the Securities and Exchange Commission. In
addition, any Stockholder who no longer owns or holds shares of Stock shall
thereafter not be considered a party hereto.
17. Miscellaneous.
-------------
17.1 Notices. Any notice or other communication required or permitted
-------
under this Agreement shall be deemed given if delivered personally or sent by
overnight carrier, telecopier or three days after deposited in the U.S. Mail,
certified mail postage paid and return receipt requested, to the addresses of
the parties set forth in the security records of the Corporation or at such
other addresses as may have been provided in writing to all of the parties to
this Agreement.
17.2 Further Transfers. Each transferee or any subsequent transferee of
-----------------
Stock, or any interest in such securities, shall, unless this Agreement
expressly provides otherwise, hold such shares or interest in such securities
subject to all the provisions of this Agreement and shall make no further
transfers except as provided in this Agreement.
17.3 Agreement to Perform Necessary Acts. Each party agrees to perform any
-----------------------------------
further acts and execute and deliver any documents that may be reasonably
necessary to carry out the provisions of this Agreement.
17.4 Successors and Assigns. This Agreement shall be binding on, and shall
----------------------
inure to the benefit of, the parties to it and their respective heirs, legal
representatives and successors.
17.5 Severability. In the event that any of the provisions, or portions
------------
thereof, of this Agreement are held to be unenforceable or invalid by any court
of competent jurisdiction, the validity and enforceability of the remaining
provisions, or portions thereof, shall not be affected thereby, and the
enforceable or invalid provision shall be modified to the extent necessary to
make it enforceable and valid.
17.6 Shares Subject to this Agreement. All shares of Stock now owned or
--------------------------------
hereafter acquired by any Stockholder shall be subject to the terms of this
Agreement.
17.7 Construction. Whenever used herein, the singular shall include the
------------
plural, and the plural shall include the singular, and the feminine shall
include the masculine and neuter.
-16-
<PAGE>
17.8 Governing Law. This Agreement has been executed in and shall be
-------------
governed by the laws of the State of Texas.
17.9 Amendment and Revocation. This Agreement may be amended or revoked,
------------------------
at any time and from time to time, only by the written agreement of the
Corporation and holders representing at least 70% of the Stock then subject to
this Agreement.
17.10 Specific Performance. Each Stockholder agrees that the Corporation's
--------------------
remedies at law for the failure of each Stockholder to comply with the
provisions of this Agreement would be inadequate and that such failure would not
be adequately compensable in damages and, therefore, agrees that the terms and
provisions of this Agreement may be specifically enforced.
17.11 Entire Agreement. This Agreement contains the entire understanding
----------------
between and among the parties hereto concerning the subject matter contained
herein. There are no representations, agreements, arrangements, or
understandings, oral or written, between or among the parties hereto relating to
the subject matter of this Agreement which are not fully expressed herein.
17.12 Additional Issuances. The Corporation agrees that, after the date
--------------------
hereof, it will not issue or sell any Stock or Stock Equivalents (the "New
Securities"), unless the purchaser thereof shall have entered into a valid and
binding agreement satisfactory to the Corporation to the effect that the New
Securities so issued or sold shall be subject to this Agreement.
17.13 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17.14 Inspection of Agreement. A copy of this Agreement shall be on file
-----------------------
with the Corporation at its principal office and shall be available for
examination by any Stockholder, in person or by agent or attorney, during normal
business hours.
[Intentionally Left Blank]
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date first written above.
U.S. REMODELERS, INC.
By: _________________________________
Murray Gross, President
<PAGE>
STOCKHOLDER'S SIGNATURE PAGE
TO THE AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
OF
U.S. REMODELERS, INC.
The foregoing Agreement is hereby executed by the undersigned Stockholder
as of ___________________________.
If Stockholder is an individual:
______________________________
Print Name:___________________
If Stockholder is not an individual:
Name:_________________________
By:___________________________
Its:__________________________
The undersigned spouse of the Stockholder, hereby acknowledges and
evidences his/her agreement and consents to the terms and provisions of the
Agreement.
______________________________
Print Name:___________________
<PAGE>
EXHIBIT 4.6
U.S. REMODELERS, INC.
1998 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS..................................................................... 1
ARTICLE II
THE PLAN........................................................................ 3
2.1 Name............................................................... 3
2.2 Purpose............................................................ 3
2.3 Effective Date..................................................... 3
2.4 Eligibility to Participate......................................... 4
2.5 Shares Subject to the Plan......................................... 4
2.6 Maximum Number of Plan Shares...................................... 4
2.7 Options and Stock Granted Under Plan............................... 4
2.8 Conditions Precedent............................................... 4
2.9 Reservation of Shares of Common Stock.............................. 5
2.10 Tax Withholding.................................................... 5
2.11 Exercise of Options................................................ 6
2.12 Acceleration in Certain Events..................................... 6
2.13 Written Notice Required............................................ 7
2.14 Compliance with Securities Laws.................................... 7
2.15 Employment or Service of Optionee.................................. 8
2.16 Rights of Optionees Upon Termination of Employment or Service...... 8
2.17 Transferability of Options......................................... 10
2.18 Information to Optionees........................................... 10
ARTICLE III
ADMINISTRATION.................................................................. 10
3.1 Committee.......................................................... 10
3.2 Appointment of Committee........................................... 10
3.3 Majority Rule; Unanimous Written Consent........................... 11
3.4 Company Assistance................................................. 11
ARTICLE IV
INCENTIVE STOCK OPTIONS......................................................... 11
4.1 Terms and Conditions............................................... 11
4.2 Duration of Options................................................ 11
4.3 Purchase Price..................................................... 11
4.4 Maximum Amount of Options First Exercisable in Any Calendar Year... 11
4.5 Individual Option Agreements....................................... 12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE V
NONQUALIFIED STOCK OPTIONS...................................................... 12
5.1 Option Terms and Conditions........................................ 12
5.2 Duration of Options................................................ 12
5.3 Purchase Price..................................................... 12
5.4 Individual Option Agreements....................................... 12
ARTICLE V
TERMINATION, AMENDMENT, AND ADJUSTMENT.......................................... 13
6.1 Termination and Amendment.......................................... 13
6.2 Adjustments........................................................ 13
ARTICLE VI
MISCELLANEOUS................................................................... 14
7.1 Other Compensation Plans........................................... 14
7.2 Plan Binding on Successors......................................... 14
7.3 Number and Gender.................................................. 14
7.4 Headings........................................................... 14
7.5 Choice of Law...................................................... 14
</TABLE>
<PAGE>
U.S. REMODELERS, INC.
1998 STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
As used herein with initial capital letters, the following terms have the
meanings hereinafter set forth unless the context clearly indicates to the
contrary:
1.1 "Advisor" means any person performing services for the Company or any
Subsidiary of the Company, with or without compensation, to whom the Company
chooses to grant Options under the Plan, provided that bona fide services are
rendered by such person and such services are not rendered in connection with
the offer or sale of securities in a capital-raising transaction.
1.2 "Board" means the Board of Directors of the Company.
1.3 "Cause" means conviction of a crime involving moral turpitude or a
crime providing for a term of imprisonment in a federal or state penitentiary;
failure or refusal to follow reasonable instructions of the Board; failure or
refusal to comply with the reasonable policies, standards and regulations of the
Company, which from time to time may be established; failure or refusal to
faithfully and diligently perform the usual customary duties of his employment
or service; acting in an unprofessional, unethical, immoral or fraudulent
manner; acting in a manner which discredits or is detrimental to the reputation,
character and standing of the Company or a Subsidiary; or the commission of any
other act that causes or reasonably may be expected to cause substantial injury
to the Company.
1.4 "Code" means the Internal Revenue Code of 1986, as amended.
1.5 "Committee" means the Committee appointed in accordance with Section
-------
3.1.
- ---
1.6 "Common Stock" means the Class A Common Stock, par value $0.01 per
share, of the Company or, in the event that the outstanding shares of such
Common Stock are hereafter changed into or exchanged for shares of a different
stock or security of the Company or some other corporation, such other stock or
security.
1.7 "Company" means U.S. Remodelers, Inc., a Delaware corporation, or one
or more of its Subsidiaries.
1.8 "Director" means a member of the Board.
1.9 "Effective Date" means May 1, 1998.
<PAGE>
1.10 "Employee" means an employee (as defined in Section 3401(c) of the
Code and the Treasury regulations thereunder) of the Company or any Subsidiary
that adopts the Plan, including an Officer.
1.11 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
1.12 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
1.13 "Fair Market Value" means such value as determined by the Committee on
the basis of such factors as it deems appropriate; provided that if the Common
Stock is traded on a national securities exchange or transactions in the Common
Stock are quoted on the Nasdaq National Market System, such value as shall be
determined by the Committee on the basis of the last reported sales price for
the Common Stock on the date for which such determination is relevant, as
reported on the national securities exchange or the Nasdaq National Market
System, as the case may be. If the Common Stock is not listed and traded upon a
recognized securities exchange or on the Nasdaq National Market System, the
Committee shall make a determination of Fair Market Value on the basis of the
mean between the closing bid and asked quotations for such Common Stock on the
date for which such determination is relevant (as reported by a recognized stock
quotation service) or, in the event that there shall be no bid or asked
quotations on the date for which such determination is relevant, then on the
basis of the mean between the closing bid and asked quotations on the date
nearest preceding the date for which such determination is relevant for which
such bid and asked quotations were available.
1.14 "Incentive Stock Option" means an Option granted pursuant to Article
-------
IV.
--
1.15 "Nonemployee Director" means a member of the Board who is not an
Officer or Employee; provided, however, that, as used in Section 3.1, the term
-----------
"Non-Employee Director" shall have the meaning given to that term in Rule 16b-3.
1.16 "Nonqualified Stock Option" means an Option granted pursuant to
Article V.
---------
1.17 "Officer" means an officer of the Company or any Subsidiary of the
Company.
1.18 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
1.19 "Optionee" means an Employee, Nonemployee Director or Advisor to whom
an Option has been granted hereunder.
1.20 "Option Agreement" means an agreement between the Company and an
Optionee with respect to one or more Options.
2
<PAGE>
1.21 "Permanent Disability" has the same meaning as that provided in
Section 22(e)(3) of the Code.
1.22 "Plan" means the U.S. Remodelers, Inc. 1998 Stock Option Plan, as
amended from time to time.
1.23 "Plan Shares" means shares of Common Stock issuable pursuant to the
Plan.
1.24 "Retirement" occurs when an Optionee terminates his relationship with
the Company or a Subsidiary on or after the date the Optionee (a) turns 65 years
old or (b) turns 55 years old and has completed ten (10) years of service with
the Company or a Subsidiary as otherwise determined by the Board.
1.25 "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor rule.
1.26 "Securities Act" means the Securities Act of 1933, as amended.
1.27 "Subsidiary" means a subsidiary corporation of the Company, as defined
in Section 424(f) of the Code.
1.28 "Tax Date" means the date on which the amount of tax to be withheld
required to be determined pursuant to the Code.
ARTICLE II
THE PLAN
2.1 Name. This Plan shall be known as the "U.S. Remodelers, Inc. 1998
----
Stock Option Plan."
2.2 Purpose. The purpose of the Plan is to promote the growth and general
-------
prosperity of the Company by permitting the Company to grant to its Employees,
Nonemployee Directors and Advisors Options to purchase Common Stock of the
Company. The Plan is designed to help the Company and its Subsidiaries attract
and retain superior personnel for positions of substantial responsibility and to
provide Employees, Nonemployee Directors and Advisors with an additional
incentive to contribute to the success of the Company. The Company intends that
Incentive Stock Options granted pursuant to Article IV shall qualify as
----------
"incentive stock options" within the meaning of Section 422 of the Code.
2.3 Effective Date. The Plan shall become effective upon the Effective
--------------
Date subject to the approval of the Plan by the Company's stockholders.
3
<PAGE>
2.4 Eligibility to Participate. Any Employee, Nonemployee Director or
--------------------------
Advisor shall be eligible to participate in the Plan. Subject to the provisions
of Section 5.5, the Committee may grant Options in accordance with such
-----------
determinations as the Committee from time to time in its sole discretion shall
make, provided that Incentive Stock Options may be granted only to persons who
are Employees.
2.5 Shares Subject to the Plan. The shares of Common Stock to be issued
--------------------------
pursuant to the Plan shall be either authorized and unissued shares of Common
Stock or shares of Common Stock issued and thereafter acquired by the Company.
2.6 Maximum Number of Plan Shares. Subject to adjustment pursuant to the
-----------------------------
provisions of Section 6.2, and subject to any additional restrictions elsewhere
-----------
in the Plan, the maximum aggregate number of shares of Common Stock which may be
optioned, sold, granted, or otherwise issued under the Plan shall initially be
250,000 which amount may, at the discretion of the Board, be increased from time
to time to a number such that the number of Plan Shares available for issuance
pursuant to Options to be granted pursuant to this Plan equals 10% of the total
number of shares of Common Stock of the Company and shares of any other class of
common stock of the Company outstanding from time to time; provided however,
subject to adjustment under Section 6.2 of the Plan, the number of shares of
-----------
Common Stock which may be optioned, sold, granted, or otherwise issued under the
Plan shall never be less than 250,000. Notwithstanding the foregoing, subject
to adjustment under Section 6.2 of the Plan, no more than 250,000 Plan Shares
-----------
will be available for the granting of Incentive Stock Options under the Plan.
Subject to adjustment pursuant to the provisions of Section 6.2, the maximum
-----------
aggregate number of shares of Common Stock with respect to which Options may be
granted during the term of the Plan shall not exceed 1,500,000 shares. The
maximum aggregate number of shares of Common Stock with respect to which Options
during the term may be granted to any Optionee during the term of the Plan shall
not exceed ten percent (10%) of the shares eligible for issuance under the Plan.
2.7 Options and Stock Granted Under Plan. Plan Shares with respect to
------------------------------------
which an Option shall have been exercised shall not again be available for grant
hereunder. If Options terminate for any reason without being wholly exercised,
new Options may be granted hereunder covering the number of Plan Shares to which
such Option termination relates.
2.8 Conditions Precedent. The Company shall not issue any certificate for
--------------------
Plan Shares pursuant to the Plan prior to fulfillment of all of the following
conditions:
(a) The admission of the Plan Shares to listing on all stock exchanges
on which the Common Stock is then listed, unless the Committee determines
in its sole discretion that such listing is neither necessary nor
advisable;
4
<PAGE>
(b) The completion of any registration or other qualification of the
offer or sale of the Plan Shares under any federal or state law or under
the rulings or regulations of the Securities and Exchange Commission or any
other governmental regulatory body that the Committee shall in its sole
discretion deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any federal
or state governmental agency that the Committee shall in its sole
discretion determine to be necessary or advisable.
2.9 Reservation of Shares of Common Stock. During the term of the Plan,
-------------------------------------
the Company shall at all times reserve and keep available such number of shares
of Common Stock as shall be necessary to satisfy the requirements of the Plan as
to the number of Plan Shares. In addition, the Company shall from time to time,
as is necessary to accomplish the purposes of the Plan, seek or obtain from any
regulatory agency having jurisdiction any requisite authority that is necessary
to issue Plan Shares hereunder. The inability of the Company to obtain from any
regulatory agency having jurisdiction the authority deemed by the Company's
counsel to be necessary to the lawful issuance of any Plan Shares shall relieve
the Company of any liability in respect of the non-issuance of Plan Shares as to
which the requisite authority shall not have been obtained.
2.10 Tax Withholding.
---------------
(a) Condition Precedent. The issuance of Plan Shares pursuant to the
-------------------
exercise of any Option under the Plan is subject to the condition that if
at any time the Committee shall determine, in its discretion, that the
satisfaction of withholding tax or other withholding liabilities under any
federal, state or local law is necessary or desirable as a condition of, or
in connection with such issuances, then the issuances shall not be
effective unless the withholding shall have been effected or obtained in a
manner acceptable to the Committee.
(b) Manner of Satisfying Withholding Obligation. When an Optionee is
-------------------------------------------
required by the Committee to pay to the Company an amount required to be
withheld under applicable income tax laws in connection with the exercise
of an Option, such payment may be made (i) in cash, (ii) by check, (iii) if
permitted by the Committee, by delivery to the Company of shares of Common
Stock already owned by the Optionee having a Fair Market Value on the Tax
Date equal to the amount required to be withheld, (iv) through the
withholding by the Company of a portion of the Plan Shares acquired upon
the exercise of the Options having a Fair Market Value on the Tax Date
equal to the amount required to be withheld or (v) in any other form of
valid consideration, as permitted by the Committee in its discretion.
(c) Notice of Disposition of Stock Acquired Pursuant to Incentive
-------------------------------------------------------------
Stock Options. The Company may require as a condition to the issuance of
-------------
Plan Shares covered
5
<PAGE>
by any Incentive Stock Option that the party exercising such Option give a
written representation to the Company, which is satisfactory in form and
substance to its counsel and upon which the Company may reasonably rely,
that he shall report to the Company any disposition of such shares prior to
the expiration of the holding periods specified by Section 422(a)(1) of the
Code. If and to the extent that the realization of income in such a
disposition imposes upon the Company federal, state or local withholding
tax requirements, or any such withholding is required to secure for the
Company an otherwise available tax deduction, the Company shall have the
right to require that the recipient remit to the Company an amount
sufficient to satisfy those requirements; and the Company may require as a
condition to the issuance of Plan Shares covered by an Incentive Stock
Option that the party exercising such Option give a satisfactory written
representation promising to make such a remittance.
2.11 Exercise of Options.
-------------------
(a) Method of Exercise. Each Option shall be exercisable in
------------------
accordance with the terms of the Option Agreement pursuant to which the
Option was granted. No Option may be exercised for a fraction of a Plan
Share.
(b) Payment of Purchase Price. The purchase price of any Plan Shares
-------------------------
purchased shall be paid at the time of exercise of the Option either (i) in
cash, (ii) by certified or cashier's check, (iii) if permitted by the
Committee, by shares of Common Stock, (iv) if permitted by the Committee,
by cash or certified or cashier's check for the par value of the Plan
Shares plus a promissory note for the balance of the purchase price, which
note shall provide for full personal liability of the maker and shall
contain such terms and provisions as the Committee may determine, including
without limitation the right to repay the note partially or wholly with
Common Stock, (v) by delivery of a copy of irrevocable instructions from
the Optionee to a broker or dealer, reasonably acceptable to the Company,
to sell certain of the Plan Shares purchased upon exercise of the Option or
to pledge them as collateral for a loan and promptly deliver to the Company
the amount of sale or loan proceeds necessary to pay such purchase price or
(vi) in any other form of valid consideration, as permitted by the
Committee in its discretion. If any portion of the purchase price or a
note given at the time of exercise is paid in shares of Common Stock, those
shares shall be valued at the then Fair Market Value.
2.12 Acceleration in Certain Events. The Committee may accelerate
------------------------------
the exercisability of any Option in whole or in part at any time.
Notwithstanding the provisions of any Option Agreement, the following provisions
shall apply:
(a) Mergers and Reorganizations. If after completion of the Company's
---------------------------
initial public offering of Common Stock, the Company or its stockholders
enter into an agreement to dispose of all or substantially all of the
assets of the Company by means of a sale, merger, or other reorganization,
liquidation or otherwise in a transaction in which
6
<PAGE>
the Company is not the surviving Company, all Options shall become
immediately exercisable with respect to the full number of shares subject
to such Options during the period commencing as of the date of the
agreement to dispose of all or substantially all of the assets or stock of
the Company and ending when the disposition of assets or stock contemplated
by that agreement is consummated or the Options are otherwise terminated in
accordance with their provisions or the provisions of this Plan, whichever
occurs first; provided that no Option will be immediately exercisable under
this Section on account of any agreement of merger or other reorganization
when the stockholders of the Company immediately before the consummation of
the transaction will own at least fifty percent (50%) of the total combined
voting power of all the classes of the stock entitled to vote of the
surviving entity immediately after the consummation of the transaction. An
Option shall not become immediately exercisable, however, if the
transaction contemplated in the agreement is a merger or reorganization in
which the Company shall survive.
(b) Change in Control. In the event of a change in control or
-----------------
threatened change in control of the Company after the completion of an
initial public offering of the Company's Common Stock, all Options granted
prior to the change in control or threatened change in control shall become
immediately exercisable. A "change in control" will be deemed to have
occurred for purposes hereof (i) upon the occurrence of a change of stock
ownership of the Company of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A promulgated under the Exchange
Act, and any successor Item of a similar nature; or (ii) upon the
acquisition of beneficial ownership, directly or indirectly, by any person
(as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act)
of securities of the Company representing 33% or more of the combined
voting power of the Company's then outstanding securities; or (iii) upon a
change during any period of two (2) consecutive years of a majority of the
members of the Board for any reason, unless the election, or the nomination
for election by the Company's stockholders, of each director was approved
by a vote of a majority of the directors then still in office who were
directors at the beginning of the period; provided that a change in control
will not be deemed to have occurred for purposes hereof with respect to any
person meeting the requirements of clauses (i) and (ii) of Rule 13d-1(b)(1)
promulgated under the Exchange Act.
2.13 Written Notice Required. Any Option shall be deemed to be
-----------------------
exercised for purposes of the Plan when written notice of exercise has been
received by the Company at its principal office from the person entitled to
exercise the Option and payment for the Plan Shares with respect to which the
Option is exercised has been received by the Company in accordance with Section
-------
2.11.
- ----
2.14 Compliance with Securities Laws. Plan Shares shall not be issued
-------------------------------
with respect to any Option unless the issuance and delivery of the Plan Shares
(and the exercise of an Option, if applicable) shall comply with all relevant
provisions of state and federal law (including without limitation (i) the
Securities Act, the rules and regulations promulgated thereunder, and (ii) the
7
<PAGE>
requirements of any stock exchange upon which the Plan Shares may then be
listed) and shall be further subject to the approval of counsel for the Company
with respect to such compliance. The Committee may also require an Optionee to
furnish evidence satisfactory to the Company, including without limitation a
written and signed representation letter and consent to be bound by any transfer
restrictions imposed by law, legend, condition, or otherwise, that the Plan
Shares are being acquired only for investment and without any present intention
to sell or distribute the shares in violation of any state or federal law, rule,
or regulation. Further, each Optionee shall consent to the imposition of a
legend on the certificate representing the Plan Shares issued pursuant to the
exercise of an Option restricting their transfer as required by law or this
Section.
2.15 Employment or Service of Optionee. Nothing in the Plan or in any
---------------------------------
Option granted hereunder shall confer upon any Employee any right to continued
employment by the Company or any of its Subsidiaries or limit in any way the
right of the Company or any Subsidiary at any time to terminate or alter the
terms of that employment. Nothing in the Plan or in any Option granted
hereunder shall confer upon any Nonemployee Director or Advisor any right to
continued service as a Nonemployee Director or Advisor of the Company or any of
its Subsidiaries or limit in any way the right of the Company or any Subsidiary
at any time to terminate or alter the terms of that service.
2.16 Rights of Optionees Upon Termination of Employment or Service.
-------------------------------------------------------------
In the event an Optionee ceases to be an Employee, Nonemployee Director or
Advisor for any reason other than death, Retirement, Permanent Disability, for
Cause or upon providing certain required notice of termination prior to an
annual anniversary of an Employee's employment agreement with the Company, (i)
the Committee shall have the ability to accelerate the vesting of the Optionee's
Option, in its sole discretion, and (ii) such Optionee's Option shall be
exercisable (to the extent exercisable on the date of termination of employment
or rendition of services, or, if the vesting of such Option has been
accelerated, to the extent exercisable following such acceleration) at any time
within three (3) months after the date of termination of employment or rendition
of services, unless by its terms the Option expires earlier or unless, with
respect to a Nonqualified Stock Option, the Committee agrees, in its sole
discretion, to further extend the term of such Nonqualified Stock Option;
provided that the term of any such Nonqualified Stock Option shall not be
extended beyond its initial term. In the event an Optionee ceases to serve as
an Employee, Nonemployee Director or Advisor due to death, Permanent Disability,
Retirement, for Cause or upon providing certain required notice of termination
prior to an annual anniversary of an Employee's employment agreement with the
Company, an Optionee's Options may be exercised as follows:
(a) Death. Except as otherwise limited by the Committee at the time
of the grant of an Option, if an Optionee dies while serving as an
Employee, Nonemployee Director or Advisor or within three (3) months after
ceasing to be an Employee, Nonemployee Director or Advisor, his Option
shall become fully exercisable on the date of his death and shall expire
twelve (12) months thereafter, unless by its terms it expires sooner or
unless, with respect to a Nonqualified Stock Option, the Committee agrees,
in
8
<PAGE>
its sole discretion, to further extend the term of such Nonqualified Stock
Option; provided that the term of any such Nonqualified Stock Option shall
not be extended beyond its initial term. During such period, the Option may
be fully exercised, to the extent that it remains unexercised on the date
of death, by the Optionee's personal representative or by the distributees
to whom the Optionee's rights under the Option shall pass by will or by the
laws of descent and distribution.
(b) Retirement. If an Optionee ceases to serve as an Employee,
Nonemployee Director or Advisor as a result of Retirement, (i) the
Committee shall have the ability to accelerate the vesting of the
Optionee's Option, in its sole discretion, and (ii) such Optionee's Option
shall be exercisable (to the extent exercisable on the effective date of
such Retirement or, if the vesting of such Option has been accelerated, to
the extent exercisable following such acceleration) at any time within
three (3) months after the effective date of such Retirement, unless by its
terms the Option expires earlier or unless, with respect to a Nonqualified
Stock Option, the Committee agrees, in its sole discretion, to further
extend the term of such Nonqualified Stock Option; provided that the term
of any such Nonqualified Stock Option shall not be extended beyond its
initial term.
(c) Disability. If an Optionee ceases to serve as an Employee,
Nonemployee Director or Advisor as a result of Permanent Disability, the
Optionee's Option shall become fully exercisable and shall expire twelve
(12) months thereafter, unless by its terms it expires sooner or, unless,
with respect to a Nonqualified Stock Option, the Committee agrees, in its
sole discretion, to extend the term of such Nonqualified Stock Option;
provided that the term of any Option shall not be extended beyond its
initial term.
(d) Cause. If an Optionee ceases to be employed by the Company or a
Subsidiary or ceases to serve as a Nonemployee Director or Advisor because
the Optionee's relationship with the Company or a Subsidiary is terminated
for Cause, the Optionee's Options shall automatically expire on the date of
such termination. If any facts that would constitute Cause for termination
or removal of an Optionee are discovered after the Optionee's relationship
with the Company has ended, any Options then held by the Optionee may be
immediately terminated by the Committee. Notwithstanding the foregoing, if
an Optionee is an Employee employed pursuant to a written employment
agreement with the Company or a Subsidiary, the Optionee's relationship
with the Company or a Subsidiary shall be deemed terminated for Cause for
purposes of the Plan only if the Optionee is considered under the
circumstances to have been terminated "for cause" for purposes of such
written agreement or the Optionee voluntarily ceases to be an Employee in
breach of such Optionee's employment agreement with the Company or a
Subsidiary.
(e) Notice. If an Optionee's employment agreement with the Company or
a Subsidiary is terminated by either the Company, a Subsidiary or the
Optionee by providing certain required notices of termination prior to an
annual anniversary of such Optionee's
9
<PAGE>
employment agreement, the Options that are vested as of the date of
termination shall remain exercisable for a period of twelve (12) months
(three (3) months if Incentive Stock Options) after the date of termination
and shall expire at the end of such twelve (12) month period (three (3)
month period if Incentive Stock Options).
2.17 Transferability of Options. Except as may be agreed upon by the
--------------------------
Committee in accordance with the following paragraph, Options shall not be
transferable other than by will or the laws of descent and distribution or, with
respect to Nonqualified Stock Options, pursuant to the terms of a qualified
domestic relations order as defined by the Code or Title I of ERISA, or the
rules thereunder, and, with respect to Incentive Stock Options, may be exercised
during the lifetime of an Optionee only by that Optionee or by his legally
authorized representative. The designation by an Optionee of a beneficiary
shall not constitute a transfer of the Option.
The Committee may, in its discretion, provide in an Option Agreement that
Nonqualified Stock Options granted hereunder may be transferred by the Optionee
to members of his immediate family, trusts for the benefit of such immediate
family members and partnerships in which such immediate family members are the
only partners, provided that there cannot be any consideration for the transfer.
2.18 Information to Optionees. The Company shall furnish to each
------------------------
Optionee a copy of the annual report, proxy statements and all other reports
sent to the Company's stockholders. Upon written request, the Company shall
furnish to each Optionee a copy of its most recent Form 10-K Annual Report and
each quarterly report to stockholders issued since the end of the Company's most
recent fiscal year.
ARTICLE III
ADMINISTRATION
3.1 Committee. Subject to Section 3.2, the Plan shall be administered by
--------- -----------
a Committee of not fewer than two members of the Board; provided, however that
the entire Board may exercise the functions of the Committee at any time. Each
member of the Committee shall be a "Non-Employee Director" within the meaning of
Rule 16b-3 and an "outside director" within the meaning of Section 162(m) of the
Code. Subject to the provisions of the Plan, the Committee shall have the sole
discretion and authority to determine from time to time the Employees,
Nonemployee Directors, and Advisors to whom Options shall be granted and the
number of Plan Shares subject to each Option, to interpret the Plan, to
prescribe, amend and rescind any rules and regulations necessary or appropriate
for the administration of the Plan, to determine and interpret the details and
provisions of each Option Agreement, to modify or amend any Option Agreement or
waive any conditions or restrictions applicable to any Options (or the exercise
thereof), and to make all other determinations necessary or advisable for the
administration of the Plan.
3.2 Appointment of Committee. The Committee shall be appointed by the
------------------------
Board; provided that the Board may remove any Committee member, with or without
cause.
10
<PAGE>
3.3 Majority Rule; Unanimous Written Consent. A majority of the members
----------------------------------------
of the Committee shall constitute a quorum, and any action taken by a majority
present at a meeting at which a quorum is present or any action taken without a
meeting evidenced by a writing executed by all members of the Committee shall
constitute the action of the Committee. Meetings of the Committee may take place
by telephone conference call.
3.4 Company Assistance. The Company shall supply full and timely
------------------
information to the Committee on all matters relating to Employees, Nonemployee
Directors, and Advisors, their employment, death, Retirement, Permanent
Disability, or other termination of employment or service, and such other
pertinent facts as the Committee may require. The Company shall furnish the
Committee with such clerical and other assistance as is necessary in the
performance of its duties.
ARTICLE IV
INCENTIVE STOCK OPTIONS
4.1 Terms and Conditions. The terms and conditions of Options granted
--------------------
under this Article may differ from one another as the Committee shall, in its
discretion, determine, as long as all Options granted under this Article satisfy
the requirements of this Article.
4.2 Duration of Options. Each Option granted pursuant to this Article and
-------------------
all rights thereunder shall expire on the date determined by the Committee, but
in no event shall any Option granted under this Article expire earlier than one
(1) year or later than ten (10) years after the date on which the Option is
granted; provided, however, in the event of the grant of any Option to an
individual who, at the time the Option is granted, owns shares of stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Subsidiary or affiliate thereof within
the meaning of Section 422 of the Code, the Option must not be exercisable after
the expiration of five (5) years from the date of its grant. In addition, each
Option shall be subject to early termination as provided elsewhere in the Plan.
4.3 Purchase Price. The purchase price for Plan Shares acquired pursuant
--------------
to the exercise, in whole or in part, of any Option granted under this Article
shall not be less than the Fair Market Value of the Plan Shares at the time of
the grant of the Option; provided, however, in the event of the grant of any
Option to an individual who, at the time the Option is granted, owns shares of
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Subsidiary or affiliate thereof
within the meaning of Section 422 of the Code, the purchase price for the Plan
Shares subject to that Option must be at least 110% of the Fair Market Value of
those Plan Shares at the time the Option is granted and the Option must not be
exercisable after the expiration of five (5) years from the date of its grant.
4.4 Maximum Amount of Options First Exercisable in Any Calendar Year. The
----------------------------------------------------------------
aggregate Fair Market Value of Plan Shares (determined at the time the Option is
granted) with respect to which Options issued under this Article are exercisable
for the first time by any
11
<PAGE>
Employee during any calendar year under all incentive stock option plans of the
Company and its Subsidiaries and affiliates shall not exceed $100,000. Any
portion of an Option granted under the Plan in excess of the foregoing limit
shall be considered granted pursuant to Article V.
---------
4.5 Individual Option Agreements. Each Employee receiving Options
----------------------------
pursuant to this Article shall be required to enter into a written Option
Agreement with the Company. In such Option Agreement, the Employee shall agree
to be bound by the terms and conditions of the Plan, the Options made pursuant
hereto, and such other matters as the Committee deems appropriate.
ARTICLE V
NONQUALIFIED STOCK OPTIONS
5.1 Option Terms and Conditions. The terms and conditions of Options
---------------------------
granted under this Article may differ from one another as the Committee shall,
in its discretion, determine as long as all Options granted under this Article
satisfy the requirements of this Article.
5.2 Duration of Options. Each Option granted pursuant to this Article and
-------------------
all rights thereunder shall expire on the date determined by the Committee, but
in no event shall any Option granted under this Article expire later than ten
(10) years after the date on which the Option is granted. In addition, each
Option shall be subject to early termination as provided elsewhere in the Plan.
5.3 Purchase Price. The Committee may elect to grant Options pursuant to
--------------
this Article at an exercise price less than the Fair Market Value of the Plan
Shares at the time of the grant of the Option.
5.4 Individual Option Agreements. Each Optionee receiving Options
----------------------------
pursuant to this Article shall be required to enter into a written Option
Agreement with the Company. In such Option Agreement, the Optionee shall agree
to be bound by the terms and conditions of the Plan, the Options made pursuant
hereto, and such other matters as the Committee deems appropriate.
5.5 Automatic Grants of Options to Nonemployee Directors. Each
----------------------------------------------------
Nonemployee Director shall automatically be granted a Nonqualified Stock Option
to purchase 1,000 shares of Common Stock upon initial election or appointment to
the Board. Each Nonemployee Director will receive a Nonqualified Stock Option
to purchase 1,000 shares of Common Stock on the date of each annual meeting of
stockholders of the Company subsequent to his initial election as a director.
The purchase price for Plan Shares acquired pursuant to the exercise, in whole
or in part, of any Option received by Nonemployee Directors shall be the Fair
Market Value of the Plan Shares on the date of grant of such Option. One half
of each Option shall become exercisable on the first anniversary of the date of
grant of such Option and the remaining one half of each Option shall become
exercisable on the second anniversary of the date of grant. Each Option shall
expire on the day prior to the tenth anniversary of the date of grant of such
Option, unless otherwise specified herein.
12
<PAGE>
ARTICLE VI
TERMINATION, AMENDMENT, AND ADJUSTMENT
6.1 Termination and Amendment. The Plan shall terminate on April 30,
-------------------------
2008. No Option shall be granted under the Plan after that date of termination.
The Board may at any time terminate or amend the Plan or any provision of the
Plan. No termination or amendment of the Plan may, without the consent of the
Optionee to whom any Option has been granted, adversely affect the rights of
such Optionee under such Option nor may any amendment be made without the prior
approval of the Company's stockholders if such amendment would:
(a) increase the number of shares of Common Stock that may be issued
pursuant to the Plan as provided in Section 6.2;
-----------
(b) change the designation or class of Employees eligible for
participation in the Plan; or
(c) require approval of the Company's shareholders under any
applicable law, regulation or stock exchange rule.
provided that prior approval of the Company's stockholders with respect to the
foregoing shall be required only to the extent required by any statutory law,
regulation or stock exchange rule.
6.2 Adjustments. If the outstanding Common Stock is increased, decreased,
-----------
changed into, or exchanged for a different number or kind of shares or
securities through merger, consolidation, combination, exchange of shares, other
reorganization, recapitalization, reclassification, stock dividend, stock split,
or reverse stock split, an appropriate and proportionate adjustment shall be
made in the maximum number and kind of Plan Shares as to which Option may be
granted under the Plan. A corresponding adjustment changing the number or kind
of shares allocated to unexercised Options or portions thereof, which shall have
been granted prior to any such change, shall likewise be made. Any such
adjustment in outstanding Options shall be made without change in the aggregate
purchase price applicable to the unexercised portion of the Options, but with a
corresponding adjustment in the price for each share covered by the Options.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined solely by the Committee, and any such adjustment
may provide for the elimination of fractional share interests.
13
<PAGE>
ARTICLE VII
MISCELLANEOUS
7.1 Other Compensation Plans. The adoption of the Plan shall not affect
------------------------
any other stock option or incentive or other compensation plans in effect for
the Company or any Subsidiary or affiliate of the Company, nor shall the Plan
preclude the Company or any Subsidiary or affiliate thereof from establishing
any other forms of incentive or other compensation plans.
7.2 Plan Binding on Successors. The Plan shall be binding upon the
--------------------------
successors and assigns of the Company and any Subsidiary or affiliate of the
Company that adopts the Plan.
7.3 Number and Gender. Whenever used herein, nouns in the singular shall
-----------------
include the plural where appropriate, and the masculine pronoun shall include
the feminine gender.
7.4 Headings. Headings of articles and sections hereof are inserted for
--------
convenience of reference and constitute no part of the Plan.
7.5 Choice of Law. The Plan shall be governed and construed in accordance
-------------
with the laws of the State of Texas.
14
<PAGE>
EXHIBIT 10.1
LICENSE AGREEMENT
-----------------
This LICENSE AGREEMENT (this "Agreement") is entered into as of the _____
day of March, 1997 between HFS Licensing, Inc., a Delaware corporation
("Licensor"), and Reunion Home Services, Inc., a Texas corporation ("Licensee").
PRELIMINARY STATEMENTS
----------------------
A. Licensor, pursuant to a Master License Agreement (the "Master
License") between Century 21 Real Estate Corporation ("Century 21") and
Licensor, has certain rights in the trademarks and service marks "CENTURY 21"
and "CENTURY 21 Home Improvements," and the design trademarks and service marks,
"CENTURY 21 and design" and "CENTURY 21 Home Improvements and design" depicted
on Exhibit A hereto, and the trade dress used in connection with or as part of
---------
the foregoing (the "Trade Dress") (all of the foregoing, individually and
collectively, the "Trademark"), including the right to grant the license set
forth herein.
B. Licensee is engaged in the business of marketing, selling, furnishing,
installing and servicing the home improvement products and services specified in
Exhibit B hereto.
- ---------
C. Licensee desires to obtain, and Licensor is willing to grant, a
license pursuant to which Licensee shall become a licensee of Licensor's right
to use the Trademark in connection with the marketing, selling, furnishing,
installation and servicing of the home improvement products and services
specified on Exhibit B hereto in the market area designated in Exhibit B hereto
--------- ---------
on the terms and conditions set forth herein; and
NOW THEREFORE, in consideration of the premises and mutual agreements set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, hereby agree as follows:
STATEMENT OF AGREEMENT
----------------------
1. Definitions. As used herein, the term:
-----------
1.1 "Affiliate" shall mean, with respect to an person, any other person,
entity, or organization directly or indirectly controlling, controlled by, or
under common control with, such person at any time during the period for which
the determination of affiliation with such person is being made.
1.2 "Century 21" shall have the meaning set forth in the Preliminary
Statements.
1.3 "Confidential Information" shall mean any non-public information,
technical data, or know-how which relates to the business, services, or products
of either party or a third party, including without limitation, any customer
lists, any information with respect to leads, pitch books, and training
-1-
<PAGE>
materials, salary information, research products, services, developments,
inventions, processes, techniques, designs, or distribution, marketing,
financial, merchandising and/or sales information.
1.4 "Contract Revenue" shall have the meaning set forth in Subsection 8.3.
1.5 "Contract(s)" shall mean all contracts of any nature entered into by
Licensee with its
customers relating to the provision or sale of Licensed Services.
1.6 "Earned Royalties" shall have the meaning set forth in Subsection 8.2.
1.7 "Licensed Services" shall mean the marketing, sale, furnishing,
installation and servicing of only the home improvement products and services
specifically designated on Exhibit B hereto for Residential Properties UNDER THE
TRADEMARK.
1.8 "License" shall mean the exclusive right to use the Trademark in
connection with the Licensed Services in the Territory during the Term.
1.9 "Licensee" shall have the meaning set forth in the Preliminary
Statement.
1.10 "Licensor" shall have the meaning set forth in the Preliminary
Statement.
1.11 "Master License" shall have the meaning set forth in the Preliminary
Statement.
1.12 "Prime Rate" shall mean the prime rate of interest in effect from
time to time at the Chase Manhattan Bank, New York, New York, or any successor
bank thereto.
1.13 "Quarter" shall mean the calendar quarter ending on March 31, June 30,
September 30, and December 31, as applicable.
1.14 "Receiving Party" shall have the meaning set forth in Subsection
17.2.
1.15 "Residential Properties" shall mean non-commercial properties that
are utilized solely for residential purposes, excluding (a) properties having
four or more connected and/or attached residential units, and (b) properties
which are part of a residential condominium unit and Licensee has entered or may
enter into a contract which is negotiated and paid for by the management of the
condominium.
1.16 "Royalties" shall mean with respect to any Year, the Earned Royalties
and Minimum Royalties (as required by Section 8.2) actually due to Licensor in
respect of such Year.
1.17 INTENTIONALLY OMITTED
1.18 "Term" shall mean the term of this Agreement, which shah commence as
of the date of
-2-
<PAGE>
this Agreement and shall expire on December 31, 2007, unless
earlier terminated or further extended pursuant to the terms of this Agreement
or extended in writing signed by Licensor and Licensee.
1.19 "Territory" shall mean the market area described on Exhibit B hereto,
---------
and such other market areas for which Licensor may grant Licensee a license to
use the Trademark for Licensed Services.
1.20 "Trade Dress" shall have the meaning set forth in the Preliminary
Statements.
1.21 "Trademark" shall have the meaning set forth in the Preliminary
Statements.
1.22 "Year" shall mean each twelve month period during the Term commencing
January 1 of each year and ending December 31 of the same calendar year, except
that the first year of the term shall be the period from the date of this
Agreement through December 31, 1997.
2. Grant of License.
----------------
2.1 Subject to the terms and provisions hereof, Licensor hereby grants to
Licensee and Licensee hereby accepts the License during the Term.
2.2 Licensee shall operate in the Territory under either the trade name
"CENTURY 21 Home Improvements", or the trade name "CENTURY 21" combined with a
term "Cabinet Refacing" to describe the Licensed Services, together with a name
identifying Licensee's corporate name (e.g. "CENTURY 21 Cabinet
-------
Refacing/Reunion Home Services, Inc.") or such other trade names as shall have
- ------------------------------
been approved in writing by Licensor. Licensee shall file assumed name
certificates or similar documents in connection with operating under such name
in such jurisdictions as such filings may be legally required and shall upon
request provide copies thereof to Licensor.
2.3 The License applies solely to the use of the Trademark in connection
with the Licensed Services in the Territory during the Term and (i) no use of
any other trademark of Licensor or Century 21 or any of their respective
Affiliates, and (ii) no use of the Trademark on any products or on services
other than the Licensed Services, is authorized or permitted. Licensor reserves
the right to use, and to grant to its Affiliates or any other licensee the right
to use, the Trademark (i) on or in connection with any and all products and
services or for any other purpose other than the specific Licensed Services
within the Territory, provided that licensees for any other licensed services
within the Territory shall use a tradename and a term describing the services
licensed which when combined with the mark "CENTURY 21 HOME IMPROVEMENTS" will
be readily distinguished from the names used by Licensee under Section 2.2, (ii)
outside the Territory with respect to the Licensed Services. There are no
implied agreements or covenants between the parties regarding the Territory.
-3-
<PAGE>
2.4 Unless otherwise approved by Licensor, all references to the
Trademark, in Contracts, advertisements, or promotional materials, shall
prominently display a statement to the effect that the Licensed Services are
sold, furnished and performed by Licensee, using Licensee's full legal name, an
independently owned contractor. In no event shall Licensee, or any of its
employees, agents, representatives or subcontractors identify Licensee, orally
or in writing as a subsidiary, division or Affiliate of Century 21, Licensor or
any of their Affiliates.
2.5 Licensee shall actively conduct the business of selling and providing
Licensed Services under the Trademark in all of the Territory. If Licensee
determines that any portion of the Territory representing the entirety of a
county or SCF code is not economically viable for Licensee, the Licensee may
surrender that portion of the Territory by written notice to Licensor,
identifying the SCF Codes being surrendered, which shall be effective upon
Licensor's receipt of the notice. Required Revenue and Minimum Royalties shall
not be affected by the reduction in the Territory. Licensee remains responsible
for Earned Royalties accrued, indemnity under Section 15, and Earned Royalties
to be earned on Contracts in effect in the surrendered portion of the Territory
at the time of surrender.
2.6 Licensee shall not carry on any business similar to the sale or
provision of Licensed Services within the Territory except pursuant to this
Agreement.
3. Representations and Warranties.
------------------------------
3.1 Licensor represents and warrants that it has full right, power, and
authority to enter into this Agreement and to perform its obligations hereunder,
and to consummate all of the transactions contemplated herein and that it has a
valid and enforceable right to license the Trademark and that the Trademark is
valid and enforceable. Licensor represents and warrants that Century 21 or its
affiliate CTM Holdings Corp. owns all right, title and interest in and to the
Trademark subject to the Master License, and all other franchises and licenses
granted by Century 21 and its subfranchisees. Licensor additionally represents
and warrants that the use of the Trademark by Licensee in the Territory strictly
in accordance with the provisions of this Agreement shall not infringe any
trademark, trade name, service mark, copyright or any other proprietary right of
any third party. Licensor represents and warrants that it has not entered into
any agreement or commitment inconsistent with or in conflict with the rights
granted to License hereunder. Licensee agrees and acknowledges that other than
those representations explicitly contained in this Agreement, no
representations, warranties, or guarantees of any kind have been made to
Licensee, either by Licensor, Century 21 or any of their respective Affiliates,
or by anyone acting on behalf of Licensor, Century 21 or their respective
Affiliates.
3.2 Licensee represents and warrants that it has the full right, power,
and authority to enter into this Agreement, to perform all of its obligations
hereunder, and to consummate the transactions contemplated herein, and that to
the best of its knowledge, as a result of entering into this Agreement,
-4-
<PAGE>
or sold in violation of any statute, ordinance or administrative order, rule, or
regulation.
3.3 Licensor and Licensee each represent and warrant that (i) this
Agreement constitutes a valid and legally binding obligation of it (subject to
creditors' rights, bankruptcy, moratorium and laws of similar effect, and
general principles of equity), (ii) the execution and delivery by it of this
Agreement and the performance by it of its obligations hereunder have been duly
authorized by all requisite corporate action on the part of it, and (iii) no
other corporate proceedings on the part of it or consents are required in
connection with the execution, delivery, and performance by it of this
Agreement.
4. Quality Standards.
-----------------
4.1 Licensee acknowledges that the Trademark has established extremely
valuable goodwill and is well recognized among consumers, and that it is of
great importance to each party that in the sale and provision of the Licensed
Services the high standards and reputation that Century 21 and the owner of the
Trademark have established be maintained. Accordingly, all Licensed Services
provided by Licensee hereunder and the products sold or installed in connection
therewith shall be of first class installation and of high quality as is
consistent with the respective price of such Licensed Services and said
products. All Licensed Services and the products sold or installed in
connection therewith shall be commercially acceptable for the purposes for which
they are sold.
4.2 Licensee may use the Trademark only pursuant to the specifications and
designs for the Trademark approved in writing by Licensor or provided in writing
by Licensor and only in the manner approved by Licensor with respect to the
Licensed Services. For any Trademark that is federally registered, appropriate
notice of registration in accordance with the applicable laws or regulations of
the applicable jurisdiction shall accompany uses of such trademarks (a small "R"
within a circle in the United States) as necessary to obtain the maximum
protection for trademarks under the applicable trademark law.
4.3 Licensee shall submit to Licensor for Licensor's review and prior
written approval samples of each initial use of all materials of any nature
bearing the Trademark. The foregoing notwithstanding, following approval by
Licensor of the initial use, no additional approval will be required with
respect to any minor alterations in the format, layout, or color (excluding any
such changes to the Trademark) of approved materials or any changes in media
sources, provided that any such new media sources are substantially identical in
all material respects to those previously approved by Licensor and will not have
an adverse effect on the Trademarks, and provided that in all other respects
such materials are substantially identical to the sample previously approved by
Licensor. Licensor agrees that all materials bearing the Trademark which
previously have been approved for use by American Remodeling, Inc. may be used
by Licensee so long as Licensee's legal name has been substituted for the name
of such entity.
4.4 Licensor shall promptly approve or disapprove all submitted samples
within five (5) business days of receipt of such sample and shall not
unreasonably withhold its approval. Licensee
-5-
<PAGE>
shall seek approval as early as reasonably possible prior to production or use
of each respective item bearing the Trademark. Unless Licensee receives from
Licensor written approval or disapproval (together with specific reasons for any
such disapproval) at the end of such twenty (20) day business day period, such
samples shall be deemed approved by Licensor.
4.5 Licensee shall, upon prior written request, permit Licensor to visit
Licensee's offices, work sites, or other places of business at any reasonable
time, for inspection by Licensor's representatives of files, documents,
products, and other materials relating to the Licensor's Licensed Services and
products sold or installed in connection therewith at which time Licensor may
take samples of such products and samples or copies of documents and other
materials relating to the Licensed Services and such products, so long as taking
such samples does not unreasonably interfere with Licensee's ability to complete
jobs which are in progress. The provisions of Section 17 shall apply to all
Confidential Information obtained through or derived from such inspections.
4.6 Licensee shall prepare and maintain periodic (at least quarterly)
summary reports of all customer complaints to any third party or Government
agency regarding the Licensed Services and products sold or installed in
connection therewith during the Term, and upon request will promptly submit each
such summary to Licensor following the end of each Quarter. In the event that,
in the reasonable opinion of Licensor, there is a material increase in the level
of registered customer complaints as a percentage of total jobs undertaken,
Licensee, upon notification from Licensor, shall promptly meet with Licensor to
discuss steps necessary to reduce the number and severity of such customer
complaints. Licensee shall promptly thereafter undertake and shall diligently
pursue remedial efforts necessary to reduce the level of customer complaints to
a level satisfactory to Licensor.
4.7 Licensee represents and warrants that the Licensed Services and
products sold or installed in connection therewith shall be furnished in a
workmanlike manner and that all products, labor and materials shall be of high
quality. Licensee further represents and warrants that each completed
application or installation performed hereunder shall be of high quality and
that all applied or installed products and their application or installation
shall remain in good condition and be free from defects in materials and
workmanship for a period of at least one year from the date application or
installation is completed. Licensee shall provide a written warranty to such
effect to all of its customers for Licensed Services and products sold or
installed in connection therewith conforming to applicable law.
4.8 Licensee agrees to maintain and adhere to a general policy of customer
satisfaction satisfactory to Licensor and shall use its best efforts to adjust
complaints of customers and resolve controversies with customers with respect to
the sale or provision of the Licensed Services and products sold or installed in
connection therewith. In the event Licensee receives any notice that any
application or installation or product is defective, Licensee shall promptly
investigate such complaint and shall promptly repair or replace any defective
application or installation at no additional cost pursuant to the terms of the
written warranty. In the event any adjustment remains unsatisfactory to the
customer, Licensee agrees that it will use its best efforts to satisfy the
reasonable complaints to such customer.
-6-
<PAGE>
4.9 All Contracts must be in writing and signed by the customer. Such
contracts shall be retained by Licensee for a period of not less than two years
from the date of Licensee's receipt of full payment on the Contract. Each
Contract will identify Licensee as the vendor of the subject matter of the
Contract and that Licensee is a licensee and not a subsidiary, division or
Affiliate of Century 21, Licensor or HFS.
5. Trademark Ownership and Protection.
----------------------------------
5.1 Licensee acknowledges that to the best of Licensee's knowledge,
Licensor owns the exclusive right to use the Trademark, the Trade Dress, and the
goodwill associated therewith in connection with the Licensed Services in the
Territory. Licensee further acknowledges the exclusive rights held by Licensor
to use the Trademark and the goodwill associated therewith. Licensee further
acknowledges Licensors exclusive right to use the Trade Dress and its colors and
designs in connection with the Licensed Services. All use of the Trademark and
Trade Dress pursuant to this Agreement and goodwill generated thereby shall
inure to the benefit of Licensor and shall not vest in Licensee any right to
register any mark or right or presumptive right to continue such use. For the
purposes of trademark registration, sales by Licensee of Licensed Services under
the Trademark shall be deemed to have been made for the benefit of Licensor and
their respective Affiliates. Licensor will take reasonable steps to protect the
good will associated with the name and mark "CENTURY 21 Home Improvements."
5.2 Nothing contained in this Agreement shall be construed as an
assignment or grant to Licensee of any right, title, or interest in or to the
Trademark, or any of Licensors or any of its Affiliates' or other trademarks, it
being understood that all rights relating thereto are reserved by such Licensor
affiliated parties, except for the License hereunder to use the Trademark to the
extent specifically provided herein and subject to the restrictions provided
herein.
5.3 Licensee shall not, during the Term of this Agreement or thereafter,
(a) challenge Licensor's or any of its Affiliates' title or rights in and to the
Trademark in any Jurisdiction or challenge the validity of this License or of
the Trademark, or (b) contest the fact that Licensee's rights under this
Agreement are solely those of a licensee and shall cease upon expiration or
earlier termination of this Agreement. Licensee shall not file or prosecute any
trademark or service mark application or applications to register the Trademark.
The provisions of this Section 5.3 shall survive the expiration or termination
of this Agreement.
5.4 Licensor shall maintain all existing registrations of the Trademark in
full force and effect and shall use commercially reasonable efforts to secure
appropriate national registrations of the Trademark, at Licensor's expense, in
all jurisdictions within the Territory as reasonably requested by Licensee.
Licensee shall cooperate fully and in good faith with Licensor for the purpose
of maintaining registrations and prosecuting applications for the Trademark and
otherwise securing and preserving
-7-
<PAGE>
Licensors rights in and to the Trademark.
6. Licensee's Employees.
--------------------
Licensee shall have no authority to employ persons on behalf of Licensor or
any of its Affiliates and no employees of Licensee shall be deemed to be
employees or agents of Licensor or any of its Affiliates. Licensee shall have
the sole and exclusive right and responsibility to hire, train, transfer,
suspend, layoff, recall, promote, assign, discipline, adjust grievances, and
discharge said employees, and shall comply with all laws and regulations
applicable to employment and labor relations. Licensee shall identify itself as
the employer of its employees and contractors and take no action or fail to take
action when appropriate that would leave employers or contractors with the
impression that they are the employees or contractors of Licensor, Century 21 or
HFS.
7. Licenses and Permits.
--------------------
7.1 Licensee, at its expense, shall obtain all permits and licenses which
may be required under any applicable Federal, State or local law, ordinance,
rule or regulation by virtue of any acts performed by Licensee in the
performance of this Agreement. Licensee shall in the conduct of said business
and in the performance of this Agreement, comply fully with all applicable
Federal, State and local laws, ordinances, rules, and regulations.
7.2 Licensee, at its expense, shall pay and discharge all license fees,
business, use, sales, gross receipts, income, property or other similar or
different taxes or assessments which may be charged or levied upon Licensee by
reason of anything performed under this Agreement.
8. Royalties.
---------
8.1 As compensation for the License granted hereunder for the use of the
Trademark in connection with the sale and provision of Licensed Services and the
sale or installation of products in connection therewith in the Territory,
Licensee shall pay to Licensor earned royalties ("Earned Royalties") computed by
Multiplying Contract Revenue (defined in 8.3 below) by the percentage shown
below for the applicable Year as follows:
April 1, 1997 through December 31, 1997 2%
January 1, 1998 through December 31, 1998 2%
January 1, 1999 through December 31, 1999 2%
January 1, 2000 through December 31, 2000 2%
January 1, 2001 through December 31, 2001 3%
January 1, 2002 through December 31, 2002 4%
January 1, 2003 through December 31, 2003 5%
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January 1, 2004 through December 31, 2004 6%
January 1, 2005 through December 31, 2005 6%
January 1, 2006 through December 31, 2006 6%
January 1, 2007 through December 31, 2007 6%
8.2 Notwithstanding the provisions of Section 8.1 to the contrary,
commencing with the Year 1998 the aggregate Earned Royalties paid to Licensor in
respect of Licensee's Contract Revenue for each Year of Term shall be at least
the Minimum Royalty payable to Licensor applicable to such Year, as hereinafter
provided. To the extent that the Earned Royalties paid to Licensor in respect
of such Year are less than the Minimum Royalty applicable to such year, Licensee
shall pay to Licensor, not later than January 31 of the Year following such
applicable Year, the amount by which such aggregate Earned Royalties paid in
respect of such applicable Year are less than the Minimum Royalty applicable for
such Year. The Minimum Royalty applicable to the first Year of the Term shall
be equal to Earned Royalties on the Required Revenue defined below and for each
Year thereafter shall be an amount equal to the greater of (i) seventy-five
percent (75%) of the previous Year's Earned Royalties or (ii) Earned Royalties
on the Required Revenue defined below.
8.3 The term "Contract Revenue" shall mean all revenues which arise
directly from the sale of Licensed Services and all products sold or installed
in connection therewith pursuant to this Agreement (reflected by the sales
contract amount plus or minus any Contract change orders), less (a) refunds,
credits and allowances to customers; (b) financing discounts incurred in
connection with the sale of Contracts; (c) sales to employees of Licensee and
its Affiliates; (d) sales, use, excise and other similar taxes; and (e) fees
associated with building permits and other similar fees and expenses. Earned
Royalties shall accrue on all Contracts completed during the applicable month.
Completion shall be deemed to have occurred when Licensee becomes entitled to
receive cash payment substantially in full in connection with a Contract (i.e.,
when Licensee is entitled to receive substantially all sums that Licensee
reasonably can expect to collect on such Contract), from the customer or from a
third party financing source, as the case may be, or receives written customer
acceptance with respect to any project financed by Licensee. Advance deposits,
down payments and other amounts paid in respect of Contracts before completion
shall be deemed paid in the month in which the Contract is completed or the
deposit is forfeited by the customer.
8.4 All Earned Royalties shall be paid on a monthly basis prior to the
tenth day of the month following the end of the month in which accrued. Within
45 days after the end of each Year, Licensee shall prepare and furnish to
Licensor a reconciliation of all amounts paid with respect to Earned Royalties
attributable to the preceding Year.
8.5 If the payment of any Earned Royalties is unpaid as of the due date
for any reason, interest shall accrue on the unpaid principal amount of such
installment from and after the date the Earned Royalties become due at the lower
of (i) the highest rate permitted by applicable law, or (ii) two percent per
annum above the Prime Rate.
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8.6 Licensor shall have the right to terminate this Agreement upon not
less than 90 days prior written notice to Licensee in the event that during the
preceding Year Licensee had less than the Required Revenue applicable to such
Year, which notice must be given within 90 days following the end of such Year.
The Required Revenue shall mean aggregate accrued Contract Revenue (net of
reasonable reserves for warranty service calculated in accordance with generally
accepted accounting principles consistently applied), of $20,000,000 Required
Revenue for the Year ending on the December 31 following the date this Agreement
is signed shall be the amount specified in the preceding sentence prorated for
the actual number of days between the date of this Agreement and such Year end.
8.7 The Earned Royalties payable under this Section 8 shall be subject to
adjustment based on actual Contract Revenues accrued during the Year 2002.
During the Year 2002 and each subsequent Year, Licensee shall pay Earned
Royalties based on the percentage rate for such Year set forth in Section 8.1.
Prior to January 31st of the following Year, beginning in January 2003, Year,
the Adjusted Royalty Rate applicable to the prior Year, shall be adjusted as
follows:
Beginning with Year 2002:
. If reported Aggregate Contract Revenues for the Year are more than
110% and not more than 120% of actual Contract Revenue of the
preceding Year (beginning with 2001), the Adjusted Royalty Rate
applicable to the year shall be 4.50%.
. If reported Aggregate Contract Revenues for the Year are more than
120% of actual Contract Revenues for the preceding Year, the Adjusted
Royalty Rate applicable to the Year shall be 4.00%.
Licensor will perform the reconciliation of reporting Contract Revenues within
30 days after receipt of Licensee's reports for all 12 months of the Year in
issue. Licensor will prepare a reconciliation report, calculate Aggregate
Reported Contract Revenues and any refund of the excess of Earned Royalties paid
over the Earned Royalties calculated at the Adjusted Royalty Rate. Licensor
will credit Licensee's account with the amount of the refund, and provide a copy
of its reconciliation report.
9. Referrals.
---------
Licensor will not object to any lawful referral payment program
initiated by Licensee or in which Licensee participates in cooperation with
other licensees of the Trademarks in the territory or elsewhere.
10. Accounting.
----------
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10.1 Licensee shall at all times keep an accurate account of all operations
within the scope of this Agreement. All Royalty payments made pursuant to
Section 8 shall be accompanied by a statement setting forth a full accounting of
the calculation of Earned Royalties for such month including all aggregate gross
revenue payable for the Licensed Services and related products, and all
exclusions included in the calculation of Royalties. Such statements shall be
in sufficient detail to be audited from the books of Licensee. Each statement
furnished by Licensee shall be certified as true and correct by the chief
financial officer of Licensee.
10.2 Licensor and its duly authorized representatives, on reasonable
notice, shall have the right for the duration of the Term and for two years
thereafter, to verify the accuracy of the amount of Royalties due, and during
the Term and for the two years thereafter, during regular business hours after
reasonable notice of not more than 5 business days, to examine the books of
account and records and all of the documents, materials and inventory in the
possession or under the control of Licensee and its successors with respect to
the subject matter of this Agreement. All such books of account, records, and
documents shall be maintained and kept available by Licensee for at least five
years. Licensor shall have free and full access thereto in the manner set forth
above and shall have the right to make copies and/or extracts therefrom. If as
a result of any examination of Licensee's books and records, it is shown that
Licensee's actual payments to Licensor hereunder were less than the amount which
should have been paid to Licensor, Licensee shall within three business days pay
to Licensor the amount of any underpayment with interest at the Prime Rate plus
two percent from the date on which each payment was due. In addition if it is
shown that Licensee's actual payments for the appropriate period were less than
the amounts that should have been paid by an amount equal to five percent (5%)
or more of the amount which should have been paid for such period, Licensee
shall within three business days reimburse Licensor for the reasonable cost of
such examination.
11. Infringement.
------------
11.1 Licensee shall cooperate with Licensor, Century 21, and their
respective Affiliates, to actively enforce against third parties the exclusive
rights furnished to Licensee hereunder, and the parties shall promptly notify
each other in writing of any unauthorized uses which may be infringements by
third parties of the Trademark which may come to the attention of the parties.
Licensor and Century 21 shall each have the right to determine whether or not to
take any action(s) it deems appropriate in its sole discretion against any third
party with respect to any unauthorized use, engagement, or dilution of the
Trademark, and Licensee shall reasonably cooperate with Licensor and Century 21
in connection with any such actions. Without limitation, if Licensor or Century
21 so desires Licensor or Century 21 may bring any claims or suits in Licensor's
or Century 21's own name or in the name of Licensee or join Licensee as a
nominal party thereto so long as Licensor or Century 21 pays the costs and
expenses thereof.
11.2 If Licensor fails to enforce against third parties the exclusive
rights granted to Licensee hereunder, Licensee may (but shall not be obligated
to) take all reasonable and
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appropriate action(s) against third parties with respect to any unauthorized
use, infringement, or dilution of the Trademark, and Licensor shall reasonably
cooperate with Licensee in connection with such action(s). Such actions by
Licensee shall be at Licensee's expense and all recoveries for such unauthorized
use, infringement or dilution of the Trademark shall belong to, and be property
of Licensee. Without limitation Licensee may bring any suits in Licensee's own
name, as Licensee of the Trademark.
12. Default.
-------
12.1 Licensor shall have the right to terminate this Agreement
immediately without affecting any other rights or remedies:
(i) immediately upon notice, if (a) any bankruptcy, or
insolvency proceedings should be commenced by Licensee or a substantial part of
the assets or property of Licensee passes into the hands of any receiver,
assignee, officer of the law or creditor or (b) any proceeding shall be
instituted by or against Licensee seeking to adjudicate it bankrupt or
insolvent, under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, and, in the case of any such proceeding instituted against it
(but not instituted by it), such proceeding shall remain undisclosed or unstayed
for sixty (60) days;
(ii) immediately upon notice, if Licensee admits its inability
to pay its debts as they become due;
(iii) immediately upon notice, if Licensee renounces, abandons
or materially reduces its operations under this Agreement;
(iv) if Licensee fails to make any Royalty payment or any other
payment of money due hereunder and fails to cure the same within five days of
receipt of written notice thereof from Licensor;
(v) if Licensee otherwise fails to comply with any other
material provision of this Agreement, including without limitation any provision
relating to quality control or compliance with applicable laws and fails to cure
such default within (a) the time period applicable thereto under the terms of
this Agreement, or (b) if no time period shall be provided, then within thirty
days of receipt of written notice from Licensor. In the event that any such
noncompliance (A) shall not be remediable within such thirty day period then,
provided that Licensee promptly commences and diligently pursues such remedial
steps as are necessary, Licensee shall have such additional time as is necessary
to effect such remedy, but in no event more than an additional 90 days, or (B)
shall be of a character which is not remediable, then such default shall not be
subject to cure by Licensee and Licensor shall have the right to terminate.
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12.2 Licensee shall have the right to terminate this Agreement upon written
notice to Licensor if Licensor has materially defaulted under this Agreement and
such default continues for a period of 90 days after Licensor receives written
notice of default.
13. Disposal of Stock Upon Termination or Expiration.
------------------------------------------------
13.1 Upon the effective date of expiration or earlier termination of
this Agreement by Licensor, Licensee shall immediately cease all use of, and
shall destroy, and effectively remove, the Trademark and all references thereto
from all remaining unsold or returned products and related advertising,
promotion, display and other materials bearing the Trademark or Trade Dress,
whether or not the use of such Trademark or Trade Dress is in compliance with
this Agreement.
14. Effect of Expiration or Termination.
-----------------------------------
14.1 It is understood and agreed that except for the License to use
the Trademark only as specifically provided for in this Agreement, Licensee
shall have no right, title, or interest in or to the Trademark. Upon and after
the expiration or earlier termination of this Agreement, all rights granted to
Licensee hereunder, together with any interest in and to the Trademark which
Licensee may acquire, shall forthwith and without further act or instrument be
assigned to and revert to Licensor. In addition, Licensee will execute any
instruments requested by Licensor which are reasonably necessary to accomplish
or confirm the foregoing. Any such assignment, transfer, or conveyance shall be
without consideration other than the mutual agreements contained herein.
Licensee will refrain from further use of the Trademark or any further reference
to the Trademark, direct or indirect, or any other trademark, trade name, or
logo that is confusingly similar to the Trademark. It is expressly understood
that under no circumstances shall Licensee be entitled, directly or indirectly,
to any form of compensation or indemnity from Licensor or its Affiliates, as a
consequence of the expiration or earlier termination of this Agreement, whether
as a result of the passage of time, or as the result of any other cause of
termination referred to in this Agreement. Without limiting the generality of
the foregoing, by its execution of the present Agreement, Licensee hereby waives
any claim which it has or which it may have in the future against Licensor,
Century 21 or any of their Affiliates, arising from any alleged goodwill created
by Licensee for the benefit of any or all of the said parties or from the
alleged creation or increase of a market for Licensed Services, or products sold
or installed in connection therewith.
14.2 Licensee acknowledges and admits that there would be no adequate
remedy at law for its failure to cease using the Trademark in connection with
the marketing, sale or furnishing of Licensed Services or the sale or
installation of any products in connection therewith at the expiration or
earlier termination of the License, and Licensee agrees that in the event of
such failure, Licensor shall be entitled to equitable relief by the way of
temporary, preliminary, and permanent injunction and such other and further
relief as any court with Jurisdiction may deem just and proper.
14.3 Licensee agrees that it shall continue to assume any and all
obligations under the terminated or expired Agreement arising out of the
operation thereunder prior to the expiration or
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earlier termination thereof which continues after such expiration or termination
date.
15. Indemnity.
---------
15.1 Licensee agrees that it will protect, defend, hold harmless and
indemnify Licensor, Century 21, their respective Affiliates, successors,
assigns, directors, officers and employees, and their respective heirs and
representatives from and against any and all claims, demands, actions,
liabilities, damages, losses, fines, penalties, costs and expenses (including
all reasonable attorneys' fees and expenses) of any kind whatsoever (including
without limitation of the foregoing, those relating to actual or alleged death
of or injury to person and damage to property), actually or allegedly, directly
or indirectly, arising or resulting from or in connection with:
(i) Licensee's breach of any representation, warranty, or
obligation under this Agreement;
(ii) Licensee's carrying on its business, whether or not in
connection with the use of the Trademark, including, but not limited to, all
allegations that the products, materials, or services provided by, prepared by,
or distributed by or through Licensee constitute:
(a) libel, slander, or defamation;
(b) trademark infringement or dilution, other than in
connection with the Trademark as used by Licensee hereunder substantially in
accordance with the terms hereof, unfair competition or infringement of any
statutory copyright, common law right, title or slogan;
(c) piracy, plagiarism, the misappropriation of another's
ideas, or unfair competition; and/or
(d) invasion of rights of privacy or rights of publicity;
(iii) any actual or alleged defect in such products or
materials, whether latent or patent, including actual or alleged improper
construction or design of such products or materials or the failure of such
products or material to comply with specifications or with any express or
implied warranties of Licensee;
(iv) Licensee's assembly or installation or application of
products or materials covered by this Agreement;
(v) all purchases, contracts, debts, or obligations made by
Licensee, including the breach of any Contract;
(vi) any third party financing utilized by Licensee in
connection with this
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Agreement;
(vii) the omission or commission of any act, lawful or unlawful,
by Licensee or of any of Licensee's agents or employees, whether or not such act
is within the scope of employment of such agents or employees; or
(viii) the failure or alleged failure of Licensee to comply with
any applicable law, statute, ordinance, governmental administrative order, rule,
or regulation.
The provisions of this Section 15.1 shall survive expiration or
termination of this Agreement.
15.2 Licensor agrees that it will protect, defend, hold harmless and
indemnify Licensee and its successors, assigns, directors, officers and
employees and their respective heirs and representatives from and against any
and all claims, demands, actions, liabilities, damages, losses, fines,
penalties, costs and expenses (including all reasonable attorney's fees and
expenses) of any kind whatsoever, actually or allegedly, directly or indirectly,
arising or resulting from or in connection with any action, demand or claim
based on an allegation that Licensee's use of the Trademark in connection with
the Licensed Services hereunder infringes a copyright, trademark, trade name,
service mark, or any other proprietary right. Licensee agrees to give Licensor
prompt notice of, and (at Licensor's expense) cooperate with Licensor in the
defense against, any such claim, demand or action. In connection therewith,
Licensee will give Licensor the full opportunity to control the response thereto
and the defense thereof, including without limitation any agreement relating to
the settlement thereof; provided that Licensee will have the right to
participate in such response and defense and negotiations to the extent Licensee
might be otherwise adversely affected thereby.
16. Insurance.
---------
Licensee shall carry commercial general liability insurance covering
products and completed operations providing adequate protection with limits of
liability in the minimum amount of $500,000 per occurrence and $500,000 per
person for any claims relating to the Licensed Services and all products sold or
installed in connection therewith, or Licensee's operation of its business.
Licensor, CTM Holding Corp. and Century 21 shall be named therein as additional
insureds. The maximum deductible with respect to such insurance shall be
$100,000. Licensee shall, promptly after the signing, of this Agreement,
deliver to Licensor a certificate of such insurance from the insurance carrier,
setting forth the scope of coverage and the limits of liability.
17. Confidentiality: Non-Disclosure.
-------------------------------
17.1 Licensor and Licensee, and their respective Affiliates,
employees, agents, consultants, attorneys, accountants, financial advisors, and
bankers, shall hold in confidence and not use or disclose
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to any third party, except as permitted by this Agreement, any Confidential
Information of the other party. Licensor and Licensee each acknowledges that the
confidentiality of the terms of this Agreement may not be able to be maintained
if, and to the extent that, HFS Incorporated may be required to file a copy of
this Agreement as an exhibit to various reports filed with the Securities and
Exchange Commission and the New York Stock Exchange, Inc. and may be required to
summarize this Agreement in the text of its Annual Reports on Form 10-K and in
Notes to its Financial Statements.
17.2 Nothing herein shall prevent either party or any of its Affiliates,
employees, agents, consultants, attorneys, accountants, advisors, or bankers
(the "Receiving Party") from using, disclosing or authorizing the disclosure of
any Confidential Information it receives:
(a) that becomes publicly available without default hereunder by the
Receiving Party;
(b) that is lawfully received by the Receiving Party from a source
not, to the knowledge of the Receiving Party, under any obligation to the
disclosing party regarding disclosure of such information;
(c) that the Receiving Party reasonably believes it is required by
law to disclose, provided that the Receiving Party consults with the other party
prior to making such disclosure;
(d) to its attorneys, accountants, financial and investment advisors,
bankers, or lending institutions, and other advisors and consultants of a
similar nature, provided that such persons have an obligation to, or otherwise
agree to, keep such Confidential Information confidential.
17.3 Except as expressly provided herein, Licensee will not issue any
publicity or press release regarding its contractual relations with Licensor
hereunder or regarding Licensee's activities hereunder without obtaining
Licensor's prior written approval and consent to such release. Licensor shall
reasonably cooperate with Licensee regarding any publicity or press releases
regarding Licensee.
17.4 Any customer lists or prospective names provided to Licensee by
Licensor or Century 21 ("Century 21 Lists") shall be the property of Licensor or
Century 21, as applicable, and Licensee shall not use the same other than for
purposes of selling Licensed Services under the Trademark in the Territory
solely by means of direct mail program. Licensee agrees that it will not resell
or use for telemarketing purposes (other than the marketing Licensed Services in
accordance with this Agreement) any customer lists or prospective names obtained
from any Century 21 List. Neither Licensor nor Century 21 has any obligation to
provide any Century 21 Lists to Licensee.
18. Dispute Resolution.
------------------
18.1 Licensor and Licensee agree to negotiate in good faith in an effort to
resolve any dispute related to this Agreement. If any such dispute has not been
resolved within 10 days by negotiation,
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either party may resort to litigation. If the need for mediation arises,
mediation services shall be conducted in Morris County, New Jersey.
18.2 In the event of litigation, each of the parties hereby consents to the
service of process by registered or certified mail at its address set forth
below and agrees that its submission to jurisdiction and its consent to service
of process by mail is made for the express benefit of the other party.
18.3 Notwithstanding anything to the contrary in this Section 18, the
parties expressly agree that either may seek provisional relief, including but
not limited to temporary restraining orders and preliminary injunctions, in
addition to the remedy of mediation set forth herein. Any such action for
provisional relief shall not constitute a waiver of the right or obligation to
mediate. Each party agrees that it shall bring any such action for provisional
relief, or any other litigation to enforce rights or obligations under this
Agreement, in (i) a federal court located in the State of Texas (if such action
or litigation is instituted by Licensor) or in the State of New Jersey (if such
action or litigation is instituted by Licensee) (ii) a state court located in
Dallas County, Texas (if such action or litigation is instituted by Licensor) or
in Morris County, New Jersey (if such action or litigation is instituted by
Licensee), provided that either party may file a claim under the indemnification
provisions of this Agreement in any court in which a case giving rise to
indemnification is pending. Each party hereby submits to the jurisdiction of
each such court for any such relief, in accordance with the service provisions
set forth in Subsection 18.2 hereof.
18.4 Licensor and Licensee acknowledge and agree that the deceptive Trade
Practices-Consumer Protection Act, Section 17.41 et seq. Texas Business and
Commerce Code, does not apply to this Agreement because (a) the Agreement
involves a total consideration of more than $100,000; (b) Licensor and Licensee
have been represented by independent legal counsel in the negotiations involving
this Agreement; and (c) this Agreement does not involve Licensor's or Licensee's
residence.
19. Acknowledgments. The parties acknowledge that:
---------------
19.1 This Agreement is intended as a trademark sublicense only.
19.2 Licensee is only a licensee of the "CENTURY 21 " mark for use with the
description
"Home Improvements" or such other description as shall have been required or
approved in writing by Licensor.
19.3 Licensor and Century 21 are not in the business of developing,
operating, offering, selling, managing or warranting any aspect of the home
improvement business.
19.4 Neither Century 21 nor Licensor exerts or asserts any control over
Licensee or its operations, or the sale or provision of any Licensed Service, or
has prescribed any system or program of quality assurance, quality control,
product or service specifications, product or service standards or
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product or service design.
19.5 Licensee is not dependent on this Agreement or any services or
assistance provided by Century 21, Licensor or any of their Affiliates to
operate and maintain its business, or to provide the Licensed Services.
19.6 The parties have bargained at arms' length in this transaction.
19.7 Licensee is not required to make any additional investment under this
Agreement. Licensee's investment in any assets will not relate to Licensee's
obligations under this Agreement.
19.8 Licensee will rely on its own marketing plan and system of operations
developed prior to the execution and delivery of this Agreement. Licensor has
had no part in either prescribing or suggesting the marketing plan and system of
Licensee.
19.9 The parties acknowledge that neither Century 21, Licensor nor any of
their Affiliates will furnish to Licensee any assistance in the acquisition,
development, design, planning, selection of materials or methods used in the
Licensed Services, or any other aspect of Licensee's business nor will any such
party furnish a method of operation on which Licensee will be dependent with
respect to its business organization, management, marketing plan, promotional
activities or business affairs. Neither Century 21, Licensor nor any of their
Affiliates will provide any telemarketing service.
19.10 Licensee shall determine, in its sole discretion, the site or
location of each office and facility used to provide Licensed Services in the
Territory, its design and appearance, hours of operation, personnel policies and
practices, promotional activities, personnel training, customer requirements,
methods of accounting, construction methods and general operation methods,
subject only to the trademark-related standards and customer satisfaction
obligations set forth in this Agreement.
20. Miscellaneous.
-------------
20.1 All notices, requests, consents, and other communications hereunder
shall be in writing and shall be deemed to have been properly given or sent (i)
on the date when such notice, request, consent, or communication is personally
delivered or (ii) five days after the same was sent, if sent by certified or
registered mail or (iii) two days after the same was sent, if sent by overnight
courier delivery or confirmed telecopier transmission, as follows:
(a) if to Licensor, addressed as follows:
HFS Licensing, Inc.
c/o HFS Incorporated
6 Sylvan Way
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Parsippany, NJ 07054
Attention: Executive Vice President and General Counsel
Telephone: 201-359-5266
with a copy to:
(b) if to Licensee, addressed as follows:
Reunion Home Services, Inc.
8585 North Stemmons Freeway
South Tower - Suite 101
Dallas, TX 75247
Attention: Ronald I. Wagner, Chief Executive Officer
Telephone: 214-658-6600
with a copy to:
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, TX 75201
Attention: William B. Finkelstein
Telephone: 214-939-5500
Anyone entitled to notice hereunder may change the address to which notices
or other communications are to be sent to it by notice given in the manner
contemplated hereby.
20.2 Licensee shall operate in the capacity of an independent contractor.
Nothing herein contained shall be construed to place the parties in the
relationship of partners or joint venturers or to constitute Licensee the agent
of Licensor or any of its Affiliates, and no party hereto shall have any power
to obligate or bind any other party hereto in any manner whatsoever, except as
otherwise provided for herein.
20.3 None of the terms hereof can be waived or modified except by an
express agreement in writing signed by the party to be charged. The failure of
any party hereto to enforce, or the delay by any party in enforcing, any of its
rights hereunder shall not be deemed a continuing waiver or a modification
thereof and any party may, within the time provided by applicable law, commence
appropriate legal proceedings to enforce any and all of such rights. All rights
and remedies provided for herein shall be cumulative and in addition to any
other rights or remedies such parties may have at law or in equity. Any party
hereto may employ any of the remedies available to it with respect to any of its
rights hereunder without prejudice to the use by it in the future of any other
remedy with respect to any of such rights. No person, firm, or corporation,
other than the parties hereto and Century 21 and its Affiliates shall be deemed
to have acquired any rights by reason of anything contained in this
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Agreement.
20.4 This Agreement shall be binding upon and inure to the benefit of the
successors and permitted assigns of the parties hereto. Licensor may assign all
of its rights, duties, and obligations hereunder to any Affiliate of Licensor,
any entity having adequate rights with respect to the Trademark to grant this
License on the date of such assignment, or to an affiliate of any such entity.
The rights granted to Licensee hereunder are unique and personal in nature, and
neither this Agreement nor the License may be directly or indirectly assigned by
Licensee (including without limitation by operation of law or by transfer of a
controlling interest in, Licensee or any other change in control of Licensee)
without Licensor's prior written consent, which may be withheld in Licensor's
sole discretion. Any attempt by Licensee to transfer any of its rights or
obligations under this Agreement, whether by assignment, License or otherwise,
other than as explicitly permitted pursuant to this Agreement, shall constitute
an event of default of this Agreement, and shall be null and void.
20.5 Licensee shall comply in all material respects with all laws, rules,
regulations, and requirements of any governmental body which may be applicable
to the operations of Licensee contemplated hereby, including, without limitation
as they relate to the provision, sale, or promotion of Licensed Services or any
products sold or installed in connection therewith, notwithstanding the fact
that Licensor may have approved such item or conduct. Licensee shall advise
Licensor promptly upon obtaining knowledge that any Licensed Service or any such
product does not comply with any such law, rule, regulation or requirement.
Licensor shall comply in all material respects with all laws, rules,
regulations, and requirements applicable to its performance under this
Agreement.
20.6 This Agreement shall be construed in accordance with and governed by
the laws of the State of New Jersey, applicable to contracts made and to be
wholly performed therein without regard to its conflicts of law rules, and any
applicable laws of the United States.
20.7 The provisions hereof are severable, and if any provision shall be
held invalid or unenforceable in whole or in part in any jurisdiction then such
invalidity or unenforceability shall affect only such provision, or part thereof
in such jurisdiction and shall not in any manner affect such provision in any
other jurisdiction, or any other provision in this Agreement in any
jurisdiction. To the extent legally permissible, an arrangement which reflects
the original intent of the parties shall be substituted for such invalid or
unenforceable provision.
20.8 The Section headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
20.9 This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, both written and oral among the parties with
respect to the subject matter hereof.
20.10 This Agreement may be executed in one or more counterparts, each
of which shall be
-20-
<PAGE>
deemed an original but all of which together shall constitute one and the same
instrument.
20.11. If Licensee shall be delayed or hindered in or prevented from the
performance of any acts required hereunder by reason of strikes, lockouts, labor
disputes, inabilities to procure materials (other than as a result of the
financial condition of Licensee), riots, war, act of God or other reason of a
like nature not within the control of Licensee, the period of performance of any
such act shall be extended for a period equivalent to such delay, provided,
however, that: (a) none of the foregoing shall in any way excuse or delay
Licensee's obligations to pay Earned Royalties and to comply with the quality
standards hereunder; (b) Licensee shall use its best efforts to remove the cause
of such delay as promptly as possible; and (c) in no event shall any period of
performance be delayed by more than 90 days in any 12 consecutive month period
as a result of the foregoing events. Licensee shall promptly give Licensor
written notice of the occurrence of any of the foregoing events for which it
claims that it is entitled to delay performance of any of its obligations
hereunder.
21. Special Stipulation.
--------------------
21.1 If a license for Cabinet Refacing & Related Products Services (the
"Target Service") becomes available in the Target Territories (defined below),
Licensor will notify Licensee. The Target Territories are:
STATE ZIP CODES
----- ---------
1. Arizona 850,852,853
2. Georgia 300-303, 305-306
3. Connecticut 064-066, 068-069
4. Florida 330-334, 349
5. Maryland 206-219
6. New York 100-119
7. Texas 750-762
8. Virginia 220-229
9. Washington, DC 200-205
Licensor will grant no license for the Target Service in your Target Territory
unless and until Licensee has had the opportunity to respond to Licensor's
written notice and has not signed the Addendum within the time required below.
Licensor will prepare and send with such notice an Addendum to this Agreement
adding the Target Territory or Territories and adjusting the Required Revenue to
a mutually agreeable amount. Licensee must sign and return the addendum within
30 days after receipt of the Addendum. If Licensor does not receive the signed
Addendum within such 30 day period, Licensee's rights under this paragraph are
subject and subordinate to any license for the Target Service may grant
thereafter in the Target Territory.
-21-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused the same to be executed by a duly authorized officer as of the day and
year first above written.
LICENSOR: HFS Licensing, Inc.
By: [SIGNATURE ILLEGIBLE]^^
--------------------------
Title: EVP
LICENSEE: Reunion Home Services, Inc.
By: /s/ Ronald Wagner
--------------------------
Title: CEO
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<PAGE>
EXHIBIT 10.2
ASSIGNMENT AND ASSUMPTION AGREEMENT
This "Agreement" is made and entered into as of December 1, 1997 by and
among Reunion Home Services, Inc., a Texas Corporation ("Assignor") U.S.
Remodelers, Inc., a Delaware Corporation ("Assignee"), and HFS Licensing, Inc.,
a Delaware corporation ("the Company").
Recitals. Assignor is the Licensee under a License Agreement, dated as of
--------
March 1, 1997, with the Company. The License Agreement is attached to this
Agreement as Exhibit A. Assignor desires to assign the Agreement to Assignee,
which desires to assume and accept the rights and obligations under the
Agreements, effective as of the date of this Agreement.
IN CONSIDERATION of the premises, the mutual promises in this Agreement,
and for other good and valuable consideration, the receipt and sufficiency of
which are acknowledged by the parties, it is agreed as follows:
1. Assignor assigns, transfers, bargains, sells, and delegates to
Assignee all of its rights, title and interest in and to the Agreement, and its
obligations existing and arising in the future, under the Agreement.
2. Assignee accepts and assumes the rights, benefits and obligations of
the Licensee under the Agreements, effective as of the date of this Agreement,
including all existing and future obligations to pay and perform under the
Agreements.
3. To induce the Company to consent to this Agreement and the assignment
of the Agreements, Assignee adopts and makes to the Company the representations
and warranties of Licensee set forth in the License Agreement as of the
effective date of this Agreement.
4. Assignee will deliver, together with this Agreement, evidence of
insurance meeting the requirements as set forth in Section 16 under the
Assignor's License Agreement.
5. This Agreement shall be deemed a supplement to and modification of the
Agreement. All references to "the Agreement" contained therein shall mean and
refer to the original form of License Agreement as modified by any prior
amendments and addenda and this Agreement. Except as expressly stated, no
further supplements to or modifications of the Agreements are contemplated by
the parties. There are no oral or other written arrangements between the Company
and Assignor except as expressly stated in the License Agreement of the Assignor
included as Exhibit "A"
6. Assignor and Assignee acknowledge that the Company has not
participated in the negotiation and documentation of the transfer transaction
between the parties, and has not made any representation or warranty, nor
furnished any information to either party.
<PAGE>
Assignee waives any and all claims against the Company and its officers,
directors, shareholders, affiliated corporations, employees and agents arising
out of the assignment of the Assignor's License Agreement. Assignee expressly
acknowledges that the Company was not a participant in such transaction and that
the Company has no liability in connection therewith. Assignee acknowledges that
it has made such investigations of Assignor's License Agreement as it believes
appropriate.
7. Any notice required under the Agreement to be sent to Assignee shall
be directed to:
U. S. Remodelers, Inc.
1341 West Mockingbird Lane
Suite 900E
Dallas, Texas 75247
Attn: Murray Gross, President
8. The Company consents to the assignment and assumption of the
Agreements as provided in this Agreement. No waivers of performance or
extensions of time to perform are granted or authorized. The Company will treat
Assignee as the Licensee under the Agreement. The License of Assignor under
Section 2 of the License Agreement will be terminated effective as of the date
of this Agreement. The License Term of Assignee begins on the date of this
Agreement and expires on the date the original License Term of Assignor expires.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement
in one or more counterparts which together constitute the entire agreement,
effective as of the date first above written.
THE COMPANY:
HFS Licensing, Inc.
By: [SIGNATURE ILLEGIBLE]^^
---------------------------------
Executive Vice President
Attest: [SIGNATURE ILLEGIBLE]^^
-----------------------------
ASSIGNOR:
Reunion Home Services, Inc.
By: /s/ Ronald I. Wagner
---------------------------------
Ronald I. Wagner
Chief Executive Officer
Attest: [SIGNATURE ILLEGIBLE]^^
---------------------------
ASSIGNEE:
U.S. Remodelers, Inc.
By: /s/ Murray H. Gross
---------------------------------
Murry H. Gross
President
Attest: [SIGNATURE ILLEGIBLE]^^
-----------------------------
Exhibit "A" - License Agreement
<PAGE>
EXHIBIT 10.3
LICENSE AGREEMENT
-----------------
This LICENSE AGREEMENT (this "Agreement") is entered into as of the 3rd day
of March, 1997 between TM Acquisition Corp., a Delaware corporation
("Licensor"), and U. S. Remodelers, Inc., a Delaware corporation ("Licensee").
PRELIMINARY STATEMENTS
----------------------
A. Licensor, pursuant to a Master License Agreement (the "Master
License") between Century 21 Real Estate Corporation ("Century 21") and
Licensor, has certain rights in the trademarks and service marks " CENTURY 21 "
and "CENTURY 21 Home Improvements," and the design trademarks and service marks,
"CENTURY 21 and design" and "CENTURY 21 Home Improvements and design" depicted
on Exhibit A hereto, and the trade dress used in connection with or as part of
---------
the foregoing (the "Trade Dress") (all of the foregoing, individually and
collectively, the "Trademark"), including the right to grant the license set
forth herein.
B. Licensor entered into that certain License Agreement (the "Original
License Agreement") dated October 17, 1995 with Century 21 and American
Remodeling, Inc., a Texas corporation ("American Remodeling"), pursuant to which
Licensor granted to American Remodeling a license to use the Trademark in
connection with the marketing, selling, furnishing and installation of home
improvement products in the United States, Canada and Mexico.
C. American Remodeling, together with its parent corporation AMRE, Inc.,
and various of AMRE's direct and indirect subsidiaries were the subject of an
involuntary filing under the United States Bankruptcy Code on January 21, 1997
(the "Bankruptcy Cases"). As part of the Bankruptcy Cases, Licensee has been
granted the right, during an interim period, to operate a home improvement
business in certain offices formerly occupied by AMRE and its subsidiaries, to
purchase certain inventory from AMRE and its subsidiaries and complete certain
contracts of AMRE or its subsidiaries.
D. Licensee is engaged in the business of marketing, selling, furnishing,
and installing the home improvement products specified in Exhibit C hereto.
---------
E. Licensee desires to obtain, and Licensor is willing to grant, a
license pursuant to which Licensee shall become a licensee of Licensor's right
to use the Trademark in connection with the marketing, selling, furnishing, and
installation of the home improvement products specified on Exhibit C hereto in
---------
the market area designated in Exhibit B hereto on the terms and conditions set
---------
forth herein;
NOW THEREFORE, in consideration of the premises and mutual agreements set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, hereby agree as follows:
<PAGE>
STATEMENT OF AGREEMENT
----------------------
1. Definitions. As used herein, the term:
-----------
1.1 "Affiliate" shall mean, with respect to any person, any other person,
entity, or organization directly or indirectly controlling, controlled by, or
under common control with, such person at any time during the period for which
the determination of affiliation with such person is being made.
1.2 "Century 21" shall have the meaning set forth in the Preliminary
Statements.
1.3 "Confidential Information" shall mean any non-public information,
technical data, or know-how which relates to the business, services, or products
of either party or a third party, including without limitation, any customer
lists, any information with respect to leads, pitch books, and training
materials, salary information, research products, services, developments,
inventions, processes, techniques, designs, or distribution, marketing,
financial, merchandising and/or sales information.
1.4 "Contract Revenue" shall have the meaning set forth in Subsection 8.2.
1.5 "Contract(s)" shall mean all contracts of any nature entered into by
Licensee with
its customers relating to the provision or sale of Licensed Services.
1.6 "Earned Royalties" shall have the meaning set forth in Subsection 8.2.
1.7 "Licensed Services" shall mean the marketing, sale, furnishing,
installation and servicing of only the home improvement products specifically
designated on Exhibit C hereto for Residential Properties.
1.8 "License" shall mean the exclusive right to use the Trademark in
connection with the Licensed Services in the Territory during the Term.
1.9 "Licensee" shall have the meaning set forth in the Preliminary
Statement.
1.10 "Licensor" shall have the meaning set forth in the Preliminary
Statement.
1.11 "Master License" shall have the meaning set forth in the Preliminary
Statement.
1.12 "Prime Rate" shall mean the prime rate of interest in effect from time
to time at The
Chase Manhattan Bank, New York, New York, or any successor bank thereto.
1.13 "Quarter" shall mean the Licensee's fiscal quarter ending on March 31,
June 30, September 30 and December 31, as applicable.
-2-
<PAGE>
1.14 "Receiving Party" shall have the meaning set forth in Subsection
17.2.
1.15 "Residential Properties" shall mean non-commercial properties that
are utilized solely for residential purposes, excluding (a) properties with
respect to which Licensee has entered into a contract having four or more
connected and/or attached residential units, and (b) properties which are part
of a residential condominium unit and Licensee has entered into a contract which
is negotiated and paid for by the management of the condominium.
1.16 "Royalties" shall mean, with respect to any Year, the Earned
Royalties actually due to Licensor for such Year.
1.17 "Term" shall mean the term of this Agreement, which shall commence as
of the date of this Agreement and shall expire on March 31, 1997, unless earlier
terminated pursuant to the terms of this Agreement or extended in writing signed
by Licensor and Licensee; provided, that, the term shall be automatically
extended until March 31, 2007 in the event that on or before March 31, 1997 the
Original License is terminated by order of the Bankruptcy Court in which the
Bankruptcy Cases are pending.
1.18 "Territory" shall mean the market area described on Exhibit B hereto.
---------
1.19 "Trade Dress" shall have the meaning set forth in the Preliminary
Statements.
1.20 "Trademark" shall have the meaning set forth in the Preliminary
Statements.
1.21 "Year" shall mean each twelve month period during the Term commencing
January 1 of each year and ending December 31 of the same calendar year, except
that the first year of the term shall be the period from the date of this
Agreement through December 31, 1997.
2. Grant of License.
----------------
2.1 Subject to the terms and provisions hereof, Licensor hereby grants to
Licensee and Licensee hereby accepts the License during the Term.
2.2 Licensee shall operate in the Territory under the trade name "CENTURY
21 Home Improvements" or "CENTURY 21 Cabinet Refacing" together with a name
identifying Licensee's corporate name (e.g. "Century 21 Home Improvements/U.S.
Remodelers, Inc.") or such other trade names as shall have been approved in
writing by Licensor. Licensee shall file assumed name certificates or similar
documents in connection with operating under such name in such jurisdictions as
such filings may be legally required and shall upon request provide copies
thereof to Licensor. Licensee may operate outside of the Territory under such
other tradenames which do not conflict with "Century 21 Home Improvements" or
"Century 21 Cabinet Replacing" as Licensee shall determine. Licensee may cease
operations in any part of the Territory, if, Licensee provides reasonable
evidence to
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<PAGE>
Licensor that Licensee is unable to operate profitably in such market. In the
event that Licensee ceases operations in any part of the Territory the License
granted under this Agreement shall be immediately terminated with respect to
such part of the Territory without any liability on the part of Licensor or
Licensee except as otherwise provided in this Agreement.
2.3 The License applies solely to the use of the Trademark in connection
with the Licensed Services in the Territory and (i) no use of any other
trademark of Licensor or Century 21 or any of their respective Affiliates, and
(ii) no use of the Trademark on any products or on services other than the
Licensed Services or in the name of any corporation, is authorized or permitted.
Licensor reserves the right to use, and to grant to its Affiliates or any other
licensee the right to use, the Trademark (i) on or in connection with any and
all products and services or for any other purpose other than the specific
Licensed Services within the Territory, (ii) outside the Territory with respect
to the Licensed Services. There are no implied agreements or covenants between
the parties regarding the Territory.
2.4 Unless otherwise approved by Licensor, all references to the
Trademark, in Contracts, advertisements, or promotional materials, shall
prominently display a statement to the effect that the Licensed Services are
sold, furnished and performed by U.S. Remodelers, Inc., an independently owned
contractor. In no event shall Licensee, or any of its employees, agents,
representatives or subcontractors identify Licensee, orally or in writing as a
subsidiary, division or Affiliate of Century 21, Licensor or any of their
Affiliates.
2.5 Licensee shall actively conduct the business of selling and providing
Licensed Services under the Trademark in all of the economically viable markets
for such products and services within the Territory.
2.6 Licensee shall not carry on any business similar to the sale or
provision of Licensed Services within the Territory except pursuant to this
Agreement.
3. Representations and Warranties.
------------------------------
3.1 Licensor represents and warrants that it has full right, power, and
authority to enter into this Agreement and to perform its obligations hereunder,
and to consummate all of the transactions contemplated herein and that it has a
valid and enforceable right to license the Trademark and that the Trademark is
valid and enforceable subject only to the rights of American Remodeling pursuant
to the terms of the Original License Agreement. Licensor represents and
warrants that Century 21 or its affiliate CTM Holdings Corp. owns all right,
title and interest in and to the Trademark subject to the Master License, the
Original License Agreement and all other franchises and licenses granted by
Century 21 and its subfranchisees. Licensor additionally represents and
warrants that the use of the Trademark by Licensee in the Territory strictly in
accordance with the provisions of this Agreement shall not infringe any
trademark or copyright of any third party. Licensee agrees and acknowledges
that other than those representations explicitly contained in this Agreement, no
representations, warranties, or guarantees of any kind have been made to
Licensee, either by Licensor, Century 21 or any of
-4-
<PAGE>
their respective Affiliates, or by anyone acting on behalf of Licensor, Century
21 or their respective Affiliates.
3.2 Licensee represents and warrants that it has the full right, power,
and authority to enter into this Agreement, to perform all of its obligations
hereunder, and to consummate the transactions contemplated herein, and that to
the best of its knowledge, as a result of entering into this Agreement, Licensee
shall not violate any contractual or other right of any third party. Licensee
further represents and warrants that to the best of its knowledge, no Licensed
Service or product sold or installed in connection therewith shall violate or
infringe any patent, trademark, copyright, or other intellectual property right
of any third party, or shall be manufactured (to the extent within the control
of Licensee) or sold in violation of any statute, ordinance or administrative
order, rule, or regulation.
3.3 Licensor and Licensee each represent and warrant that (i) this
Agreement constitutes a valid and legally binding obligation of it (subject to
creditors' rights, bankruptcy, moratorium and laws of similar effect, and
general principles of equity), (ii) the execution and delivery by it of this
Agreement and the performance by it of its obligations hereunder have been duly
authorized by all requisite corporate action on the part of it, and (iii) no
other corporate proceedings on the part of it or consents are required in
connection with the execution, delivery, and performance by it of this
Agreement.
4. Quality Standards.
-----------------
4.1 Licensee acknowledges that the Trademark has established extremely
valuable goodwill and is well recognized among consumers, and that it is of
great importance to each party that in the sale and provision of the Licensed
Services the high standards and reputation that Century 21 and the owner of the
Trademark have established be maintained. Accordingly, all Licensed Services
provided by Licensee hereunder and the products sold or installed in connection
therewith shall be of first class installation and of high quality as is
consistent with the respective price of such Licensed Services and said
products. All Licensed Services and the products sold or installed in
connection therewith shall be commercially acceptable for the purposes for which
they are sold.
4.2 Licensee may use the Trademark only pursuant to the specifications and
designs for the Trademark approved in writing by Licensor or provided in writing
by Licensor and only in the manner approved by Licensor with respect to the
Licensed Services. For any Trademark that is federally registered, appropriate
notice of registration in accordance with the applicable laws or regulations of
the applicable jurisdiction shall accompany uses of such trademarks (a small "R"
within a circle in the United States) as necessary to obtain the maximum
protection for trademarks under the applicable trademark law.
4.3 Licensee shall submit to Licensor for Licensor's review and prior
written approval samples of each initial use of all materials of any nature
bearing the Trademark. The foregoing notwithstanding, following approval by
Licensor of the initial use, no additional approval will
-5-
<PAGE>
be required with respect to any minor alterations in the format, layout, or
color (excluding any such changes to the Trademark) of approved materials or any
changes in media sources, provided that any such new media sources are
substantially identical in all material respects to those previously approved by
Licensor and will not have an adverse effect on the Trademarks, and provided
that in all other respects such materials are substantially identical to the
sample previously approved by Licensor. Licensor agrees that all materials
bearing the Trademark which previously have been approved for use by American
Remodeling or Facelifters Home Systems, Inc. may be used by Licensee so long as
the name "U.S. Remodelers, Inc. "has been substituted for the name of such
entity.
4.4 Licensor shall promptly approve or disapprove all submitted samples
within five (5) business days of receipt of such sample and shall not
unreasonably withhold its approval. Licensee shall seek approval as early as
reasonably possible prior to production or use of each respective item bearing
the Trademark.
4.5 Licensee shall, upon request, permit Licensor to visit Licensee's
offices, work sites, or other places of business at any reasonable time, for
inspection by Licensor's representatives of files, documents, products, and
other materials relating to the Licensor's Licensed Services and products sold
or installed in connection therewith at which time Licensor may take samples of
such products and samples or copies of documents and other materials relating to
the Licensed Services and such products, so long as taking such samples does not
unreasonably interfere with Licensee's ability to complete jobs which are in
progress. The provisions of Section 17 shall apply to all Confidential
Information obtained through or derived from such inspections.
4.6 Licensee shall prepare and maintain periodic (at least quarterly)
summary reports of all customer complaints to any third party or government
agency regarding the Licensed Services and products sold or installed in
connection therewith during the Term, and upon request will promptly submit each
such summary to Licensor following the end of each Quarter. In the event that,
in the reasonable opinion of Licensor, there is a material increase in the level
of registered customer complaints as a percentage of total jobs undertaken,
Licensee, upon notification from Licensor, shall promptly meet with Licensor to
discuss steps necessary to reduce the number and severity of such customer
complaints. Licensee shall promptly thereafter undertake and shall diligently
pursue remedial efforts necessary to reduce the level of customer complaints to
a level reasonably satisfactory to Licensor.
4.7 Licensee represents and warrants that the Licensed Services and
products sold or installed in connection therewith shall be furnished in a
workman-like manner and that all products, labor and materials shall be of high
quality. Licensee further represents and warrants that each completed
application or installation performed hereunder shall be of high quality and
that all applied or installed products and their application or installation
shall remain in good condition and be free from defects in materials and
workmanship for a period of at least one year from the date application or
installation is completed. Licensee shall provide a written warranty to such
effect to all of its customers for Licensed Services and products sold or
installed in connection therewith conforming to applicable law.
-6-
<PAGE>
4.8 Licensee agrees to maintain and adhere to a general policy of customer
satisfaction satisfactory to Licensor and shall use its best efforts to adjust
complaints of customers and resolve controversies with customers with respect to
the sale or provision of the Licensed Services and products sold or installed in
connection therewith. In the event Licensee receives any notice that any
application or installation or product is defective, Licensee shall promptly
investigate such complaint and shall promptly repair or replace any defective
application or installation at no additional cost pursuant to the terms of the
written warranty. In the event any adjustment remains unsatisfactory to the
customer, Licensee agrees that it will use its best efforts to satisfy the
reasonable complaints to such customer.
4.9 All Contracts must be in writing and signed by the customer. Such
contracts shall be retained by Licensee for a period of not less than two years
from the date of Licensee's receipt of full payment on the Contract. Each
Contract will identify Licensee as the vendor of the subject matter of the
Contract and that Licensee is a licensee and not a subsidiary, division or
affiliate of Century 21, Licensor or HFS.
5. Trademark Ownership and Protection.
----------------------------------
5.1 Relying on representations of Licensor, Licensee acknowledges that
Licensor owns or possesses the exclusive right to use the Trademark, the Trade
Dress (including the colors and designs associated therewith), and the goodwill
associated therewith in connection with the Licensed Services. Licensee further
acknowledges the exclusive rights held by Licensor to use the Trademark and the
goodwill associated therewith. All use of the Trademark and Trade Dress
pursuant to this Agreement and goodwill generated thereby shall inure to the
benefit of Licensor and shall not vest in Licensee any right to or right or
presumptive right to continue such use, other than in accordance with this
Agreement. For the purposes of trademark registration, sales by Licensee of
Licensed Services under the trademark shall be deemed to have been made for the
benefit of Licensor and its Affiliates.
5.2 Except for the License granted herein, nothing contained in this
Agreement shall be construed as an assignment or grant to Licensee of any right,
title, or interest in or to the Trademark, or any of Licensor's or any of its
Affiliates' or other trademarks, it being understood that all rights relating
thereto are reserved by such Licensor - affiliated parties, except for the
License hereunder to use the Trademark to the extent specifically provided
herein and subject to the restrictions provided herein.
5.3 Licensee shall not, during the Term of this Agreement or thereafter,
(a) challenge Licensor's or any of its Affiliates' title or rights in and to the
Trademark in any jurisdiction or challenge the validity of this License or of
the Trademark, or (b) contest the fact that Licensee's rights under this
Agreement are solely those of a licensee and shall cease upon expiration or
earlier termination of this Agreement. Licensee shall not file or prosecute any
trademark or service mark application or applications to register the Trademark.
The provisions of this Section 5.3 shall survive the expiration or termination
of this Agreement.
-7-
<PAGE>
5.4 Licensor shall maintain all existing registrations of the Trademark in
full force and effect and shall use commercially reasonable efforts to secure
appropriate federal registrations of the Trademark. In addition, at Licensee's
expense, Licensor shall use commercially reasonable efforts to secure
appropriate registrations in all jurisdictions within the Territory as
reasonably requested by Licensee. Licensee shall cooperate fully and in good
faith with Licensor for the purpose of maintaining registrations and prosecuting
applications for the Trademark and otherwise securing and preserving Licensor's
rights in and to the Trademark.
6. Licensee's Employees.
--------------------
Licensee shall have no authority to employ persons on behalf of Licensor or
any of its Affiliates and no employees of Licensee shall be deemed to be
employees or agents of Licensor or any of its Affiliates. Licensee shall have
the sole and exclusive right and responsibility to hire, train, transfer,
suspend, layoff, recall, promote, assign, discipline, adjust grievances, and
discharge said employees, and shall comply with all laws and regulations
applicable to employment and labor relations. Licensee shall identify itself as
the employer of its employees and contractors and take no action or fail to take
action when appropriate that would leave employers or contractors with the
impression that they are the employees or contractors of Licensor or Century 21.
7. Licenses and Permits.
--------------------
7.1 Licensee, at its expense, shall obtain all permits and licenses which
may be required under any applicable Federal, State or local law, ordinance,
rule or regulation by virtue of any acts performed by Licensee in the
performance of this Agreement. Licensee shall in the conduct of said business
and in the performance of this Agreement, comply fully with all applicable
Federal, State and local laws, ordinances, rules, and regulations.
7.2 Licensee, at its expense, shall pay and discharge all license fees,
business, use, excise, sales, gross receipts, income, property or other similar
or different taxes or assessments which may be charged or levied upon Licensee
by reason of anything performed under this Agreement. Nothing set forth in this
Section 7.2 shall be construed to make Licensee responsible for any taxes and
assessments based upon Licensor's income from the Earned Royalties hereunder.
8. Royalties.
---------
8.1 As compensation for the License granted hereunder for the use of the
Trademark in connection with the sale and provision of Licensed Services and the
sale or installation of products in connection therewith in the Territory,
Licensee shall pay to Licensor earned royalties ("Earned Royalties") equal to
two percent (2%) of Licensee's Contract Revenue for each Year of the Term;
provided, that, in the event that the Term is automatically extended in
accordance
-8-
<PAGE>
with the provisions of Section 1.18 Licensee shall pay to Licensor Earned
Royalties in accordance with the following schedule:
Percent of Licensee's
Period Contract Revenue
------ ----------------
Date of the Agreement through March 31, 1997 2%
April 1, 1997 through March 31, 1998 2%
April 1, 1998 through March 31, 1999 3%
April 1, 1999 through March 31, 2000 4%
April 1, 2000 through March 31, 2001 5%
April 1, 2001 through March 31, 2002 6%
April 1, 2002 through March 31, 2003 6%
April 1, 2003 through March 31, 2004 6%
April 1, 2004 through March 31, 2005 6%
April 1, 2005 through March 31, 2006 6%
April 1, 2006 through March 31, 2007 6%
8.2 The term "Contract Revenue" shall mean all revenues which arise
directly from the sale of Licensed Services and all products sold or installed
in connection therewith in the Territory (as in effect from time to time)
pursuant to this Agreement (reflected by the sales contract amount plus or minus
any Contract change orders), less (a) refunds, credits and allowances to
customers; (b) financing discounts incurred in connection with the sale of
Contracts; (c) sales to employees of Licensee and its Affiliates; (d) sales,
excise and other similar taxes; and (e) fees associated with building permits
and other similar fees and expenses. Earned Royalties shall accrue on all
Contracts completed during the applicable month. Completion shall be deemed to
have occurred when Licensee receives cash payment substantially in full in
connection with a Contract (i.e., when Licensee is entitled to receive
substantially all sums that Licensee reasonably can expect to collect on such
Contract), from the customer or from a third party financing source, as the case
may be, or receives written customer acceptance with respect to any project
financed by Licensee. In connection therewith, Licensee agrees and covenants
that it shall use reasonable best efforts to promptly collect all sums due to
Licensee from Contracts.
8.3 All Earned Royalties shall be paid on a monthly basis prior to the
twentieth day of the month following the end of the month in which accrued.
Within 45 days after the end of each Year, Licensee shall prepare and furnish to
Licensor a reconciliation of all amounts paid with respect to Earned Royalties
attributable to the preceding Year.
8.4 If the payment of any Earned Royalties is unpaid as of the due date
for any reason, interest shall accrue on the unpaid principal amount of such
installment from and after the date the Earned Royalties become due pursuant to
Section 8.3 hereof at the lower of (i) the highest rate permitted by applicable
law, or (ii) two percent per annum above the Prime Rate.
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8.5 Licensor shall have the right to terminate this Agreement upon not
less than 90 days prior written notice to Licensee in the event that during the
preceding Year Licensee had less than the Required Revenue applicable to such
Year, which notice must be given within 90 days following the end of such Year.
The Required Revenue applicable to calendar year 1998 shall mean aggregate
accrued Contract Revenue (net of reasonable reserves), calculated in accordance
with generally accepted accounting principles consistently applied, of at least
$14,400,000. Required Revenue for each calendar year subsequent to 1998 shall
be computed by increasing the Required Revenue for the preceding calendar year
by the percentage increase in the Gross Domestic Product (as reported by the
United States Bureau of Labor Statistics) for such preceding year (for example,
the Required Revenue for calendar year 1999 would be $14,400,000 increased by
any increase in the Gross Domestic Product for 1998).
8.6. Notwithstanding the provisions of Sections 8.1, 8.2 and 8.3, following
termination or expiration of this Agreement, Licensee shall pay Licensor Earned
Royalties on all Contract Revenue received on Contracts entered into prior to
such expiration or termination at the Earned Royalty percentage in effect at the
time of such expiration or termination promptly upon receipt of such Contract
Revenue.
9. Referral Service Fee. Intentionally Deleted.
--------------------
10. Accounting.
----------
10.1 Licensee shall at all times keep an accurate account of all operations
within the scope of this Agreement. All Royalty payments made pursuant to
Section 8 shall be accompanied by a statement setting forth a full accounting of
the calculation of Earned Royalties for such month, including all aggregate
gross revenue payable for the Licensed Services and related products, and all
exclusions included in the calculation of Royalties. Such statements shall be
in sufficient detail to be audited from the books of Licensee. Each statement
furnished by Licensee shall be certified as true and correct by the chief
financial officer of Licensee.
10.2 Licensor and its duly authorized representatives, on reasonable
notice, shall have the right for the duration of the Term and for two years
thereafter, to verify the accuracy of the amount of Royalties due by requesting
a reasonable amount of documentation to be furnished to Licensor for such
purpose, and no more than once in each Year during the Term and for the two
years thereafter, during regular business hours, to examine the books of account
and records and all of the documents, materials and inventory in the possession
or under the control of Licensee and its successors with respect to the subject
matter of this Agreement. All such books of account, records, and documents
shall be maintained and kept available by Licensee for at least five Years.
Licensor shall have free and full access thereto in the manner set forth above
and shall have the right to make copies and/or extracts therefrom. If as a
result of any examination of Licensee's books and records, it is shown that
Licensee's actual payments to Licensor hereunder were less than the amount which
should have been paid to Licensor, Licensee shall within three business days pay
to Licensor the amount of any underpayment, with interest at the Prime Rate plus
two percent from the date on which each payment was due. In
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addition if it is shown that Licensee's actual payments for the appropriate
period were less than the amounts that should have been paid by an amount equal
to five percent (5%) or more of the amount which should have been paid for such
period, Licensee shall within three business days reimburse Licensor for the
cost of such examination.
11. Infringement.
------------
11.1 Licensee shall cooperate with Licensor, Century 21, and their
respective Affiliates, to actively enforce against third parties the exclusive
rights furnished to Licensee hereunder, and the parties shall promptly notify
each other in writing of any unauthorized uses which may be infringements by
third parties of the Trademark which may come to the attention of the parties.
Licensor and Century 21 shall each have the right to determine whether or not to
take any action(s) it deems appropriate in its sole discretion against any third
party with respect to any unauthorized use, infringement, or dilution of the
Trademark, and Licensee shall fully cooperate with Licensor and Century 21 in
connection with any such actions. Without limitation, if Licensor or Century 21
so desires Licensor or Century 21 may bring any claims or suits in Licensor's or
Century 21's own name or in the name of Licensee or join Licensee as a party
thereto so long as Licensor or Century 21 pays the costs and expenses thereof.
12. Default.
-------
12.1 Licensor shall have the right to terminate immediately this Agreement
without affecting any other rights or remedies:
(i) immediately upon notice, if (a) any bankruptcy, or insolvency
proceedings should be commenced by Licensee or a substantial part of the assets
or property of Licensee passes into the hands of any receiver, assignee, officer
of the law or creditor or (b) any proceeding shall be instituted by or against
Licensee seeking to adjudicate it bankrupt or insolvent, under any law relating
to bankruptcy, insolvency or reorganization or relief of debtors, and, in the
case of any such proceeding instituted against it (but not instituted by it),
such proceeding shall remain undismissed or used for sixty (60) days;
(ii) immediately upon notice, if Licensee admits its inability to
pay its debts as they become due;
(iii) immediately upon notice, if Licensee renounces, abandons or
materially reduces its operations under this Agreement;
(iv) if Licensee fails to make any Royalty payment or any other
payment of money due hereunder and fails to cure the same within ten days of
receipt of written notice thereof from Licensor;
(v) if Licensee otherwise fails to comply with any other material
provision of this Agreement, including without limitation any provision relating
to quality control or
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compliance with applicable laws and fails to cure such default within (a) the
time period applicable thereto under the terms of this Agreement, or (b) if no
time period shall be provided, then within thirty days of receipt of written
notice from Licensor. In the event that any such non-compliance (A) shall not be
remediable within such thirty day period then, provided that Licensee promptly
commences and diligently pursues such remedial steps as are necessary, Licensee
shall have such additional time as is necessary to effect such remedy, but in no
event more than an additional 90 days, or (B) shall be of a character which is
not remediable such default shall not be subject to cure by Licensee.
13. Disposal of Stock Upon Termination or Expiration.
------------------------------------------------
13.1 Upon the effective date of expiration or earlier termination of
this Agreement by Licensor, Licensee shall immediately cease all use of, and
shall destroy, and effectively remove, the Trademark and all references thereto
from all remaining unsold or returned products and related advertising,
promotional, display and other materials bearing the Trademark or Trade Dress,
whether or not the use of such Trademark of Trade Dress is in compliance with
this Agreement.
14. Effect of Expiration or Termination.
-----------------------------------
14.1 It is understood and agreed that except for the License to use
the Trademark only as specifically provided for in this Agreement, Licensee
shall have no right, title, or interest in or to the Trademark. Upon and after
the expiration or earlier termination of this Agreement, all rights granted to
Licensee hereunder, together with any interest in and to the Trademark which
Licensee may acquire, shall forthwith and without further act or instrument be
assigned to and revert to Licensor. In addition, Licensee will execute any
instruments requested by Licensor which are necessary to accomplish or confirm
the foregoing. Any such assignment, transfer, or conveyance shall be without
consideration other than the mutual agreements contained herein. Licensee will
refrain from further use of the Trademark or any further reference to the
Trademark, direct or indirect, or any other trademark, trade name, or logo that
is confusingly similar to the Trademark. It is expressly understood that under
no circumstances shall Licensee be entitled, directly or indirectly, to any form
of compensation or indemnity from Licensor or its Affiliates, as a consequence
of the expiration or earlier termination of this Agreement, other than as a
result of a material breach of this Agreement by Licensor, whether as a result
of the passage of time, or as the result of any other cause of termination
referred to in this Agreement. Without limiting the generality of the foregoing,
by its execution of the present Agreement, Licensee hereby waives any claim
which it has or which it may have in the future against Licensor, Century 21 or
any of their Affiliates, arising from any alleged goodwill created by Licensee
for the benefit of any or all of the said parties or from the alleged creation
or increase of a market for Licensed Services, or products sold or installed in
connection therewith.
14.2 Licensee acknowledges and admits that there would be no
adequate remedy at law for its failure to cease using the Trademark in
connection with the marketing, sale or furnishing
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of Licensed Services or the sale or installation of any products in connection
therewith at the expiration or earlier termination of the License, and Licensee
agrees that in the event of such failure, Licensor shall be entitled to
equitable relief by the way of temporary, preliminary, and permanent injunction
and such other and further relief as any court with jurisdiction may deem just
and proper.
14.3 Licensee agrees that it shall remain liable for any and all
obligations under the terminated or expired Agreement arising out of the
operation of Licensee's business prior to the expiration or earlier termination
of this Agreement.
15. Indemnity.
---------
15.1 Licensee agrees that it will protect, defend, hold harmless and
indemnify Licensor, Century 21, their respective Affiliates, successors,
assigns, directors, officers and employees, and their respective heirs and
representatives from and against any and all claims, demands, actions,
liabilities, damages, losses, fines, penalties, costs and expenses (including
all reasonable attorneys' fees and expenses) of any kind whatsoever (including
without limitation of the foregoing, those relating to actual or alleged death
of or injury to person and damage to property), actually or allegedly, directly
or indirectly, arising or resulting from or in connection with:
(i) Licensee's breach of any representation, warranty, or
obligation under this Agreement;
(ii) Licensee's carrying on its business, whether or not in
connection with the use of the Trademark, including, but not limited to, all
allegations that the products, materials, or services provided by, prepared by,
or distributed by or through Licensee constitute:
(a) libel, slander, or defamation;
(b) trademark infringement or dilution, other than in
connection with the Trademark as used by Licensee hereunder in strict accordance
with the terms hereof, unfair competition or infringement of any statutory
copyright, common law right, title or slogan;
(c) piracy, plagiarism, the misappropriation of
another's ideas, or unfair competition; and/or
(d) invasion of rights of privacy or rights of
publicity;
(iii) any actual or alleged defect in such products or
materials, whether latent or patent, including actual or alleged improper
construction or design of such products or materials or the failure of such
products or material to comply with specifications or with any express or
implied warranties of Licensee;
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(iv) Licensee's assembly or installation or application of products
or materials covered by this Agreement;
(v) all purchases, contracts, debts, or obligations made by
Licensee, including the breach of any Contract;
(vi) any third Party financing utilized by Licensee in connection
with this Agreement;
(vii) the omission or commission of any act, lawful or unlawful, by
Licensee or of any of Licensee's agents or employees, whether or not such act is
within the scope of employment of such agents or employees; or
(viii) the failure or alleged failure of Licensee to comply with any
applicable law, statute, ordinance, governmental administrative order, rule, or
regulation.
The provisions of this Section 15.1 shall survive expiration or
termination of this Agreement.
15.2 Licensor shall indemnify and hold Licensee and its permitted
assignees, directors, officers, servants, agents and employees harmless from and
against any and all liabilities, claims, causes of action, suits, damages and
expenses (including reasonable attorneys' fees and expenses) which Licensee is
or becomes liable to a third party for, solely by reason of its use within the
Territory of the Trademark in strict accordance with the terms and conditions of
this Agreement, to the extent that such liability arises through infringement of
a third party's trademark or copyright, provided that Licensee gives Licensor
prompt notice of, and full cooperation in the defense against, such claim. If
any action or proceeding shall be brought or asserted against Licensee in
respect of which indemnity may be sought from Licensor under this Section 15.2,
Licensee shall promptly notify Licensor thereof in writing, and Licensor shall
assume and direct the defense thereof. Licensee may thereafter, at its own
expense, be represented by its own counsel in such action or proceeding.
16. Insurance.
---------
Licensee shall carry liability insurance providing adequate protection
with limits of liability in the minimum amount of $500,000 per occurrence and
$500,000 per person for any claims relating to the Licensed Services and all
products sold or installed in connection therewith, or Licensee's operation of
its business. Licensor, CTM Holding Corp. and Century 21 shall be named therein
as insureds. The maximum deductible with respect to such insurance shall be
$250,000. Licensee shall, promptly after the signing of this Agreement, deliver
to Licensor a certificate of such insurance from the insurance carrier, setting
forth the scope of coverage and the limits of liability.
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17. Confidentiality: Non-Disclosure.
-------------------------------
17.1 Licensor and Licensee, and their respective Affiliates,
employees, agents, consultants, attorneys, accountants, financial advisors, and
bankers, shall hold in confidence and not use or disclose to any third party,
except as permitted by this Agreement, any Confidential Information of the other
party. Licensor and Licensee each acknowledges that the confidentiality of the
terms of this Agreement may not be able to be maintained inasmuch as HFS
Incorporated may be required to file a copy of this Agreement as an exhibit to
various reports filed with the Securities and Exchange Commission and the New
York Stock Exchange, Inc. and may be required to summarize this Agreement in the
text of its Annual Reports on Form 10-K and in Notes to its Financial
Statements.
17.2 Nothing herein shall prevent either party or any of its
Affiliates, employees, agents, consultants, attorneys, accountants, advisors, or
bankers (the "Receiving Party") from using, disclosing or authorizing the
disclosure of any Confidential Information it receives:
(a) that becomes publicly available without default hereunder by
the Receiving Party;
(b) that is lawfully received by the Receiving Party from a
source not, to the knowledge of the Receiving Party, under any obligation to the
disclosing party regarding disclosure of such information;
(c) that the Receiving Party reasonably believes it is required
by law to disclose, provided that the Receiving Party consults with the other
party prior to making such disclosure;
(d) to its attorneys, accountants, financial and investment
advisors, bankers, or lending institutions, and other advisors and consultants
of a similar nature, provided that such persons have an obligation to, or
otherwise agree to, keep such Confidential Information confidential.
17.3 Except for references to the Trademark and the existence of this
Agreement in the ordinary course of business, Licensee will not issue any
publicity or press release regarding its contractual relations with Licensor
hereunder or regarding Licensee's activities hereunder without obtaining
Licensor's prior written approval and consent to such release.
17.4 Any customer lists or prospective names provided to Licensee by
Licensor or Century 21 ("Century 21 Lists") shall be the property of Licensor or
Century 21, as applicable, and Licensee shall not use the same other than for
purposes of selling Licensed Services under the Trademark in the Territory.
Licensee agrees that it will not resell or use for telemarketing purposes (other
than the marketing Licensed, Services in accordance with this Agreement) any
customer lists or prospective names obtained from any Century 21 List. Any
customer information (including customer lists) developed by or acquired by
Licensee itself or its
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employees or agents, except as set forth above, during the term of this
Agreement or thereafter, are deemed to be the property of Licensee.
18. Dispute Resolution.
------------------
18.1 Licensor and Licensee agree to negotiate in good faith in an
effort to resolve any dispute related to this Agreement. If any such dispute has
not been resolved within 10 days by negotiation, either party may resort to
litigation. If the need for mediation arises, mediation services shall be
conducted in Morris County, New Jersey or Dallas County, Texas, whichever
relates most directly to the subject matter of the dispute or bears the closest
proximity to the information and documentation relevant to the dispute.
18.2 IN THE EVENT OF LITIGATION, EACH OF THE PARTIES HEREBY CONSENTS
TO THE SERVICE OF PROCESS BY REGISTERED OR CERTIFIED MAIL AT ITS ADDRESS SET
FORTH BELOW AND AGREES THAT ITS SUBMISSION TO JURISDICTION AND ITS CONSENT TO
SERVICE OF PROCESS BY MAIL IS MADE FOR THE EXPRESS BENEFIT OF THE OTHER PARTY.
18.3 NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS SECTION 18, THE
PARTIES EXPRESSLY AGREE THAT EITHER MAY SEEK PROVISIONAL RELIEF, INCLUDING BUT
NOT LIMITED TO TEMPORARY RESTRAINING ORDERS AND PRELIMINARY INJUNCTIONS, IN
ADDITION TO THE REMEDY OF MEDIATION SET FORTH HEREIN. ANY SUCH ACTION FOR
PROVISIONAL RELIEF SHALL NOT CONSTITUTE A WAIVER OF THE RIGHT OR OBLIGATION TO
MEDIATE. EACH PARTY AGREES THAT IT SHALL BRING ANY SUCH ACTION FOR PROVISIONAL
RELIEF, OR ANY OTHER LITIGATION TO ENFORCE RIGHTS OR OBLIGATIONS UNDER THIS
AGREEMENT, IN (I) A FEDERAL COURT LOCATED IN THE STATE OF NEW JERSEY, OR (II) A
STATE COURT LOCATED IN MORRIS COUNTY, NEW JERSEY, IF NONE OF THE FEDERAL COURTS
IN NEW JERSEY HAVE JURISDICTION OVER THE SUBJECT MATTER OF SUCH PROVISIONAL
RELIEF AND/OR LITIGATION. EACH PARTY HEREBY SUBMITS TO THE JURISDICTION OF THE
STATE COURTS IN MORRIS COUNTY, NEW JERSEY AND FEDERAL COURTS IN NEW JERSEY FOR
ANY SUCH RELIEF, IN ACCORDANCE WITH THE SERVICE PROVISIONS SET FORTH IN
SUBSECTION 18.2 HEREOF.
19. Acknowledgments. The parties acknowledge that:
---------------
19.1 This Agreement is intended as a trademark sublicense only.
19.2 Licensee is only a licensee of the Trademark in accordance with
the terms of this Agreement.
19.3 Licensor and Century 21 are not in the business of developing,
operating, offering, selling, managing or warranting any aspect of the home
improvement business.
19.4 Neither Century 21 nor Licensor exerts or asserts any control
over Licensee or its operations, or the sale or provision of any Licensed
Service, or has prescribed any system or
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program of quality assurance, quality control, product or service
specifications, product or service standards or product or service design.
19.5 Other than the use of the Trademark, Licensee is not dependent
on any services or assistance provided by Century 21, Licensor or any of their
Affiliates to operate and maintain its business.
19.6 The parties have bargained at arms' length in this transaction.
19.7 Other than its investment in the fees required to be paid
hereunder, signage and written promotional materials, Licensor is not requiring
Licensee to invest in any specific assets in respect of this Agreement.
Licensee's decision to make an investment in any assets does not and will not
relate to the existence of this Agreement.
19.8 Licensee will rely on its own marketing plan and system of
operations developed prior to the execution and delivery of this Agreement.
Licensor has had no part in either prescribing or suggesting the marketing plan
and system of Licensee.
19.9 The parties acknowledge that neither Century 21, Licensor nor
any of their Affiliates will furnish to Licensee any assistance in the
acquisition, development, design, planning, selection of materials or methods
used in the Licensed Services, or any other aspect of Licensee's business nor
will any such party furnish a method of operation on which Licensee will be
dependent with respect to its business organization, management, marketing plan,
promotional activities or business affairs. Neither Century 21, Licensor nor any
of their Affiliates will provide any telemarketing service.
19.10 Licensee shall determine, in its sole discretion, the site or
location of each office and facility used to provide Licensed Services in the
Territory, its design and appearance, hours of operation, personnel policies and
practices, promotional activities, personnel training, customer requirements,
methods of accounting, construction methods and general operation methods,
subject only to the trademark-related standards and customer satisfaction
obligations set forth in this Agreement.
20. Miscellaneous.
-------------
20.1 All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed to have been properly given or
sent (i) on the date when such notice, request, consent, or communication is
personally delivered or (ii) five days after the same was sent, if sent by
certified or registered mail or (iii) two days after the same was sent, if sent
by overnight courier delivery or confirmed telecopier transmission, as follows:
(a) if to Licensor, addressed as follows:
TM Acquisition Corp.
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c/o HFS Incorporated
6 Sylvan Way
Parsippany, NJ 07054
Attention: Executive Vice President and General Counsel
Telephone: 201-359-5266
with a copy to:
(b) if to Licensee, addressed as follows:
U.S. Remodelers, Inc.
3105 Skyway Circle North
Irving, Texas 75238
Attention: President
Telephone: 972-570-7705
with a copy to:
Jackson & Walker LLP
901 Main Street, Suite 6000
Dallas, Texas 75202
Attention: Charles D. Maguire, Jr., Esq.
Telephone: 214-953-5850
Anyone entitled to notice hereunder may change the address to which notices
or other communications are to be sent to it by notice given in the manner
contemplated hereby.
20.2 Licensee shall operate in the capacity of an independent contractor.
Nothing herein contained shall be construed to place the parties in the
relationship of partners or joint venturers or to constitute Licensee the agent
of Licensor or any of its Affiliates, and no party hereto shall have any power
to obligate or bind any other party hereto in any manner whatsoever, except as
otherwise provided for herein.
20.3 None of the terms hereof can be waived or modified except by an
express agreement in writing signed by the party to be charged. The failure of
any party hereto to enforce, or the delay by any party in enforcing, any of its
rights hereunder shall not be deemed a continuing waiver or a modification
thereof and any party may, within the time provided by applicable law, commence
appropriate legal proceedings to enforce any and all of such rights. All rights
and remedies provided for herein shall be cumulative and in addition to any
other rights or remedies such parties may have at law or in equity. Any party
hereto may employ any of the remedies available to it with respect to any of its
rights hereunder without prejudice to the use by it in the future of any other
remedy with respect to any of such rights. No person, firm, or corporation,
other than the parties hereto and Century 21 and its Affiliates shall be deemed
to have acquired any rights by reason of anything contained in this Agreement.
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20.4 This Agreement shall be binding upon and inure to the benefit of the
successors and permitted assigns of the parties hereto. Licensor may assign all
of its rights, duties, and obligations hereunder to any Affiliate of Licensor,
any entity having adequate rights with respect to the Trademark to grant this
License on the date of such assignment, or to an Affiliate of any such entity.
The rights granted to Licensee hereunder are unique and personal in nature, and
neither this Agreement nor the License may be directly or indirectly assigned by
Licensee (including without limitation by operation of law or by transfer of a
controlling interest in Licensee or any other change in control of Licensee)
without Licensor's prior written consent, which shall not be unreasonably
withheld. Any attempt by Licensee to transfer any of its rights or obligations
under this Agreement, whether by assignment, License or otherwise, other than as
explicitly permitted pursuant to this Agreement, shall constitute an event of
default of this Agreement, and shall be null and void. Notwithstanding the
foregoing, (a) Licensee may transfer or assign its rights and obligations
granted hereunder in whole or in part to an Affiliate controlled by Licensee
which Affiliate agrees in writing to be bound by the terms of this Agreement and
no such transfer or assignment shall relieve Licensee of its liability and
obligation for performance of any transferred or assigned obligations hereunder;
and (b) the sale of less than 50% of the voting equity securities of Licensee
outstanding following such sale pursuant to an underwritten public offering will
not constitute a change of control of Licensee or a transfer of the License.
20.5 Licensee shall comply in all material respects with all laws, rules,
regulations, and requirements of any governmental body which may be applicable
to the operations of Licensee contemplated hereby, including, without
limitation, as they relate to the provision, sale, or promotion of Licensed
Services or any products sold or installed in connection therewith,
notwithstanding the fact that Licensor may have approved such item or conduct.
Licensee shall advise Licensor promptly upon obtaining knowledge that any
Licensed Service or any such product does not comply with any such law, rule,
regulation or requirement.
20.6 THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF NEW JERSEY, APPLICABLE TO CONTRACTS MADE AND TO BE
WHOLLY PERFORMED THEREIN WITHOUT REGARD TO ITS CONFLICTS OF LAW RULES, AND ANY
APPLICABLE LAWS OF THE UNITED STATES.
20.7 The provisions hereof are severable, and if any provision shall be
held invalid or unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability shall affect only such provision, or part thereof
in such jurisdiction and shall not in any manner affect such provision in any
other jurisdiction, or any other provision in this Agreement in any
jurisdiction. To the extent legally permissible, an arrangement which reflects
the original intent of the parties shall be substituted for such invalid or
unenforceable provision.
20.8 The Section headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
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20.9 This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof.
20.10 This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
20.11 If Licensee shall be delayed or hindered in or prevented from the
performance of any acts required hereunder by reason of strikes, lockouts, labor
disputes, inabilities to procure materials (other than as a result of the
financial condition of Licensee), riots, war, act of God or other reason of a
like nature not within the control of Licensee, the period of performance of any
such act shall be extended for a period equivalent to such delay, provided,
however, that: (a) none of the foregoing shall in any way excuse or delay
Licensee's obligations to pay Earned Royalties and to comply with the quality
standards hereunder; (b) Licensee shall use its best efforts to remove the cause
of such delay as promptly as possible; and (c) in no event shall any period of
performance be delayed by more than 90 days in any 12 consecutive month period
as a result of the foregoing events. Licensee shall promptly give Licensor
written notice of the occurrence of any of the foregoing events for which it
claims that it is entitled to delay performance of any of its obligations
hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused the same to be executed by a duly authorized officer as of the day and
year first above written.
TM ACQUISITION CORP.
By: /s/ [SIGNATURE ILLEGIBLE]^^
----------------------------------
3/10/97
U.S. REMODELERS, INC.
By: /s/ Murray S. Gross, President
----------------------------------
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Exhibit 10.4
PROMISSORY NOTE
$_______________ Dallas, Texas March 24, 1997
FOR VALUE RECEIVED, the undersigned, U.S. Remodelers, Inc., a Delaware
corporation ("Maker"), hereby promises to pay to the order of
___________________ ("Payee"), at __________________________________, or such
other place as Payee may from time to time direct Maker in writing, the
principal sum of ______________________________________ ($______________),
together with interest thereon which shall accrue at the rate of ten percent
(10%) per annum, compounded annually. Cash payments of interest only shall be
made in equal semi-annual payments, each payment to be made on the first
Business Day (as hereinafter defined) of October and April beginning October 1,
1997 and continuing until March 31, 2002, upon which date the principal,
together with all accrued but unpaid interest hereon, shall mature and be due
and payable. All payments on this Note shall be due and payable in lawful money
of the United States of America.
1. Events of Default and Remedies. At the option of Payee (or the then
------------------------------
current holder of this Note), the entire amount of the unpaid balance of this
Note together with all accrued and unpaid interest thereon, shall immediately
become due and payable upon the occurrence of one or more of the following
events of default ("Events of Default"):
(a) Failure of Maker to make any payment on this Note as and when the
same becomes due and payable in accordance with the terms hereof, and such
failure continues for a period of thirty (30) days after the receipt by
Maker of written notice from Payee (or the then current holder of this
Note) of the occurrence of such failure; or
(b) Maker shall (i) voluntarily seek, consent to or acquiesce in the
benefit or benefits of any Debtor Relief Law (as hereinafter defined) or
(ii) become party to (or be made the subject of) any proceeding provided by
any Debtor Relief Law, other than as a creditor or claimant, that could
suspend or otherwise adversely affect the rights of Payee (or the then
current holder of this Note) granted hereunder (unless in the event such
proceeding is involuntary, the petition instituting the same is dismissed
within 90 days of the filing of same). As used herein, the term "Debtor
Relief Law" means the Bankruptcy Code of the United States of America and
all other applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization or similar debtor
relief laws from time to time in effect affecting the rights of creditors
generally.
In the event any one or more of the Events of Default specified above shall
have occurred, the holder of this Note may proceed to protect and enforce its
rights either by suit in equity or by action at law, or by other appropriate
proceedings, whether for the specific performance of any covenant or agreement
contained in this Note or in aid of the exercise of any power or right granted
by this Note, or to enforce any other legal or equitable right of the holder of
this Note.
<PAGE>
2. Successors and Assigns. All of the covenants, stipulations, promises
----------------------
and agreements in this Note made by or on behalf of Maker shall bind its
successors and assigns, whether so expressed or not; provided, however, that
Maker may not, without the prior written consent of Payee (or the then current
holder of this Note), assign any of its rights, powers, duties or obligations
under this Note.
3. Maximum Interest. Regardless of any provision contained herein, Maker
----------------
shall never be required to pay and the holder hereof shall never be entitled to
receive, collect or apply as interest hereon, any amount in excess of the
highest lawful interest rate permitted under applicable law, and in the event
the holder hereof receives, collects or applies, as interest, any such excess,
such amounts which would be excessive interest shall be deemed a partial
prepayment of principal and treated hereunder as such for all purposes; and, if
the principal hereof is paid in full, any remaining excess shall be refunded to
Maker. In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the highest lawful interest rate, Maker and the
holder hereof shall, to the maximum extent permitted under applicable law (a)
characterize any nonprincipal payment as an expense, fee or premium rather than
as interest, (b) exclude prepayments and the effects thereof, and (c) pro rate,
allocate and spread the total amount of interest throughout the entire
contemplated term hereof; provided that if the indebtedness evidenced hereby is
paid and performed in full prior to the end of the full contemplated term
hereof, and if the interest received for the actual period of existence thereof
exceeds the highest lawful interest rate, the holder shall either apply as
principal reduction or refund to Maker the amount of such excess, and in such
event, the holder shall not be subject to any penalties provided by any laws for
contracting for, charging or receiving interest in excess of the highest lawful
interest rate.
4. Transfers. This Note may not be transferred to any other person or
---------
entity without the prior written consent of Maker.
5. Interest Payments. Maker, at its option, may make any payments of
-----------------
interest due hereunder in either (i) cash, (ii) an additional promissory note or
notes (an "Interest Note") or (iii) any combination of cash and an Interest
Note. All Interest Notes made by Maker hereunder shall contain terms
substantially similar to this Note, and the principal amount of all Interest
Notes shall be due and payable in full, together with all accrued but unpaid
interest thereon, on March 31, 2002 unless earlier prepaid in accordance with
the terms of such Interest Note.
6. Prepayment. This Note (or any Interest Note issued hereunder) may be
----------
prepaid, in whole or from time to time in part, at the election of Maker, at any
time, at the Prepayment Price (expressed as a percentage of the principal amount
being prepaid) set forth below and, in each case, together with accrued interest
as of the date of prepayment. If prepaid during the twelve-month period
commencing on April 1 in each of the years indicated below, the Prepayment Price
shall be as follows:
<PAGE>
Year Percentage
---- ----------
1997 105%
1998 104%
1999 103%
2000 102%
2001 101%
7. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the substantive laws (but not the rules governing conflicts of
laws) of the State of Texas.
8. Notice. Any notice or demand given hereunder by the holder hereof (or
------
by Maker) shall be deemed to have been given and received (a) when actually
received by Maker (or by the holder), if delivered in person or via telecopier,
or (b) if mailed, on the earlier of the date actually received or three Business
Days (as hereinafter defined) after a letter containing such notice, certified
or registered with postage prepaid, addressed to Maker (or the holder), is
deposited in the United States mail. The address of Maker is 13740 Midway Road,
Suite 800, Dallas, Texas 75244, or such other address as Maker shall advise the
holder hereof by this same procedure. The address of the holder is the address
listed for payments to Payee in this Note, or such other address as the holder
shall advise the Maker by this same procedure. "Business Day" means every day
which is not a Saturday, Sunday or legal holiday.
9. Severability. In case any one or more of the provisions contained in
------------
this Note shall for any reason be held to be invalid, illegal and unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision hereof.
EXECUTED as of the date set forth above.
MAKER:
U.S. REMODELERS, INC.
By:___________________________________
Murray Gross
Chief Executive Officer
<PAGE>
EXHIBIT 10.5
SECURED PROMISSORY TERM NOTE
----------------------------
$700,000.00 New York, New York
April 6, 1998
FOR VALUE RECEIVED, U. S. REMODELERS, INC., a Delaware corporation
("Borrower") with a principal place of business at 1341 West Mockingbird Lane,
--------
Suite 900 East, Dallas, Texas 75247, promises to pay to the order of FINOVA
CAPITAL CORPORATION, a Delaware corporation (" FINOVA "), at its offices at 111
------
West 40th Street, New York, New York 10018, or at such other place or places as
FINOVA may from time to time designate in writing, the principal sum of Seven
Hundred Thousand Dollars ($700,000.00), plus interest in the manner and upon the
terms and conditions set forth below. This Secured Promissory Term Note
("Note") incorporates that certain Security Agreement of even date between the
----
FINOVA and Borrower (the "Security Agreement").
------------------
1.0 SCHEDULE OF PAYMENTS; RATE AND PAYMENT OF INTEREST; PREPAYMENT; FEES.
--------------------------------------------------------------------
1.1 This Note shall be payable as follows:
a. Twenty-three (23) equal successive monthly installments of
principal of Eight Thousand Three Hundred Thirty Three Dollars and Thirty Three
Cents ($8,333.33) each on the first day of each month, beginning May 1, 1998,
and continuing through and including March 1,2000; and
b. A final installment of Five Hundred and Eight Thousand Three
Hundred Thirty Three Dollars and Forty One Cents ($508,333.41) on the lst day of
April, 2000, together with accrued interest on the principal balance from time
to time remaining unpaid, payable monthly on the first day of each and every
month, beginning May 1, 1998, and all other sums, fees, charges, and expenses
due FINOVA in connection herewith.
1.2 Prepayment may be made under this Note in whole but not in part,
subject to the termination fee set forth as follows ("Termination Fee"): (i)
five (5%) percent of the amount prepaid if such early termination occurs on or
prior to the first anniversary of the date hereof; and (ii) one (1%) percent of
the amount prepaid if such early termination occurs within the first nine (9)
months after the first anniversary of the date of this Note; provided that such
prepayment is preceded by not less than five (5) business days prior written
notice to FINOVA and accompanied by all accrued but unpaid interest and the full
amount of the applicable Termination Fee. Notwithstanding anything herein to
the contrary, in the event the Note is terminated by Borrower, by FINOVA or by
any other person at any time, then the entire unpaid principal balance of this
Note, together with all accrued and unpaid interest hereon and the full amount
of the applicable Termination Fee, shall become immediately due and payable in
full on the effective date of such termination, without presentment, notice or
demand of any kind.
1.3 Interest shall be computed on the basis of a 360-day year for the
actual number of days elapsed, and shall be at the rate of two and one hundred
twenty five thousandths of one (2.125 %) percentage points above the Prime Rate
(as hereafter defined), computed on the
<PAGE>
basis of a 360-day year; provided, however, upon the occurrence and during the
-------- -------
continuance of an event of default (as hereinafter defined), interest shall
accrue on the outstanding principal balance of this Note at a default rate (the
"Default Rate") of four and one hundred and twenty-five thousandths of one
(4.125%) percentage points above the Prime Rate, and shall be payable on demand.
In the event that the Borrower and FINOVA do not close that certain credit
facility referenced in the proposal letter between Borrower and FINOVA dated
March 17, 1998 by May ___, 1998, the interest under this Note shall be at the
rate of three (3%) percentage points above the Prime Rate, and five (5%)
percentage points above the Prime Rate upon the occurrence and during the
continuance of an Event of Default. "Prime Rate" means, for any day, the rate of
interest per annum (over a year of 360 days) published in the "Money Rates"
section of The Wall Street Journal, from time to time, as its "base rate" (or
any successor thereto) in effect on such day. The Prime Rate is not necessarily
the lowest rate published in The Wall Street Journal. As of the date of this
Note, the Prime Rate is eight and one-half of one percent (8.50%) per annum. The
applicable rate of interest assessed hereunder will be increased or decreased
from time to time hereafter, in an amount equal to any increase or decrease
hereafter published by The Wall Street Journal in the Prime Rate. A change in
the Prime Rate shall be effective on the first day following such change.
1.4 At the closing of this transaction, Borrower shall pay to FINOVA
a closing fee in an amount equal to Ten Thousand Five Hundred Dollars
($10,500.00) which shall be deemed fully earned on the date such payment is due.
1.5 The Borrower shall pay an auditor's fee in the amount of Five
Hundred Dollars ($500.00) per examiner per day together with all reasonable out-
of-pocket expenses associated with audits, such fee shall not exceed an amount
of Ten Thousand Dollars ($10,000.00) unless an Event of Default shall occur
under the Security Documents.
2.0 EVENTS OF DEFAULTS; REMEDIES.
----------------------------
2.1 The occurrence of any one of the following events shall
constitute a default by Borrower under this Note (hereinafter an "Event of
--------
Default"): (a) if Borrower fails to pay to FINOVA an installment of principal or
- -------
interest hereunder when due and the continuance thereof for a period of five (5)
days after notice from FINOVA; (b) if Borrower fails to pay any of its
Obligations (as defined in the Security Agreement) to FINOVA when due and
payable or declared due and payable and the continuance thereof for a period of
five (5) days after notice from FINOVA; (c) if Borrower fails or neglects to
perform, keep or observe any term, provision, covenant, warranty or
representation contained in the Security Documents (other than as referred to in
(a) or (b) of this paragraph), which is required to be performed, kept or
observed by Borrower or if a default occurs under the Security Agreement, and
the continuance thereof for a period of fifteen (15) days after notice from
FINOVA; or (d) the occurrence of a default or an event of default under any
Security Agreement, instrument or document heretofore, now or at any time or
times hereafter delivered to FINOVA by Borrower or by any guarantor of part or
all of Borrower's Obligations to FINOVA.
2
<PAGE>
2.2 Upon the occurrence of any Event of Default hereunder, in
addition to FINOVA's right to charge interest on the Obligations at the Default
Rate: (a) at the option of FINOVA, the entire unpaid amount of all of the
Obligations, including without limitation the Termination Fee, shall become
immediately due and payable without demand, notice or legal process of any kind;
(b) FINOVA may, at its option, without demand, notice or legal process of any
kind, exercise any and all rights and remedies granted to it by the Security
Agreement or by any other Security Agreement now or hereafter existing between
FINOVA and Borrower or between FINOVA and any guarantor of part or all of
Borrower's liabilities to FINOVA; and (c) FINOVA may at its option exercise from
time to time any other rights and remedies available to it under the Uniform
Commercial Code or other law of the State of Arizona.
2.3 The remedies of FINOVA as provided herein and in the Security
Agreement shall be cumulative and concurrent, and may be pursued singularly,
successively, or together, at the sole discretion of FINOVA. No act of omission
or commission of FINOVA, including specifically any failure to exercise any
right, remedy or recourse, shall be deemed to be a waiver or release of the
same, such waiver or release to be effected only through a written document
executed by FINOVA and then only to the extent specifically recited therein. A
waiver or release with reference to any one event shall not be construed as
continuing, as a bar to, or as a waiver or release of, any subsequent right,
remedy or recourse as to a subsequent event.
3.0 GENERAL PROVISIONS.
------------------
3.1 Borrower warrants and represents to FINOVA that Borrower has used
and will continue to use the loans and advances represented by this Note solely
for proper business purposes, and consistent with all applicable laws and
statutes.
3.2 This Note is secured by the Collateral described in the Security
Agreement.
3.3 Borrower waives presentment, demand and protest, notice of
protest, notice of presentment and all other notices and demands in connection
with the enforcement of FINOVA's rights hereunder, except as specifically
provided and called for by this Note, and hereby consents to, and waives notice
of, the release, addition, or substitution, with or without consideration, of
any collateral or of any person liable for payment of this Note. Any failure of
FINOVA to exercise any right available hereunder or otherwise shall not be
construed as a waiver of the right to exercise the same or as a waiver of any
other right at any other time.
3.4 If this Note is not paid when due or upon the occurrence of an
Event of Default, Borrower further promises to pay all costs of collection,
foreclosure fees, attorneys fees and expert witness fees incurred by FINOVA,
whether or not suit is filed hereon, and the fees, costs and expenses as
provided in the Security Agreement.
3.5 The contracted for rate of interest of the loan contemplated
hereby, without limitation, shall consist of the following: (i) the interest
rate set forth on this Note, calculated and applied to the principal balance of
this Note in accordance with the provisions of this Note; (ii)
3
<PAGE>
interest after an Event of Default, calculated and applied to the amounts due
under this Note in accordance with the provisions hereof; and (iii) all
Additional Sums (as herein defined), if any, Borrower agrees to pay an effective
contracted for rate of interest which is the sum of the above referenced
elements. All examination fees, attorneys fees, expert witness fees, letter of
credit fees, collateral monitoring fees, closing fees, facility fees,
Termination Fees, other charges, goods, things in action or any other sums or
things of value paid or payable by Borrower, whether pursuant to this Note, the
Security Agreement or any other documents or instruments in any way pertaining
to this lending transaction, or otherwise with respect to this lending
transaction, that under any applicable law may be deemed to be interest with
respect to this lending transaction, for the purpose of any applicable law that
may limit the maximum amount of interest to be charged with respect to this
lending transaction (collectively, the "Additional Sums"), shall be payable by
---------------
Borrower as, and shall be deemed to be, additional interest and for such
purposes only, the agreed upon and "contracted for rate of interest" of this
lending transaction shall be deemed to be increased by the rate of interest
resulting from the inclusion of the Additional Sums.
3.6 It is the intent of the parties to comply with the usury law of
the State of Arizona (the "Applicable Usury Law"). Accordingly, it is agreed
--------------------
that notwithstanding any provisions to the contrary in this Note, or in any of
the documents securing payment hereof or otherwise relating hereto, in no event
shall this Note or such documents require the payment or permit the collection
of interest in excess of the Maximum Interest Rate, then in any such event (1)
the provisions of the paragraph shall govern and control, (2) neither Borrower
nor any other person or entity now or hereafter liable for the payment hereof
shall be obligated to pay the amount of such interest to the extent that it is
in excess of the Maximum Interest Rate, (3) any such excess which may have been
collected shall be either applied as a credit against the then unpaid principal
amount hereof or refunded to Borrower, at FINOVA's option, and (4) the effective
rate of interest shall be automatically reduced to the Maximum Interest Rate.
It is further agreed, without limiting the generality of the foregoing, that to
the extent permitted by the Applicable Usury Law; (x) all calculations of
interest which are made for the purpose of determining whether such rate would
exceed the Maximum Interest Rate shall be made by amortizing, prorating,
allocating and spreading during the period of the full stated term of the loan
evidenced hereby, all interest at any time contracted for, charged or received
from Borrower or otherwise in connection with such loan; and (y) in the event
that the effective rate of interest on the loan should at any time exceed the
Maximum Interest Rate, such excess interest that would otherwise have been
collected had there been no ceiling imposed by the Applicable Usury Law shall be
paid to FINOVA from time to time, if and when the effective interest rate on the
loan otherwise fall below the Maximum Interest Rate, until the entire amount of
interest which would otherwise have been collected had there been no ceiling
imposed by the Applicable Usury Law has been paid in full. Borrower further
agrees that should the Maximum Interest Rate be increased at any time hereafter
because of a change in the Applicable Usury Law, then to the extent not
prohibited by the Applicable Usury Law, such increases shall apply to all
indebtedness evidenced hereby regardless of when incurred; but, again to the
extent not prohibited by the Applicable Usury Law, should the Maximum Interest
Rate be decreased because of a change in the Applicable Usury Law, such
decreases shall not apply to the indebtedness evidenced hereby regardless of
when incurred.
4
<PAGE>
3.7 FINOVA may at any time transfer this Note and FINOVA's rights in
any or all collateral securing this Note, and FINOVA thereafter shall be
relieved from all liability with respect to such collateral arising after the
date of such transfer.
3.8 This Note shall be binding upon Borrower and its legal
representatives, successors and assigns. Wherever possible, each provision of
this Note shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of the Note shall be prohibited by or
invalid under such law, such provision shall be severable, and be ineffective to
the extent of such prohibition or invalidity, without invalidating the remaining
provision of this Note.
THIS NOTE HAS BEEN DELIVERED FOR ACCEPTANCE BY FINOVA IN PHOENIX, ARIZONA
AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS
OPPOSED TO THE CONFLICTS OF LAW PROVISIONS) OF THE STATE OF ARIZONA, AS THE SAME
MAY FROM TIME TO TIME BE IN EFFECT, INCLUDING, WITHOUT LIMITATION, THE UNIFORM
COMMERCIAL CODE AS ADOPTED IN ARIZONA. BORROWER HEREBY (i) IRREVOCABLY SUBMITS
TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN MARICOPA COUNTY,
ARIZONA OVER ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING
FROM OR RELATED TO THIS NOTE; (ii) WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON BORROWER, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY
MESSENGER, CERTIFIED MAIL OR REGISTERED MAIL DIRECTED TO BORROWER AT THE ADDRESS
SET FORTH BELOW AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON THE
EARLIER OF ACTUAL RECEIPT OR THREE (3) DAYS AFTER THE SAME SHALL HAVE BEEN
POSTED TO BORROWER'S ADDRESS; (iii) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
BORROWER MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING; (iv) AGREES THAT A FINAL JUDGMENT
IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY
OTHER JURISDICTION BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY
LAW; (v) AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST FINOVA
OR ANY OF FINOVA'S DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY,
CONCERNING ANY MATTER ARISING OUT OF OR RELATING TO THIS NOTE IN ANY COURT OTHER
THAN ONE LOCATED IN MARICOPA COUNTY, ARIZONA; AND (vi) IRREVOCABLY WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION ARISING UNDER OR IN CONNECTION
5
<PAGE>
WITH THIS NOTE. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR IMPAIR FINOVA'S RIGHT
TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR FINOVA'S RIGHT TO BRING
ANY ACTION OR PROCEEDING AGAINST BORROWER OR BORROWER'S PROPERTY IN THE COURTS
OF ANY OTHER JURISDICTION.
U.S. REMODELERS, INC.
a Delaware corporation
By: /s/ Murray H.Gross
------------------------------
Murray H. Gross, President
"Borrower"
Federal Taxpayer Identification
Number: 75-2686765
Address: 1341 West Mockingbird Lane
Suite 900 East
Dallas, Texas 75247
6
<PAGE>
EXHIBIT 10.6
SECURITY AGREEMENT
------------------
This Security Agreement ("Security Agreement") is made this 6th day of
April, 1998 by and between U.S. REMODELERS, INC., a Delaware corporation with an
address at 1341 West Mockingbird Lane, Suite 900 East, Dallas, Texas 75247
(hereinafter referred to as "Debtor") and FINOVA Capital Corporation with an
address at 111 West 40th Street, New York, New York 10018 (hereinafter referred
to as "Secured Party").
FOR VALUED RECEIVED and intending to be legally bound hereby, the Debtor,
in consideration of and for the purpose of securing the payments of all
indebtedness and obligations of the Debtor under the Secured Promissory Term
Note ("Note") and all other indebtedness of Debtor to the Secured Party
howsoever incurred now existing or hereafter arising does hereby grant the
Secured Party its successors and assigns, a security interest pursuant to the
Uniform Commercial Code, in all the Collateral described herein.
1. Debtor hereby grants to Secured Party a continuing lien on and
security interest in the following property of Debtor (hereinafter referred to
as the "Collateral"):
(a) all equipment together with all additions, accessions,
attachments, substitutions, replacements thereof as more fully described on
Exhibit B attached hereto and made a part hereof, and
(b) all proceeds (including insurance proceeds) of all of the
foregoing.
2. The security interest hereby granted is to secure the Debtor's
obligations under the Note, as well as payment of any and all sums heretofore
and hereafter owing to Secured Party by Debtor, whether or not evidenced by any
note or other instrument and whether or not for the payment of money, direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, as well as all liabilities under any other agreements with
Secured Party, now and in the future including, without limitation, any debt,
liability or obligation owing from Debtor to others which Secured Party may have
obtained by assignment or otherwise, and further, including without limitation,
all interest, fees, charges, expenses and attorneys' fees chargeable to Debtor's
account, whether provided for herein or any other agreement between Debtor and
Secured Party. (All existing and future obligations including, but not limited
to: any and all principal, interest, fees, and/or costs owed by the Debtor to
the Secured Party and indebtedness hereinafter collectively referred to as the
"Obligations").
3. The Debtor hereby agrees that if the location of the Collateral
changes from the locations listed on Exhibit "A" hereto and made part hereof,
the Debtor will immediately notify the Secured Party in writing of any additions
or changes to any location of the Collateral. Debtor hereby guarantees that it
is the absolute owner of and is in possession of all of the Collateral, and
except for any lien or encumbrance granted herein, the Collateral and each item
thereof is free and clear of all security interests, liens, and encumbrances and
adverse claims of any kind or nature whatsoever.
<PAGE>
4. The Debtor covenants that it shall:
(a) from time to time and at all reasonable times with reasonable
notice, allow Secured Party, by or through any of its officers, agents,
attorneys, or accountants, to examine or inspect the Collateral wherever
located. The Debtor shall use its best efforts to do, obtain, make, execute and
deliver all such additional and further acts, things, deeds, assurances and
instruments as Secured Party may require to vest in and assure to Secured Party
its rights hereunder and in or to the Collateral, and the proceeds thereof,
including, but not limited to, waivers from landlords and mortgagees;
(b) immediately notify the Secured Party of any event causing a
material loss or decline in value of the Collateral, whether or not covered by
insurance, and the amount of such loss or depreciation; and
(c) have and maintain insurance at all times with respect to all
Collateral against risks of fire (including so-called extended coverage), theft,
sprinkler leakage, and other risks (including risk of flood if any Collateral is
maintained at a location in a flood hazard zone) as Secured Party may require,
in such form, in such amount, for such period and written by such companies as
may be satisfactory to the Secured Party. In the event of any failure to provide
insurance as herein provided, the Secured Party may, at its option, obtain such
insurance and the Debtor shall pay to the Secured Party, on demand, the cost
thereof. Proceeds of insurance may be applied by the Secured Party to reduce any
liability and indebtedness of the Debtor secured hereby or to repair or replace
Collateral, all in the Secured Party's exclusive discretion.
5. The Debtor will not sell or offer to sell or otherwise transfer or
grant or suffer the imposition of a lien or security interest upon the
Collateral or use any portion thereof in any manner inconsistent with this
Security Agreement or with the terms and conditions of any policy of insurance
thereon.
6. At the request of the Secured Party, the Debtor will join with the
Secured Party in executing all financing statements, continuation statements or
amendments thereto that the Secured Party may reasonably deem to be necessary
pursuant to the Uniform Commercial Code in form satisfactory to the Secured
Party in order to perfect or maintain FINOVA's perfected status in the
underlying Collateral. The Secured Party will pay the cost of preparing and
filing the same in all jurisdictions in which such filing is deemed by the
Secured Party to be necessary or desirable. A carbon, photographic or other copy
of this Security Agreement or of a UCC-1 financing statement may be filed as and
in lieu of an original UCC-1 financing statement.
7. Borrower covenants that, so long as the Obligations remain outstanding
and this Security Agreement remains in effect, it shall promptly reimburse
FINOVA for all costs, fees and expenses incurred by FINOVA in connection with
the negotiation, preparation, execution, delivery, administration and
enforcement of each of the documents related to this Security Agreement (the
"Security Documents") including, but not limited to, the attorneys' and
paralegals' fees of in-house and outside counsel, expert witness fees, lien,
title search and insurance fees, appraisal fees, and all
-2-
<PAGE>
other costs, expenses, taxes and filing or recording fees payable in connection
with the transactions contemplated by this Security Agreement.
8. The Debtor shall, at the option of Secured Party, be in default under
this Security Agreement upon the happening of any of the following events or
conditions ("Event of Default"):
(a) default by the Debtor in the payment, performance or observance of
any term, covenant, undertaking or liability referred to herein, or in
connection with any of the Obligations and the continuance of such default for
five (5) days, with respect to any payment default hereunder, and fifteen (15)
days, with respect to any non-payment default, after the Secured Party has given
Debtor notice thereof;
(b) falsity, inaccuracy or material breach by Debtor of any written
warranty, representation or statement made or furnished to the Secured Party by
or on behalf of the Debtor;
(c) any event which gives rise to the right of any party to accelerate
the maturity of the indebtedness of the Debtor to such party under any
indenture, agreement, or undertaking;
(d) an uninsured material loss, theft, damage, or destruction to any
of the Collateral, or the entry of any lien against or the making of any levy,
seizure or attachment thereof or thereon;
(e) dissolution, termination of existence, insolvency, business
suspension or failure, appointment of a receiver of any part of the property of
the Debtor, assignment for the benefit of creditors by the Debtor, or the
commencement of any proceedings under any federal bankruptcy or state insolvency
laws (now or hereafter enacted for the relief of debtors) by or against the
Debtor; or
(f) the occurrence of an Event of Default under the terms and
provisions of any agreement now existing or hereafter executed between the
Debtor or Borrower and the Secured Party.
After the occurrence and during the continuance of an Event of Default, the
Secured Party may declare all Obligations secured hereby immediately due and
payable and shall have, in addition to any remedies provided herein or by any
applicable law, all remedies of a secured party provided by the Uniform
Commercial Code. As permitted by such Code, the Secured Party may (i) peaceably
by its own means or with judicial assistance enter the Debtor's premises and
take possession of the Collateral, (ii) render the Collateral unusable, (iii)
dispose of the Collateral on the Debtor's premises, or (iv) require the Debtor
to assemble the Collateral and make it available to the Secured Party at a place
designated by the Secured Party. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, the Secured Party will give the Debtor reasonable notice of
the time and place of any public sale thereof or of the time after which any
private sale or any other intended disposition thereof is to be made. The
requirements of
-3-
<PAGE>
reasonable notice shall be met if such notice is sent by telephone, facsimile or
overnight mail, postage prepaid, to the business address of the Debtor shown in
this Security Agreement at least five (5) days before the time of the intended
sale or disposition. Expenses of retaking, holding, preparing for sale, selling
or the like shall include the Secured Party's reasonable attorney's fees and
legal expenses, incurred or expended by the Secured Party to enforce any
Obligations hereunder either as against the Debtor, or in the prosecution or
defense of any action, or concerning any matter growing out of or connection
with the subject matter of this Security Agreement, the collection of any
Obligations, or the Collateral pledged hereunder.
9. The Secured Party shall not be deemed to have waived any of the
Secured Party's rights hereunder or under any other agreement, instrument or
paper signed by the Debtor unless such waiver is in writing and signed by the
Secured Party. No delay or omission on the part of the Secured Party in
exercising any right shall operate as a waiver of such right or any other right.
A waiver on any one occasion shall not be construed as a bar to or waiver of any
right or remedy on any future occasion.
10. After the occurrence and during the continuance of an Event of
Default, the Debtor does hereby make, constitute and appoint any officer or
agent of the Secured Party as the Debtor's true and lawful attorney-in-fact,
with power to endorse the name of the Debtor or any of the Debtor's officers or
agents upon any notes, checks, drafts, money orders, or other instruments of
payment or Collateral that may come into the possession of the Secured Party in
full or part payment of any amounts owing to the Secured Party; granting to the
Debtor's said attorney full power to do any and all things necessary to be done
in and about the premises as fully and effectually as the Debtor might or could
do, including the right to compromise, settle and release all claims and
disputes with respect to the Collateral, and the Debtor hereby ratifies all that
said attorney shall lawfully do or cause to be done by virtue hereof. This power
of attorney shall be irrevocable for the life of this Security Agreement and all
transactions hereunder, but shall only be exercisable after and during the
continuance of an Event of Default.
11. All provisions herein shall inure to, and become binding upon the
successors, representatives, receivers, trustees and assigns of the parties. The
Debtor shall not delegate its duty of performance hereunder without the Secured
Party's prior written consent. The term "Security Agreement", as used in this
instrument, shall mean and include this Security Agreement, all amendments and
supplements to any of the foregoing, and all assignments, instruments and
documents submitted to the Secured Party in connection with any transaction
between the Debtor and the Secured Party. The Debtor hereby waives notice of
default, except as otherwise provided herein, and presentment, demand, protest,
and notice of dishonor as to any instrument. The Debtor hereby releases Secured
Party from all claims for loss or damage caused by any act or omission on the
part of Secured Party, its officers, agents, and employees, except for wilful
misconduct.
12. This Security Agreement, all amendments thereto, all supplements
thereof, and all acts, transactions, agreements, certificates, assignments and
transfers thereunder, and all rights of the parties hereto, shall be governed as
to their validity, enforcement, construction and effect, and
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<PAGE>
in all other respects by the internal law of the State of Arizona (as opposed to
the conflicts of law provisions). The provisions hereof are severable, and the
invalidity or unenforceability of any provision shall not affect or impair the
remaining provisions which shall continue in full force and effect. No
modification hereof shall be binding or enforceable unless in writing and signed
on behalf of the party against whom enforcement is sought.
13. DEBTOR IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE
OR FEDERAL COURT LOCATED IN MARICOPA COUNTY, ARIZONA IN ANY AND ALL ACTIONS AND
PROCEEDINGS WHETHER ARISING HEREUNDER OR UNDER ANY OTHER AGREEMENT OR
UNDERTAKING AND IRREVOCABLY AGREES TO SERVICE OF PROCESS BY CERTIFIED MAIL,
RETURN RECEIPT REQUESTED TO THE ADDRESS OF DEBTOR SET FORTH HEREIN. DEBTOR AS AN
INDEPENDENT COVENANT IRREVOCABLY WAIVES JURY TRIAL AND THE RIGHT THERETO IN ANY
AND ALL DISPUTES BETWEEN DEBTOR AND SECURED PARTY WHETHER HEREUNDER OR UNDER ANY
OTHER AGREEMENTS, NOTES, PAPERS, INSTRUMENTS OR DOCUMENTS, WHETHER SIMILAR OR
DISSIMILAR.
14. THE DEBTOR BEING FULLY AWARE OF THE RIGHT TO NOTICE AND A HEARING ON
THE QUESTION OF THE VALIDITY OF ANY CLAIMS THAT MAY BE ASSERTED AGAINST THE
DEBTOR BY THE SECURED PARTY UNDER THIS SECURITY AGREEMENT, AND RELATED
AGREEMENTS AND DOCUMENTS, BEFORE THE DEBTOR CAN BE DEPRIVED OF ANY PROPERTY IN
THE DEBTOR'S POSSESSION, HEREBY WAIVES THESE RIGHTS AND AGREES THAT THE SECURED
PARTY MAY ENJOY SELF-HELP OR ANY LEGAL OR EQUITABLE PROCESS PROVIDED BY LAW TO
TAKE POSSESSION OF ANY SUCH PROPERTY WITHOUT FIRST OBTAINING A FINAL JUDGMENT OR
WITHOUT FIRST GIVING THE DEBTOR NOTICE AND THE OPPORTUNITY TO BE HEARD ON THE
VALIDITY OF THE CLAIM UPON WHICH SUCH TAKING IS MADE.
15. All capitalized terms not otherwise defined herein shall have the
meaning as set forth in the Secured Promissory Term Note.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have set their hands and seals on the day and year first above written.
FINOVA CAPITAL CORPORATION U.S. REMODELERS, INC.
BY:________________________ BY: /s/ Murray H. Gross
------------------------
Melissa E. Schneck Murray H. Gross, President
Assistant Vice President
ATTEST: /s/ SIGNATURE ILLEGIBLE^^
------------------------
Secretary
(Corporate Seal)
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<PAGE>
EXHIBIT 10.7
[COMPANY STAMP APPEARS HERE]
LOAN AND SECURITY AGREEMENT
U.S. REMODELERS, INC.
1341 WEST MOCKINGBIRD LANE
SUITE 900 EAST
DALLAS, TEXAS 75247
75-2686765
---------------------------------------------
BORROWER FED ID TAX NO.
$1,700,000.00
---------------------------------------------
CREDIT LIMIT
JUNE 5, 1998
FINOVA BUSINESS CREDIT
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. DEFINITIONS............................................................ 1
1.1 Defined Terms..................................................... 1
1.2 Other Terms....................................................... 6
2. LOANS; INTEREST RATE AND OTHER CHARGES................................. 6
2.1 Total Facility.................................................... 6
2.2 Loans............................................................. 7
2.3 Overlines; Overadvances........................................... 7
2.4 Intentionally Omitted............................................. 7
2.5 Loan Account...................................................... 7
2.6 Interest; Fees.................................................... 7
2.7 Default Interest Rate............................................. 7
2.8 Examination Fee................................................... 7
2.9 Excess Interest................................................... 8
2.10 Principal Payments; Proceeds of Collateral........................ 8
2.11 Application of Collateral......................................... 10
2.12 Application of Payments........................................... 10
2.13 Notification of Closing........................................... 10
3. SECURITY............................................................... 10
3.1 Security Interest in the Collateral............................... 10
3.2 Perfection and Protection of Security Interest.................... 10
3.3 Preservation of Collateral........................................ 11
3.4 Insurance......................................................... 11
3.5 Collateral Reporting; Inventory................................... 11
3.6 Receivables....................................................... 12
3.7 Equipment......................................................... 12
3.8 Other Liens; No Disposition of Collateral......................... 12
3.9 Collateral Security............................................... 12
4. CONDITIONS OF CLOSING.................................................. 12
4.1 Initial Advance................................................... 12
4.2 Subsequent Advances............................................... 16
5. REPRESENTATIONS AND WARRANTIES......................................... 16
5.1 Due Organization.................................................. 16
5.2 Other Names....................................................... 16
5.3 Due Anthorization................................................. 16
5.4 Binding Obligation................................................ 16
5.5 Intangible Property............................................... 16
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.6 Capital....................................................................... 16
5.7 Material Litigation........................................................... 16
5.8 Title; Security Interests of FINOVA........................................... 16
5.9 Restrictive Agreements; Labor Contracts....................................... 17
5.10 Laws.......................................................................... 17
5.11 Consents...................................................................... 17
5.12 Defaults...................................................................... 17
5.13 Financial Condition........................................................... 17
5.14 ERISA......................................................................... 17
5.15 Taxes......................................................................... 17
5.16 Locations;Federal Tax ID No................................................... 17
5.17 Business Relationships........................................................ 17
5.18 Reaffirmations................................................................ 17
6. COVENANTS.......................................................................... 17
6.1 Affirmative Covenants......................................................... 17
6.1.1 Taxes............................................................... 17
6.1.2 Notice of Litigation................................................ 18
6.1.3 ERISA............................................................... 18
6.1.4 Change in Location.................................................. 18
6.1.5 Corporate Existence................................................. 18
6.1.6 Labor Disputes...................................................... 18
6.1.7 Violations of Law................................................... 18
6.1.8 Defaults............................................................ 18
6.1.9 Capital Expenditures................................................ 18
6.1.10 Books and Records................................................... 18
6.1.11 Leases; Warehouse Agreements........................................ 18
6.1.12 Additional Documents................................................ 18
6.1.13 Financial Covenants................................................. 18
6.2 Negative Covenants............................................................ 18
6.2.1 Mergers............................................................. 18
6.2.2 Loans............................................................... 18
6.2.3 Dividends........................................................... 18
6.2.4 Adverse Transactions................................................ 18
6.2.5 Indebtedness of Others.............................................. 19
6.2.6 Repurchase.......................................................... 19
6.2.7 Name................................................................ 19
6.2.8 Prepayment.......................................................... 19
6.2.9 Capital Expenditure................................................. 19
6.2.10 Compensation........................................................ 19
6.2.11 Indebtedness........................................................ 19
6.2.12 Affiliate Transactions.............................................. 19
</TABLE>
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<TABLE>
<S> <C>
6.2.13 Nature of Business............................................................ 19
6.2.14 FINOVA's Name................................................................. 19
6.2.15 Margin Security............................................................... 19
6.2.16 Real Property................................................................. 19
7. DEFAULT AND REMEDIES......................................................................... 20
7.1 Events of Default....................................................................... 20
7.2 Remedies................................................................................ 20
7.3 Standards for Determining Commerical Reasonableness..................................... 21
8. EXPENSES AND INDEMNITIES..................................................................... 21
8.1 Expenses................................................................................ 21
8.2 Environmental Matters................................................................... 21
9. MISCELLANEOUS................................................................................ 22
9.1 Examination of Records; Financial Reporting............................................. 22
9.2 Term; Termination....................................................................... 23
9.3 Recourse to Security; Certain Waivers................................................... 23
9.4 No Waiver by FINOVA..................................................................... 23
9.5 Binding on Successor and Assigns........................................................ 24
9.6 Severability............................................................................ 24
9.7 Amendments; Assignments................................................................. 24
9.8 Integration............................................................................. 24
9.9 Survival................................................................................ 24
9.10 Evidence of Obligations................................................................. 24
9.11 Loan Requests........................................................................... 24
9.12 Notices................................................................................. 24
9.13 Brokerage Fees.......................................................................... 24
9.14 Disclosure.............................................................................. 24
9.15 Publicity............................................................................... 24
9.16 Captions................................................................................ 24
9.17 Injunctive Relief....................................................................... 24
9.18 Counterparts; Facsimile Execution....................................................... 25
9.19 Construction............................................................................ 25
9.20 Time of Essence......................................................................... 25
9.21 Limitation of Actions................................................................... 25
9.22 Liability............................................................................... 25
9.23 Notice of Breach by FINOVA.............................................................. 25
9.24 Application of Insurance Proceeds....................................................... 25
9.25 Power of Attorney....................................................................... 25
9.26 Governing Law; Waivers.................................................................. 26
9.27 MUTUAL WAIVER OF RIGHT TO JURY TRIAL.................................................... 26
</TABLE>
<PAGE>
THIS LOAN AND SECURITY AGREEMENT (COLLECTIVELY WITH THE SCHEDULE TO LOAN
AGREEMENT (THE "Schedule") ATTACHED HERETO, THE "Agreement") DATED THE DATE SET
-------- ---------
FORTH ON THE COVER PAGE, IS ENTERED INTO BY AND BETWEEN THE BORROWER NAMED ON
THE COVER PAGE (JOINTLY AND SEVERALLY, THE "BORROWER"), WHOSE ADDRESS IS SET
FORTH ON THE COVER PAGE AND Finova Capital Corporation ("FINOVA"), WHOSE ADDRESS
IS 111 WEST 40TH STREET, 14/th/ FLOOR, NEW YORK, NY 10018.
1. DEFINITIONS.
1.1 DEFINED TERMS. AS USED IN THIS AGREEMENT, THE FOLLOWING TERMS HAVE
-------------
THE DEFINITIONS SET FORTH BELOW:
"ADA" HAS THE MEANING SET FORTH IN SECTION 4.1 (AA) HEREOF.
---
"ADDITIONAL SUMS" HAS THE MEANING SET FORTH IN SECTION 2.9(A) HEREOF.
---------------
"AFFILIATE" MEANS ANY PERSON CONTROLLING, CONTROLLED BY OR UNDER COMMON
---------
CONTROL WITH BORROWER. FOR PURPOSES OF THIS DEFINITION, "CONTROL" MEANS THE
POSSESSION, DIRECTLY OR INDIRECTLY, OF THE POWER TO DIRECT OR CAUSE DIRECTION OF
THE MANAGEMENT AND POLICIES OF ANY PERSON, WHETHER THROUGH OWNERSHIP OF COMMON
OR PREFERRED STOCK OR OTHER EQUITY INTERESTS, BY CONTRACT OR OTHERWISE. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, EACH OF THE FOLLOWING SHALL BE AN
AFFILIATE: ANY OFFICER, DIRECTOR, EMPLOYEE OR OTHER AGENT OF BORROWER, ANY
SHAREHOLDER, MEMBER OR SUBSIDIARY OF BORROWER, AND ANY OTHER PERSON WITH WHOM OR
WHICH BORROWER HAS COMMON SHAREHOLDERS, OFFICERS OR DIRECTORS.
"AGREEMENT" HAS THE MEANING SET FORTH IN THE PREAMBLE.
---------
"APPLICABLE USURY LAW" HAS THE MEANING SET FORTH IN SECTION 2.9(B) HEREOF.
--------------------
"BLOCKED ACCOUNT" HAS THE MEANING SET FORTH IN SECTION 2.10(C) HEREOF.
---------------
"BUSINESS DAY" MEANS ANY DAY ON WHICH COMMERCIAL BANKS IN BOTH NEW YORK,
------------
NEW YORK AND PHOENIX, ARIZONA ARE OPEN FOR BUSINESS.
"CAPITAL EXPENDITURES" MEANS ALL EXPENDITURES MADE AND LIABILITIES INCURRED
--------------------
FOR THE ACQUISITION OF ANY FIXED ASSET OR IMPROVEMENT, REPLACEMENT, SUBSTITUTION
OR ADDITION THERETO WHICH HAS A USEFUL LIFE OF MORE THAN ONE YEAR AND INCLUDING,
WITHOUT LIMITATION, THOSE ARISING IN CONNECTION WITH CAPITAL LEASES.
"CAPITAL LEASE" MEANS ANY LEASE OF PROPERTY BY BORROWER THAT, IN ACCORDANCE
-------------
WITH GAAP, SHOULD BE CAPITALIZED FOR FINANCIAL REPORTING PURPOSES AND REFLECTED
AS A LIABILITY ON THE BALANCE SHEET OF BORROWER.
"CHANGE OF CONTROL" MEANS (I) A "PERSON" OR A "GROUP" (WITHIN THE MEANING
-----------------
OF SECTIONS 13(D) AND 14(D)(II) OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT") BECOMES THE ULTIMATE "BENEFICIAL OWNER" (AS DEFINED
IN RULE 13D-3 UNDER THE EXCHANGE ACT) OF MORE THAN 30% OF THE TOTAL VOTING POWER
OF THE VOTING STOCK OF THE BORROWER ON A FULLY DILUTED BASIS OR (II) A MAJORITY
OF THE BOARD OF DIRECTORS OF THE BORROWER THEN IN OFFICE SHALL NOT CONSIST OF
INDIVIDUALS WHO ON THE CLOSING DATE CONSTITUTE THE BOARD OF DIRECTORS OF THE
BORROWER OR NEW DIRECTORS WHOSE ELECTION OR WHOSE NOMINATION FOR ELECTION BY
STOCKHOLDERS, WAS APPROVED BY AT LEAST TWO THIRDS OF THE MEMBERS OF THE BOARD OF
DIRECTORS THEN IN OFFICE WHO WERE EITHER MEMBERS OF THE BOARD OF DIRECTORS ON
THE CLOSING DATE OR WHOSE ELECTION OR NOMINATION WAS PREVIOUSLY SO APPROVED.
"CLOSING FEE" HAS THE MEANING SET FORTH IN THE SCHEDULE.
-----------
<PAGE>
"CLOSING DATE" MEANS THE DATE OF THE INITIAL ADVANCE MADE BY FINOVA
------------
PURSUANT TO THIS AGREEMENT.
"CODE" MEANS THE UNIFORM COMMERCIAL CODE AS ADOPTED AND IN EFFECT IN THE
----
STATE OF ARIZONA FROM TIME TO TIME.
"COLLATERAL" HAS THE MEANING SET FORTH IN SECTION 3.1 HEREOF.
----------
"COLLATERAL MONITORING FEE" HAS THE MEANING SET FORTH IN THE SCHEDULE.
-------------------------
"CURRENT ASSETS" AT ANY DATE MEANS THE AMOUNT AT WHICH THE CURRENT ASSETS
--------------
OF BORROWER WOULD BE SHOWN ON A BALANCE SHEET OF BORROWER AS AT SUCH DATE,
PREPARED IN ACCORDANCE WITH GAAP, PROVIDED THAT AMOUNTS DUE FROM AFFILIATES AND
--------
INVESTMENTS IN AFFILIATES SHALL BE EXCLUDED THEREFROM.
"CURRENT LIABILITIES" AT ANY DATE MEANS THE AMOUNT AT WHICH THE CURRENT
-------------------
LIABILITIES OF BORROWER WOULD BE SHOWN ON A BALANCE SHEET OF BORROWER AS AT SUCH
DATE, PREPARED IN ACCORDANCE WITH GAAP.
"DEPOSIT ACCOUNTS" HAS THE MEANING SET FORTH IN SECTION 9105 OF THE CODE.
----------------
"DOMINION ACCOUNT" HAS THE MEANING SET FORTH IN SECTION 2.10(C) HEREOF.
----------------
"EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION" FOR ANY
--------------------------------------------------------------
FISCAL PERIOD OF BORROWER MEANS THE NET INCOME OF BORROWER FOR SUCH FISCAL
PERIOD, PLUS INTEREST EXPENSE, DEPRECIATION AND AMORTIZATION AND PROVISION FOR
INCOME TAXES FOR SUCH FISCAL PERIOD, AND, MINUS NON-RECURRING MISCELLANEOUS
INCOME AND EXPENSES, ALL CALCULATED IN ACCORDANCE WITH GAAP.
"ELIGIBLE INVENTORY" MEANS INVENTORY WHICH FINOVA, IN ITS PERMITTED
------------------
DISCRETION, DEEMS ELIGIBLE INVENTORY, BASED ON SUCH CONSIDERATIONS AS FINOVA MAY
FROM TIME TO TIME DEEM APPROPRIATE. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, NO INVENTORY SHALL BE ELIGIBLE INVENTORY UNLESS, IN FINOVA'S
PERMITTED DISCRETION, SUCH INVENTORY (I) CONSISTS OF RAW MATERIALS AND FINISHED
GOODS, IN GOOD, NEW AND SALABLE CONDITION WHICH ARE NOT OBSOLETE OR
UNMERCHANTABLE, AND ARE NOT COMPRISED OF WORK IN PROCESS, PACKAGING MATERIALS OR
SUPPLIES; (III) MEETS ALL STANDARDS IMPOSED BY ANY GOVERNMENTAL AGENCY OR
AUTHORITY; (IV) CONFORMS IN ALL RESPECTS TO THE WARRANTIES AND REPRESENTATIONS
SET FORTH HEREIN; (V) IS AT ALL TIMES SUBJECT TO FINOVA'S DULY PERFECTED, FIRST
PRIORITY SECURITY INTEREST; AND (VI) IS SITUATED AT A LOCATION IN COMPLIANCE
WITH SECTION 5.16 HEREOF.
"ELIGIBLE RECEIVABLES" MEANS RECEIVABLES ARISING IN THE ORDINARY COURSE OF
--------------------
BORROWER'S BUSINESS FROM THE SALE OF GOODS OR RENDITION OF SERVICES, WHICH
FINOVA, IN ITS PERMITTED DISCRETION, SHALL DEEM ELIGIBLE BASED ON SUCH
CONSIDERATIONS AS FINOVA MAY FROM TIME TO TIME DEEM APPROPRIATE. WITHOUT
LIMITING THE FOREGOING, A RECEIVABLE SHALL NOT BE DEEMED TO BE AN ELIGIBLE
RECEIVABLE IF (I) THE ACCOUNT DEBTOR HAS FAILED TO PAY THE RECEIVABLE WITHIN A
PERIOD OF FORTY (45) DAYS AFTER INVOICE DATE, TO THE EXTENT OF ANY AMOUNT
REMAINING UNPAID AFTER SUCH PERIOD; (II) THE ACCOUNT DEBTOR HAS FAILED TO PAY
MORE THAN 25% OF ALL OUTSTANDING RECEIVABLES OWED BY IT TO BORROWER WITHIN
FORTY-FIVE (45) DAYS AFTER INVOICE DATE; (III) THE ACCOUNT DEBTOR IS AN
AFFILIATE OF BORROWER; (IV) THE GOODS RELATING THERETO ARE PLACED ON
CONSIGNMENT, GUARANTEED SALE, "BILL AND HOLD," "COD" OR OTHER TERMS PURSUANT TO
WHICH PAYMENT BY THE ACCOUNT DEBTOR MAY BE CONDITIONAL; (V) THE ACCOUNT DEBTOR
IS NOT LOCATED IN THE UNITED STATES, UNLESS THE RECEIVABLE IS SUPPORTED BY A
LETTER OF CREDIT OR OTHER FORM OF GUARANTY OR SECURITY, IN EACH CASE IN FORM AND
SUBSTANCE SATISFACTORY TO FINOVA; (VI) THE ACCOUNT DEBTOR IS THE UNITED STATES
OR ANY DEPARTMENT, AGENCY OR INSTRUMENTALITY THEREOF OR ANY STATE, CITY OR
MUNICIPALITY OF THE UNITED STATES;
<PAGE>
(VII) BORROWER IS OR MAY BECOME LIABLE TO THE ACCOUNT DEBTOR FOR GOODS SOLD OR
SERVICES RENDERED BY THE ACCOUNT DEBTOR TO BORROWER; (VIII) THE ACCOUNT DEBTOR'S
TOTAL OBLIGATIONS TO BORROWER EXCEED 15% OF ALL ELIGIBLE RECEIVABLES, TO THE
EXTENT OF SUCH EXCESS; (IX) THE ACCOUNT DEBTOR DISPUTES LIABILITY OR MAKES ANY
CLAIM WITH RESPECT THERETO (UP TO THE AMOUNT OF SUCH LIABILITY OR CLAIM), OR IS
SUBJECT TO ANY INSOLVENCY OR BANKRUPTCY PROCEEDING, OR BECOMES INSOLVENT, FAILS
OR GOES OUT OF A MATERIAL PORTION OF ITS BUSINESS; (X) THE AMOUNT THEREOF
CONSISTS OF LATE CHARGES OR FINANCE CHARGES; (IX) THE AMOUNT THEREOF CONSISTS OF
A CREDIT BALANCE MORE THAN NINETY (90) DAYS PAST DUE; (XII) THE FACE AMOUNT
THEREOF EXCEEDS $10,000.00 UNLESS ACCOMPANIED BY EVIDENCE OF SHIPMENT OF THE
GOODS RELATING THERETO SATISFACTORY TO FINOVA IN ITS PERMITTED DISCRETION;
(XIII) THE INVOICE CONSTITUTES THE FINAL BILLING AT SUCH TIME AS THE BORROWER
HAS COMPLETED THE CONTRACT; (XIV) THE AMOUNT THEREOF IS NOT YET REPRESENTED BY
AN INVOICE OR BILL ISSUED IN THE NAME OF THE APPLICABLE ACCOUNT DEBTOR; OR (XV)
ANY INVOICE THAT DOES NOT HAVE A SIGNED CUSTOMER ACCEPTANCE FORM PRIOR TO BEING
POSTED TO THE AGING.
"EQUIPMENT" MEANS ALL OF BORROWER'S PRESENT AND HEREAFTER ACQUIRED
---------
MACHINERY, MOLDS, MACHINE TOOLS, MOTORS, FURNITURE, EQUIPMENT, FURNISHINGS,
FIXTURES, TRADE FIXTURES, MOTOR VEHICLES, TOOLS, PARTS, DYES, JIGS, GOODS AND
OTHER TANGIBLE PERSONAL PROPERTY (OTHER THAN INVENTORY) OF EVERY KIND AND
DESCRIPTION USED BY BORROWER'S OPERATIONS OR OWNED BY BORROWER AND ANY INTEREST
IN ANY OF THE FOREGOING, AND ALL ATTACHMENTS, ACCESSORIES, ACCESSIONS,
REPLACEMENTS, SUBSTITUTIONS, ADDITIONS OR IMPROVEMENTS TO ANY OF THE FOREGOING,
WHEREVER LOCATED.
"ERISA" MEANS THE EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974, AS
-----
AMENDED, AND THE REGULATIONS THEREUNDER.
"ERISA AFFILIATE" MEANS EACH TRADE OR BUSINESS (WHETHER OR NOT INCORPORATED
---------------
AND WHETHER OR NOT FOREIGN) WHICH IS OR MAY HEREAFTER BECOME A MEMBER OF A GROUP
OF WHICH BORROWER IS A MEMBER AND WHICH IS TREATED AS A SINGLE EMPLOYER UNDER
ERISA SECTION 4001(B)(1), OR IRC SECTION 414.
"EVENT OF DEFAULT" MEANS ANY OF THE EVENTS SET FORTH IN SECTION 7.1 OF THIS
----------------
AGREEMENT.
"EXAMINATION FEE" HAS THE MEANING SET FORTH IN THE SCHEDULE.
---------------
"EXCESS AVAILABILITY" MEANS, AS OF THE DATE OF DETERMINATION THEREOF, THE
-------------------
AMOUNT BY WHICH THE AVERAGE DAILY TOTAL PRINCIPAL BALANCE OF THE REVOLVING
CREDIT LOANS FACILITY WHICH BORROWER WOULD BE PERMITTED TO HAVE OUTSTANDING OVER
THE PRIOR 30 DAYS, BASED ON THE FORMULAS AND RESERVES SET FORTH IN THE SCHEDULE,
EXCEEDS THE SUM OF THE RECEIVABLE LOANS AND THE INVENTORY LOANS THEN ACTUALLY
OUTSTANDING, SUCH EXCESS THEN BEING REDUCED BY AN AMOUNT NECESSARY TO PROVIDE
FOR THE PAYMENT OF ALL ACCOUNTS PAYABLE OF BORROWER WHICH ARE MORE THAN 30 DAYS
PAST DUE DATE AND ALL BOOK OVERDRAFTS.
"EXCESS CASH FLOW" MEANS OPERATING CASH FLOW/PERMITTED LESS TOTAL
----------------
CONTRACTUAL DEBT SERVICE.
"FACILITY FEE" HAS THE MEANING SET FORTH IN THE SCHEDULE.
------------
"FINOVA AFFILIATE" HAS THE MEANING SET FORTH IN SECTION 9.22 HEREOF.
----------------
"GAAP" MEANS GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES
----
OF AMERICA AS IN EFFECT FROM TIME TO TIME AS SET FORTH IN THE OPINIONS AND
PRONOUNCEMENTS OF THE ACCOUNTING PRINCIPLES BOARD AND THE AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS AND THE STATEMENTS AND PRONOUNCEMENTS OF THE
FINANCIAL ACCOUNTING STANDARDS BOARDS WHICH ARE APPLICABLE TO THE CIRCUMSTANCES
AS OF THE
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DATE OF DETERMINATION CONSISTENTLY APPLIED, EXCEPT THAT, FOR THE FINANCIAL
COVENANTS SET FORTH IN THIS AGREEMENT, GAAP SHALL BE DETERMINED ON THE BASIS OF
SUCH PRINCIPLES IN EFFECT ON THE DATE HEREOF AND CONSISTENT WITH THOSE USED IN
THE PREPARATION OF THE AUDITED FINANCIAL STATEMENTS DELIVERED TO LENDER PRIOR TO
THE DATE HEREOF.
"GENERAL INTANGIBLES" MEANS ALL GENERAL INTANGIBLES OF BORROWER, WHETHER
-------------------
NOW OWNED OR HEREAFTER CREATED OR ACQUIRED BY BORROWER, INCLUDING, WITHOUT
LIMITATION, ALL CHOSES IN ACTION, CAUSES OF ACTION, CORPORATE OR OTHER BUSINESS
RECORDS, DEPOSIT ACCOUNTS, INVENTIONS, DESIGNS, DRAWINGS, BLUEPRINTS, TRADE, ,
LICENSES AND PATENTS, NAMES, TRADE SECRETS, GOODWILL, COPYRIGHTS, REGISTRATIONS,
LICENSES, FRANCHISES, CUSTOMER LISTS, SECURITY AND OTHER DEPOSITS, RIGHTS IN ALL
LITIGATION PRESENTLY OR HEREAFTER PENDING FOR ANY CAUSE OR CLAIM (WHETHER IN
CONTRACT, TORT OR OTHERWISE), AND ALL JUDGMENTS NOW OR HEREAFTER ARISING
THEREFROM, ALL CLAIMS OF BORROWER AGAINST FINOVA, RIGHTS TO PURCHASE OR SELL
REAL OR PERSONAL PROPERTY, RIGHTS AS A LICENSOR OR LICENSEE OF ANY KIND,
ROYALTIES, TELEPHONE NUMBERS, PROPRIETARY INFORMATION, PURCHASE ORDERS, AND ALL
INSURANCE POLICIES AND CLAIMS (INCLUDING WITHOUT LIMITATION CREDIT, LIABILITY,
PROPERTY AND OTHER INSURANCE), TAX REFUNDS AND CLAIMS, COMPUTER PROGRAMS, DISCS,
TAPES AND TAPE FILES, CLAIMS UNDER GUARANTIES, SECURITY INTERESTS OR OTHER
SECURITY HELD BY OR GRANTED TO BORROWER TO SECURE PAYMENT OF ANY OF THE
RECEIVABLES BY AN ACCOUNT DEBTOR, ALL RIGHTS TO INDEMNIFICATION AND ALL OTHER
INTANGIBLE PROPERTY OF EVERY KIND AND NATURE (OTHER THAN RECEIVABLES).
"GUARANTOR(S)" HAS THE MEANING SET FORTH IN THE SCHEDULE.
------------
"INDEBTEDNESS" MEANS ALL OF BORROWER'S PRESENT AND FUTURE OBLIGATIONS,
------------
LIABILITIES, DEBTS, CLAIMS AND INDEBTEDNESS, CONTINGENT, FIXED OR OTHERWISE,
HOWEVER EVIDENCED, CREATED, INCURRED, ACQUIRED, OWING OR ARISING, WHETHER UNDER
WRITTEN OR ORAL AGREEMENT, OPERATION OF LAW OR OTHERWISE, AND INCLUDES, WITHOUT
LIMITING THE FOREGOING (1) THE OBLIGATIONS, (II) OBLIGATIONS AND LIABILITIES OF
ANY PERSON SECURED BY A LIEN, CLAIM, ENCUMBRANCE OR SECURITY INTEREST UPON
PROPERTY OWNED BY BORROWER, EVEN THOUGH BORROWER HAS NOT ASSUMED OR BECOME
LIABLE THEREFOR, (III) OBLIGATIONS AND LIABILITIES CREATED OR ARISING UNDER ANY
LEASE (INCLUDING CAPITAL LEASES) OR CONDITIONAL SALES CONTRACT OR OTHER TITLE
RETENTION AGREEMENT WITH RESPECT TO PROPERTY USED OR ACQUIRED BY BORROWER, EVEN
THOUGH THE RIGHTS AND REMEDIES OF THE LESSOR, SELLER OR LENDER ARE LIMITED TO
REPOSSESSION, (IV) ALL UNFUNDED PENSION FUND OBLIGATIONS AND LIABILITIES AND (V)
DEFERRED TAXES.
"INITIAL TERM" HAS THE MEANING SET FORTH ON THE SCHEDULE.
------------
"INVENTORY" MEANS ALL OF BORROWER'S NOW OWNED AND HEREAFTER ACQUIRED GOODS,
---------
MERCHANDISE OR OTHER PERSONAL PROPERTY, WHEREVER LOCATED, TO BE FURNISHED UNDER
ANY CONTRACT OF SERVICE OR HELD FOR SALE OR LEASE, ALL RAW MATERIALS, WORK IN
PROCESS, FINISHED GOODS AND MATERIALS AND SUPPLIES OF ANY KIND, NATURE OR
DESCRIPTION WHICH ARE OR MIGHT BE USED OR CONSUMED IN BORROWER'S BUSINESS OR
USED IN CONNECTION WITH THE MANUFACTURE, PACKING, SHIPPING, ADVERTISING, SELLING
OR FINISHING OF SUCH GOODS, MERCHANDISE OR OTHER PERSONAL PROPERTY, AND ALL
DOCUMENTS OF TITLE OR OTHER DOCUMENTS REPRESENTING THEM.
"INVENTORY LOANS" HAS THE MEANING SET FORTH IN THE SCHEDULE.
---------------
"IRC" MEANS THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND THE
---
REGULATIONS THEREUNDER.
-5-
<PAGE>
"LOANS" HAS THE MEANING SET FORTH IN SECTION 2.2 HEREOF.
-----
"LOAN DOCUMENTS" MEANS, COLLECTIVELY, THIS AGREEMENT, ANY NOTE OR NOTES
--------------
EXECUTED BY BORROWER AND PAYABLE TO FINOVA, INCLUDING, BUT NOT LIMITED TO THAT
CERTAIN SECURED PROMISSORY TERM NOTE, SECURITY AGREEMENT AND OTHER INSTRUMENTS
AND DOCUMENTS RELATED THERETO DATED AND AS OF APRIL 7, 1998, AND ANY OTHER
PRESENT OR FUTURE AGREEMENT ENTERED INTO IN CONNECTION WITH THIS AGREEMENT,
TOGETHER WITH ALL ALTERATIONS, AMENDMENTS, CHANGES, EXTENSIONS, MODIFICATIONS,
REFINANCINGS, REFUNDINGS, RENEWALS, REPLACEMENTS, RESTATEMENTS, OR SUPPLEMENTS,
OF OR TO ANY OF THE FOREGOING.
"LOAN PARTY" MEANS BORROWER, EACH GUARANTOR, EACH SUBORDINATING CREDITOR
----------
AND EACH OTHER PARTY (OTHER THAN FINOVA) TO ANY LOAN DOCUMENT.
"LOAN RESERVES" MEANS, AS OF ANY DATE OF DETERMINATION, SUCH AMOUNTS AS
-------------
FINOVA MAY FROM TIME TO TIME ESTABLISH AND REVISE IN GOOD FAITH REDUCING THE
AMOUNT OF REVOLVING CREDIT LOANS AND LETTERS OF CREDIT WHICH WOULD OTHERWISE BE
AVAILABLE TO BORROWER UNDER THE LENDING FORMULA(S) PROVIDED IN THE SCHEDULE: (A)
TO REFLECT EVENTS, CONDITIONS, CONTINGENCIES OR RISKS WHICH, AS DETERMINED BY
FINOVA IN GOOD FAITH, DO OR MAY AFFECT EITHER (I) THE COLLATERAL OR ANY OTHER
PROPERTY WHICH IS SECURITY FOR THE OBLIGATIONS OR ITS VALUE, (II) THE ASSETS,
BUSINESS OR PROSPECTS OF BORROWER OR ANY GUARANTOR OR (III) THE SECURITY
INTERESTS AND OTHER RIGHTS OF FINOVA IN THE COLLATERAL (INCLUDING THE
ENFORCEABILITY, PERFECTION AND PRIORITY THEREOF) OR (B) TO REFLECT FINOVA'S GOOD
FAITH BELIEF THAT ANY COLLATERAL REPORT OR FINANCIAL INFORMATION FURNISHED BY OR
ON BEHALF OF BORROWER OR ANY GUARANTOR TO FINOVA IS OR MAY HAVE BEEN INCOMPLETE,
INACCURATE OR MISLEADING IN ANY MATERIAL RESPECT OR (C) IN RESPECT OF ANY STATE
OF FACTS WHICH FINOVA DETERMINES IN GOOD FAITH CONSTITUTES AN EVENT OF DEFAULT
OR MAY, WITH NOTICE OR PASSAGE OF TIME OR BOTH, CONSTITUTE AN EVENT OF DEFAULT."
"LOAN YEAR" MEANS EACH TWELVE MONTH PERIOD COMMENCING ON THE CLOSING DATE.
---------
"MAXIMUM INTEREST RATE" HAS THE MEANING SET FORTH IN SECTION 2.9(C) HEREOF.
---------------------
"MULTIEMPLOYER PLAN" MEANS A "Multiemployer Plan" AS DEFINED IN ERISA
------------------
SECTIONS 3(37) OR 4001(A)(3) OR IRC SECTION 414(F) WHICH COVERS EMPLOYEES OF
BORROWER OR ANY ERISA AFFILIATE.
"NET WORTH" AT ANY DATE MEANS THE BORROWER'S NET WORTH AS DETERMINED IN
---------
ACCORDANCE WITH GAAP.
"OBLIGATIONS" MEANS ALL PRESENT AND FUTURE LOANS, ADVANCES, DEBTS,
-----------
LIABILITIES, OBLIGATIONS, COVENANTS, DUTIES AND INDEBTEDNESS AT ANY TIME OWING
BY BORROWER TO FINOVA, WHETHER EVIDENCED BY THIS AGREEMENT, ANY NOTE OR OTHER
INSTRUMENT OR DOCUMENT, WHETHER ARISING FROM AN EXTENSION OF CREDIT, OPENING OF
A LETTER OF CREDIT, BANKER'S ACCEPTANCE, LOAN, GUARANTY, INDEMNIFICATION OR
OTHERWISE, WHETHER DIRECT OR INDIRECT (INCLUDING, WITHOUT LIMITATION, THOSE
ACQUIRED BY ASSIGNMENT AND ANY PARTICIPATION BY FINOVA IN BORROWER'S DEBTS OWING
TO OTHERS), ABSOLUTE OR CONTINGENT, DUE OR TO BECOME DUE, INCLUDING, WITHOUT
LIMITATION, ALL INTEREST, CHARGES, EXPENSES, FEES, ATTORNEY'S FEES, EXPERT
WITNESS FEES, EXAMINATION FEE, COLLATERAL MONITORING FEE, CLOSING FEE, FACILITY
FEE, TERMINATION FEE AND ANY OTHER SUMS CHARGEABLE TO BORROWER HEREUNDER OR
UNDER ANY OTHER AGREEMENT WITH FINOVA, INCLUDING, BUT NOT LIMITED TO THAT
CERTAIN SECURED PROMISSORY TERM NOTE, SECURITY AGREEMENT AND OTHER INSTRUMENTS
AND DOCUMENTS RELATED THERETO DATED AND AS OF APRIL 7,1998.
-6-
<PAGE>
"OPERATING CASH FLOW/ACTUAL" MEANS, FOR ANY PERIOD, BORROWER'S NET INCOME
--------------------------
OR LOSS (EXCLUDING THE EFFECT OF ANY EXTRAORDINARY GAINS OR LOSSES), DETERMINED
IN ACCORDANCE WITH GAAP, PLUS OR MINUS EACH OF THE FOLLOWING ITEMS, TO THE
---- -----
EXTENT DEDUCTED FROM OR ADDED TO THE REVENUES OF BORROWER IN THE CALCULATION OF
NET INCOME OR LOSS: (I) DEPRECIATION; (II) AMORTIZATION AND OTHER NON-CASH
CHARGES; (III) INTEREST EXPENSE PAID OR ACCRUED; (IV) TOTAL FEDERAL AND STATE
INCOME TAX EXPENSE DETERMINED AS THE ACCRUED LIABILITY OF BORROWER IN RESPECT OF
SUCH PERIOD, REGARDLESS OF WHAT PORTION OF SUCH EXPENSE HAS ACTUALLY BEEN PAID
DURING SUCH PERIOD; (B) ANY NON-CASH INCOME; AND (C) ALL PERMITTED CAPITAL
EXPENDITURES (WITHOUT REGARD TO ANY WAIVER GIVEN BY FINOVA WITH RESPECT TO ANY
LIMITATION ON SUCH CAPITAL EXPENDITURES) ACTUALLY MADE DURING SUCH PERIOD AND
NOT FINANCED.
"OPERATING CASH FLOW/PERMITTED" MEANS, FOR ANY PERIOD, BORROWER'S NET
------------------------------
INCOME OR LOSS (EXCLUDING THE EFFECT OF ANY EXTRAORDINARY GAINS OR LOSSES),
DETERMINED IN ACCORDANCE WITH GAAP, PLUS, OR MINUS EACH OF THE FOLLOWING ITEMS,
---- -----
TO THE EXTENT DEDUCTED FROM OR ADDED TO THE REVENUES OF BORROWER IN THE
CALCULATION OF NET INCOME OR LOSS: (I) DEPRECIATION; (II) AMORTIZATION AND
OTHER NON-CASH CHARGES; (III) INTEREST EXPENSE PAID OR ACCRUED; (IV) TOTAL
FEDERAL AND STATE INCOME TAX EXPENSE DETERMINED AS THE ACCRUED LIABILITY OF
BORROWER IN RESPECT OF SUCH PERIOD, REGARDLESS OF WHAT PORTION OF SUCH EXPENSE
HAS ACTUALLY BEEN PAID BY BORROWER DURING SUCH PERIOD; AND (V) MANAGEMENT FEES
AND OTHER FEES PAID TO SUBORDINATING CREDITORS, TO THE EXTENT PERMITTED
HEREUNDER, AND AFTER DEDUCTION FOR EACH OF (A) FEDERAL AND STATE INCOME TAXES,
TO THE EXTENT ACTUALLY PAID DURING SUCH PERIOD; (B) ANY NON-CASH INCOME; AND (C)
ALL PERMITTED CAPITAL EXPENDITURES (WITHOUT REGARD TO ANY WAIVER GIVEN BY FINOVA
WITH RESPECT TO ANY LIMITATION ON SUCH CAPITAL EXPENDITURES) ACTUALLY MADE
DURING SUCH PERIOD AND NOT FINANCED.
"OVERADVANCE" HAS THE MEANING SET FORTH IN SECTION 2.3.
-----------
"OVERLINE' HAS THE MEANING SET FORTH IN SECTION 2.3.
--------
"PERMITTED DISTRIBUTIONS" HAS THE MEANING SET FORTH IN SECTION 6.2.3
-----------------------
HEREOF.
"PBGC" MEANS THE PENSION BENEFIT GUARANTEE CORPORATION.
----
"PERMITTED DISCRETION" MEANS FINOVA'S JUDGMENT EXERCISED IN GOOD FAITH
--------------------
BASED UPON ITS CONSIDERATION OF ANY FACTOR WHICH FINOVA BELIEVES IN GOOD FAITH:
(I) WILL OR COULD ADVERSELY AFFECT THE VALUE OF ANY COLLATERAL, THE
ENFORCEABILITY OR PRIORITY OF FINOVA'S LIENS THEREON OR THE AMOUNT WHICH FINOVA
WOULD BE LIKELY TO RECEIVE (AFTER GIVING CONSIDERATION TO DELAYS IN PAYMENT AND
COSTS OF ENFORCEMENT) IN THE LIQUIDATION OF SUCH COLLATERAL; (II) SUGGESTS THAT
ANY COLLATERAL REPORT OR FINANCIAL INFORMATION DELIVERED TO FINOVA BY ANY PERSON
ON BEHALF OF THE BORROWER IS INCOMPLETE, INACCURATE OR MISLEADING IN ANY
MATERIAL RESPECT; (III) MATERIALLY INCREASES THE LIKELIHOOD OF A BANKRUPTCY,
REORGANIZATION OR OTHER INSOLVENCY PROCEEDING INVOLVING THE BORROWER, ANY LOAN
PARTY OR ANY OF THE COLLATERAL OR (IV) CREATES OR REASONABLY COULD BE EXPECTED
TO CREATE AN EVENT OF DEFAULT. IN EXERCISING SUCH JUDGMENT, FINOVA MAY CONSIDER
SUCH FACTORS ALREADY INCLUDED IN OR TESTED BY THE DEFINITION OF ELIGIBLE
RECEIVABLES OR ELIGIBLE INVENTORY, AS WELL AS ANY OF THE FOLLOWING: (I) THE
FINANCIAL AND BUSINESS CLIMATE OF THE BORROWER'S INDUSTRY AND GENERAL
MACROECONOMIC CONDITIONS, (II) CHANGES IN COLLECTION HISTORY AND DILUTION WITH
RESPECT TO THE RECEIVABLES, (III) CHANGES IN DEMAND FOR, AND PRICING OF,
INVENTORY, (IV) CHANGES IN ANY CONCENTRATION OF RISK WITH RESPECT TO RECEIVABLES
AND/OR INVENTORY, AND (V) ANY OTHER
-7-
<PAGE>
FACTORS THAT CHANGE THE CREDIT RISK OF LENDING TO THE BORROWER ON THE SECURITY
OF THE RECEIVABLES AND INVENTORY. THE BURDEN OF ESTABLISHING LACK OF GOOD FAITH
HEREUNDER SHALL BE ON THE BORROWER.
"PERMITTED ENCUMBRANCE" MEANS:
---------------------
A. LIENS SECURING THE LOANS IN FAVOR OF FINOVA;
B. MINOR DEFECTS IN TITLE OR CUSTOMARY EASEMENTS, PLATTED BUILDING
LINES, RESTRICTIVE COVENANTS AND SIMILAR EXCEPTIONS AFFECTING TITLE
WHICH DO NOT SECURE THE PAYMENT OF MONEY;
C. INCHOATE STATUTORY OR OPERATORS' LIENS SECURING OBLIGATIONS FOR
LABOR, SERVICES, MATERIALS AND SUPPLIES FURNISHED TO ANY PROPERTY
OF BORROWER, WHICH ARE NOT DELINQUENT;
D. MECHANICS' MATERIALMEN'S, WAREHOUSEMEN'S, JOURNEYMEN'S AND
CARRIERS' LIENS AND OTHER SIMILAR LIENS ARISING BY OPERATION OF LAW
OR STATUTE IN THE ORDINARY COURSE OF BUSINESS IF (i) THE UNDERLYING
CLAIM IS NOT DELINQUENT AND DID NOT IN ANY EVENT COVER A BILLING
PERIOD NOT EXCEEDING SIXTY (60) DAYS, OR (ii) UNLESS THE CLAIM
GIVING RISE TO SUCH LIEN IS BEING CONTESTED BY BORROWER IN GOOD
FAITH AND FOR WHICH BORROWER HAS OBTAINED A PROPER PAYMENT AND
PERFORMANCE BOND IN THE AMOUNT OF THE CONTESTED CLAIM; AND
E. LIENS FOR TAXES OR TAX RELATED IMPOSITION(S) NOT YET DUE OR NOT YET
DELINQUENT, OR, IF DELINQUENT, THAT ARE BEING CONTESTED BY BORROWER
AS PERMITTED BY THIS AGREEMENT.
"PERSON" MEANS ANY INDIVIDUAL, SOLE PROPRIETORSHIP, PARTNERSHIP, JOINT
------
VENTURE, TRUST, UNINCORPORATED ORGANIZATION, ASSOCIATION, CORPORATION, LIMITED
LIABILITY COMPANY, GOVERNMENT, OR ANY AGENCY OR POLITICAL DIVISION THEREOF, OR
ANY OTHER ENTITY.
"PLAN" MEANS ANY PLAN DESCRIBED IN ERISA SECTION 3(2) MAINTAINED FOR
----
EMPLOYEES OF BORROWER OF ANY ERISA AFFILIATE, OTHER THAN A MULTIEMPLOYER PLAN.
"PREPARED FINANCIALS" MEANS THE BALANCE SHEETS OF BORROWER AS OF THE DATE
-------------------
SET FORTH IN THE SCHEDULE IN THE SECTION ENTITLED 'REPORTING REQUIREMENTS', AND
AS OF EACH SUBSEQUENT DATE ON WHICH AUDITED BALANCE SHEETS ARE DELIVERED TO
FINOVA FROM TIME TO TIME HEREUNDER, AND THE RELATED STATEMENTS OF OPERATIONS,
CHANGES IN STOCKHOLDER'S EQUITY AND CHANGES IN CASH FLOW FOR THE PERIODS ENDED
ON SUCH DATES.
"PRIME RATE" HAS THE MEANING SET FORTH IN THE SCHEDULE.
----------
"PROHIBITED TRANSACTION" MEANS ANY TRANSACTION DESCRIBED IN SECTION 406 OF
----------------------
ERISA WHICH IS NOT EXEMPT BY REASON OF SECTION 408 OF ERISA, AND ANY TRANSACTION
DESCRIBED IN SECTION 4975(C) OF THE IRC WHICH IS NOT EXEMPT BY REASON OF SECTION
4975(C)(2) OF THE IRC.
"RECEIVABLE LOANS" HAS THE MEANING SET FORTH ON THE SCHEDULE.
----------------
"RECEIVABLES" MEANS ALL OF BORROWER'S NOW OWNED AND HEREAFTER ACQUIRED
-----------
ACCOUNTS (WHETHER OR NOT EARNED BY PERFORMANCE), PROCEEDS OF ANY LETTERS OF
CREDIT NAMING BORROWER AS BENEFICIARY, CONTRACT RIGHTS, CHATTEL PAPER,
INSTRUMENTS, DOCUMENTS AND ALL OTHER FORMS OF OBLIGATIONS AT ANY TIME OWING TO
BORROWER, ALL GUARANTIES AND OTHER SECURITY THEREFOR, WHETHER SECURED OR
UNSECURED, ALL MERCHANDISE RETURNED TO OR REPOSSESSED BY
-8-
<PAGE>
BORROWER, AND ALL RIGHTS OF STOPPAGE IN TRANSIT AND ALL OTHER RIGHTS OR REMEDIES
OF AN UNPAID VENDOR, LIENOR OR SECURED PARTY.
"RENEWAL TERM" HAS THE MEANING SET FORTH ON THE SCHEDULE.
--------------
"REPORTABLE EVENT" MEANS A REPORTABLE EVENT DESCRIBED IN SECTION 4043 OF
------------------
ERISA OR THE REGULATIONS THEREUNDER, A WITHDRAWAL FROM A PLAN DESCRIBED IN
SECTION 4063 OF ERISA, OR A CESSATION OF OPERATIONS DESCRIBED IN SECTION 4068(F)
OF ERISA.
"REVOLVING CREDIT LOANS" HAS THE MEANING SET FORTH IN THE SCHEDULE.
------------------------
"REVOLVING CREDIT LIMIT" HAS THE MEANING SET FORTH IN THE SCHEDULE.
------------------------
"REVOLVING INTEREST RATE" HAS THE MEANING SET FORTH IN THE SCHEDULE.
-------------------------
"SCHEDULE" HAS THE MEANING SET FORTH IN THE PREAMBLE.
----------
"SENIOR CONTRACTUAL DEBT SERVICE" MEANS, FOR ANY PERIOD, THE SUM OF
---------------------------------
PAYMENTS MADE OR REQUIRED TO BE MADE BY BORROWER DURING SUCH PERIOD FOR (1)
INTEREST AND SCHEDULED PRINCIPAL PAYMENTS DUE ON THE TERM LOANS (EXCLUDING
VOLUNTARY PREPAYMENT AND PAYMENTS MADE FROM BORROWER's EXCESS CASH FLOW, AS
REQUIRED PURSUANT TO THE SCHEDULE), [AND] (II) INTEREST ONLY PAYMENTS DUE ON THE
REVOLVING CREDIT LOANS FACILITY PLUS THE COLLATERAL MONITORING FEE, THE FACILITY
FEE AND THE UNUSED LINE FEE, [AND (III) PRINCIPAL AND INTEREST PAYMENTS DUE ON
THE PERMITTED SENIOR INDEBTEDNESS].
"START DATE" HAS THE MEANING SET FORTH IN THE SCHEDULE.
------------
"SUBORDINATED DEBT" MEANS LIABILITIES OF BORROWER THE REPAYMENT OF WHICH IS
-------------------
SUBORDINATED, TO THE PAYMENT AND PERFORMANCE OF THE OBLIGATIONS, PURSUANT TO A
SUBORDINATION AGREEMENT OR PROVISIONS PROVIDING FOR SUBORDINATION IN TERMS
ACCEPTABLE TO FINOVA IN ITS SOLE DISCRETION.
"SUBORDINATING CREDITOR" HAS THE MEANING SET FORTH IN THE SCHEDULE.
------------------------
"TERM LOANS" HAS THE MEANING SET FORTH IN THE SCHEDULE.
------------
"TERMINATION FEE" HAS THE MEANING SET FORTH IN SECTION 9.2(D) HEREOF.
-----------------
"TOTAL CONTRACTUAL DEBT SERVICE" MEANS, FOR ANY PERIOD, THE SUM OF PAYMENTS
--------------------------------
MADE (OR, AS TO CLAUSE (I) OF THIS SENTENCE, REQUIRED TO BE MADE) BY BORROWER
DURING SUCH PERIOD FOR (I) SENIOR CONTRACTUAL DEBT SERVICE, AND (II) INTEREST
AND SCHEDULED PRINCIPAL PAYMENTS DUE ON ANY AND ALL OTHER INDEBTEDNESS OF
BORROWER, INCLUDING WITHOUT LIMITATION THE SUBORDINATED INDEBTEDNESS.
"TOTAL FACILITY" HAS THE MEANING SET FORTH IN SECTION 2.1 HEREOF.
----------------
"TRADEMARKS, COPYRIGHTS, LICENSES AND PATENTS" MEANS ALL OF BORROWER'S
----------------------------------------------
RIGHT, TITLE AND INTEREST IN AND TO, WHETHER NOW OWNED OR HEREAFTER ACQUIRED:
(I) TRADEMARKS, TRADEMARK REGISTRATIONS, TRADE NAMES, TRADE NAME REGISTRATIONS,
AND TRADEMARK OR TRADE NAME APPLICATIONS, INCLUDING WITHOUT LIMITATION SUCH AS
ARE LISTED ON THE SCHEDULE ATTACHED HERETO AND MADE A PART HEREOF, AS THE SAME
MAY BE AMENDED FROM TIME TO TIME, AND (A) RENEWALS THEREOF, (B) ALL INCOME,
ROYALTIES, DAMAGES AND PAYMENTS NOW AND HEREAFTER DUE AND/OR PAYABLE WITH
RESPECT THERETO, INCLUDING WITHOUT LIMITATION, DAMAGES AND PAYMENTS FOR PAST OR
FUTURE INFRINGEMENTS THEREOF, (C) THE RIGHT TO SUE FOR PAST, PRESENT AND FUTURE
INFRINGEMENTS THEREOF, (D) ALL RIGHTS CORRESPONDING THERETO THROUGHOUT THE
WORLD, AND (E) THE GOODWILL OF THE BUSINESS OPERATED BY BORROWER CONNECTED WITH
AND SYMBOLIZED BY ANY TRADE, OR TRADE NAMES; (II) COPYRIGHTS, COPYRIGHT
REGISTRATIONS AND COPYRIGHT APPLICATIONS, INCLUDING WITHOUT LIMITATION SUCH AS
ARE LISTED ON THE SCHEDULE ATTACHED HERETO AND MADE A PART HEREOF, AS THE SAME
MAY BE AMENDED FROM
-9-
<PAGE>
FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
TIME TO TIME, AND (A) RENEWALS THEREOF, (B) ALL INCOME, ROYALTIES, DAMAGES AND
PAYMENTS NOW AND HEREAFTER DUE AND/OR PAYABLE WITH RESPECT THERETO, INCLUDING
WITHOUT LIMITATION, DAMAGES AND PAYMENTS FOR PAST OR FUTURE INFRINGEMENTS
THEREOF, (C) THE RIGHT TO SUE FOR PAST, PRESENT AND FUTURE INFRINGEMENTS
THEREOF, (D) ALL RIGHTS CORRESPONDING THERETO THROUGHOUT THE WORLD, AND (E) THE
GOODWILL OF THE BUSINESS OPERATED BY BORROWER CONNECTED WITH AND SYMBOLIZED BY
ANY TRADE, OR TRADE NAMES; (II) COPYRIGHTS, COPYRIGHT REGISTRATIONS AND
COPYRIGHT APPLICATIONS, INCLUDING WITHOUT LIMITATION SUCH AS ARE LISTED ON THE
SCHEDULE ATTACHED HERETO AND MADE A PART HEREOF, AS THE SAME MAY BE AMENDED FROM
TIME TO TIME, AND (A) RENEWALS THEREOF, (B) ALL INCOME, ROYALTIES, DAMAGES AND
PAYMENTS NOW AND HEREAFTER DUE AND/OR PAYABLE WITH RESPECT THERETO, INCLUDING
WITHOUT LIMITATION, DAMAGES AND PAYMENTS FOR PAST OR FUTURE INFRINGEMENTS
THEREOF, (C) THE RIGHT TO SUE FOR PAST, PRESENT AND FUTURE INFRINGEMENTS
THEREOF, AND (D) ALL RIGHTS CORRESPONDING THERETO THROUGHOUT THE WORLD; (III)
LICENSE AGREEMENTS, INCLUDING WITHOUT LIMITATION SUCH AS ARE LISTED ON THE
SCHEDULE ATTACHED HERETO AND MADE A PART HEREOF, AND THE RIGHT TO PREPARE FOR
SALE, SELL AND ADVERTISE FOR SALE ANY INVENTORY NOW OR HEREAFTER OWNED BY
BORROWER AND NOW OR HEREAFTER COVERED BY SUCH LICENSES; AND (IV) PATENTS AND
PATENT APPLICATIONS, REGISTERED OR PENDING, INCLUDING WITHOUT LIMITATION SUCH AS
ARE LISTED ON THE SCHEDULE ATTACHED HERETO, TOGETHER WITH ALL INCOME, ROYALTIES,
SHOP RIGHTS, DAMAGES AND PAYMENTS THERETO, THE RIGHT TO SUE FOR INFRINGEMENTS
THEREOF, AND ALL RIGHTS THERETO THROUGHOUT THE WORLD AND ALL REISSUES,
DIVISIONS, CONTINUATIONS, RENEWALS, EXTENSIONS AND CONTINUATIONS-IN-PART
THEREOF.
1.2 OTHER TERMS. ALL ACCOUNTING TERMS USED IN THIS AGREEMENT, UNLESS
-----------
OTHERWISE INDICATED, SHALL HAVE THE MEANINGS GIVEN TO SUCH TERMS IN ACCORDANCE
WITH GAAP. ALL OTHER TERMS CONTAINED IN THIS AGREEMENT, UNLESS OTHERWISE
INDICATED, SHALL HAVE THE MEANINGS PROVIDED BY THE CODE, TO THE EXTENT SUCH
TERMS ARE DEFINED THEREIN.
2. LOANS; INTEREST RATE AND OTHER CHARGES.
2.1 TOTAL FACILITY. UPON THE TERMS AND CONDITIONS SET FORTH HEREIN AND
--------------
PROVIDED THAT NO EVENT OF DEFAULT OR EVENT WHICH, WITH THE GIVING OF NOTICE OR
THE PASSAGE OF TIME, OR BOTH, WOULD CONSTITUTE AN EVENT OF DEFAULT, SHALL HAVE
OCCURRED AND BE CONTINUING, FINOVA SHALL, UPON BORROWER'S REQUEST, MAKE ADVANCES
TO BORROWER FROM TIME TO TIME IN AN AGGREGATE OUTSTANDING PRINCIPAL AMOUNT NOT
TO EXCEED THE TOTAL FACILITY AMOUNT (THE "TOTAL FACILITY") SET FORTH ON THE
-----------------
SCHEDULE HERETO, SUBJECT TO DEDUCTION OF RESERVES FOR ACCRUED INTEREST AND SUCH
OTHER RESERVES AS FINOVA DEEMS PROPER FROM TIME TO TIME, AND LESS AMOUNTS FINOVA
MAY BE OBLIGATED TO PAY IN THE FUTURE ON BEHALF OF BORROWER. THE SCHEDULE IS AN
INTEGRAL PART OF THIS AGREEMENT AND ALL REFERENCES TO "HEREIN", "HEREWITH" AND
WORDS OF SIMILAR IMPORT SHALL FOR ALL PURPOSES BE DEEMED TO INCLUDE THE
SCHEDULE.
2.2 LOANS. ADVANCES UNDER THE TOTAL FACILITY ("LOANS" AND INDIVIDUALLY, A
----- --------
"LOAN") SHALL BE COMPRISED OF THE AMOUNTS SHOWN ON THE SCHEDULE.
- -------
2.3 OVERLINES; OVERADVANCES. IF AT ANY TIME OR FOR ANY REASON THE
-----------------------
OUTSTANDING AMOUNT OF ADVANCES EXTENDED OR ISSUED PURSUANT HERETO EXCEEDS ANY OF
THE DOLLAR LIMITATIONS ("OVERLINE") OR PERCENTAGE LIMITATIONS ("OVERADVANCE") IN
---------- -------------
THE SCHEDULE, THEN BORROWER SHALL, UPON FINOVA'S DEMAND, IMMEDIATELY PAY TO
FINOVA, IN CASH, THE FULL AMOUNT OF SUCH OVERLINE OR OVERADVANCE WHICH, AT
FINOVA's OPTION, MAY BE APPLIED TO REDUCE THE OUTSTANDING PRINCIPAL BALANCE OF
THE LOANS. WITHOUT LIMITING BORROWER'S OBLIGATION TO REPAY TO FINOVA ON DEMAND
THE AMOUNT OF ANY OVERLINE OR OVERADVANCE, BORROWER AGREES TO PAY FINOVA
INTEREST ON THE OUTSTANDING PRINCIPAL AMOUNT OF ANY OVERLINE OR OVERADVANCE, ON
DEMAND, AT THE RATE SET FORTH ON THE SCHEDULE AND APPLICABLE TO THE REVOLVING
CREDIT LOANS.
2.4 INTENTIONALLY OMITTED.
---------------------
2.5 LOAN ACCOUNT. ALL ADVANCES MADE HEREUNDER SHALL BE ADDED TO AND
------------
DEEMED PART OF THE OBLIGATIONS WHEN MADE. FINOVA MAY FROM TIME TO TIME CHARGE
ALL OBLIGATIONS OF BORROWER TO BORROWERS LOAN ACCOUNT WITH FINOVA.
2.6 INTEREST; FEES. BORROWER SHALL PAY FINOVA INTEREST ON THE DAILY
--------------
OUTSTANDING BALANCE OF THE OBLIGATIONS AT THE PER ANNUM RATE
-10-
<PAGE>
FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
SET FORTH ON THE SCHEDULE. BORROWER SHALL ALSO PAY FINOVA THE FEES SET FORTH ON
THE SCHEDULE.
2.7 DEFAULT INTEREST RATE. UPON THE OCCURRENCE AND DURING THE
---------------------
CONTINUATION OF AN EVENT OF DEFAULT, BORROWER SHALL PAY FINOVA INTEREST ON THE
DAILY OUTSTANDING BALANCE OF THE OBLIGATIONS AT A RATE PER ANNUM WHICH IS TWO
PERCENT (2%) IN EXCESS OF THE RATE WHICH WOULD OTHERWISE BE APPLICABLE THERETO
PURSUANT TO THE SCHEDULE.
2.8 EXAMINATION FEE. BORROWER AGREES TO PAY TO FINOVA THE EXAMINATION FEE
---------------
IN THE AMOUNT SET FORTH ON THE SCHEDULE IN CONNECTION WITH EACH AUDIT OR
EXAMINATION OF BORROWER PERFORMED BY FINOVA PRIOR TO OR AFTER THE DATE HEREOF.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BORROWER SHALL PAY TO FINOVA
AN INITIAL EXAMINATION FEE IN AN AMOUNT EQUAL TO THE AMOUNT SET FORTH ON THE
SCHEDULE. SUCH INITIAL EXAMINATION FEE SHALL BE DEEMED FULLY EARNED AT THE TIME
OF PAYMENT AND DUE AND PAYABLE UPON THE CLOSING OF THIS TRANSACTION, AND SHALL
BE DEDUCTED FROM ANY GOOD FAITH DEPOSIT PAID BY BORROWER TO FINOVA PRIOR TO THE
DATE OF THIS AGREEMENT.
2.9 EXCESS INTEREST.
---------------
(A) THE CONTRACTED FOR RATE OF INTEREST OF THE LOAN CONTEMPLATED HEREBY,
WITHOUT LIMITATION, SHALL CONSIST OF THE FOLLOWING: (I) THE INTEREST RATE SET
FORTH ON THE SCHEDULE, CALCULATED AND APPLIED TO THE PRINCIPAL BALANCE OF THE
OBLIGATIONS IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT; (II) INTEREST
AFTER AN EVENT OF DEFAULT, CALCULATED AND APPLIED TO THE AMOUNT OF THE
OBLIGATIONS IN ACCORDANCE WITH THE PROVISIONS HEREOF; AND (III) ALL ADDITIONAL
SUMS (AS HEREIN DEFINED), IF ANY. BORROWER AGREES TO PAY AN EFFECTIVE
CONTRACTED FOR RATE OF INTEREST WHICH IS THE SUM OF THE ABOVE REFERENCED
ELEMENTS. THE EXAMINATION FEE, ATTORNEYS FEES, EXPERT WITNESS FEES, COLLATERAL
MONITORING FEES, CLOSING FEES, FACILITY FEES, TERMINATION FEES, OTHER CHARGES,
GOODS, THINGS IN ACTION OR ANY OTHER SUMS OR THINGS OF VALUE PAID OR PAYABLE BY
BORROWER WHETHER PURSUANT TO THIS AGREEMENT OR ANY OTHER DOCUMENTS OR
INSTRUMENTS IN ANY WAY PERTAINING TO THIS LENDING TRANSACTION, OR OTHERWISE WITH
RESPECT TO THIS LENDING TRANSACTION, THAT UNDER ANY APPLICABLE LAW MAY BE DEEMED
TO BE INTEREST WITH RESPECT TO THIS LENDING TRANSACTION, FOR THE PURPOSE OF ANY
APPLICABLE LAW THAT MAY LIMIT THE MAXIMUM AMOUNT OF INTEREST TO BE CHARGED WITH
RESPECT TO THIS LENDING TRANSACTION (COLLECTIVELY, THE "ADDITIONAL SUMS"), SHALL
------------------
BE PAYABLE BY BORROWER AS, AND SHALL BE DEEMED TO BE, ADDITIONAL INTEREST AND
FOR SUCH PURPOSES ONLY, THE AGREED UPON AND "CONTRACTED FOR RATE OF INTEREST" OF
THIS LENDING TRANSACTION SHALL BE DEEMED TO BE INCREASED BY THE RATE OF INTEREST
RESULTING FROM THE INCLUSION OF THE ADDITIONAL SUMS.
(B) IT IS THE INTENT OF THE PARTIES TO COMPLY WITH THE USURY LAWS OF THE
STATE OF ARIZONA (THE "APPLICABLE USURY LAW"). ACCORDINGLY, IT IS AGREED THAT
-----------------------
NOTWITHSTANDING ANY PROVISIONS TO THE CONTRARY IN THIS AGREEMENT, OR IN ANY OF
THE DOCUMENTS SECURING PAYMENT HEREOF OR OTHERWISE RELATING HERETO, IN NO EVENT
SHALL THIS AGREEMENT OR SUCH DOCUMENTS REQUIRE THE PAYMENT OR PERMIT THE
COLLECTION OF INTEREST IN EXCESS OF THE MAXIMUM CONTRACT RATE PERMITTED BY THE
APPLICABLE USURY LAW (THE "MAXIMUM INTEREST RATE"). IN THE EVENT (A) ANY SUCH
------------------------
EXCESS OF INTEREST OTHERWISE WOULD BE CONTRACTED FOR, CHARGED OR RECEIVED FROM
BORROWER OR OTHERWISE IN CONNECTION WITH THE LOAN EVIDENCED HEREBY, OR (B) THE
MAJORITY OF THE OBLIGATIONS IS ACCELERATED IN WHOLE OR IN PART, OR (C) ALL OR
PART OF THE OBLIGATIONS SHALL BE PREPAID, SO THAT UNDER ANY OF SUCH
CIRCUMSTANCES THE AMOUNT OF INTEREST CONTRACTED FOR, SHARED OR RECEIVED IN
CONNECTION WITH THE LOAN EVIDENCED HEREBY, WOULD EXCEED THE MAXIMUM INTEREST
RATE, THEN IN ANY SUCH EVENT (1) THE PROVISIONS OF THIS PARAGRAPH SHALL GOVERN
AND CONTROL, (2) NEITHER BORROWER NOR ANY OTHER PERSON NOW OR HEREAFTER LIABLE
FOR THE PAYMENT OF THE OBLIGATIONS SHALL BE OBLIGATED TO PAY THE AMOUNT OF SUCH
INTEREST TO THE EXTENT THAT IT IS IN
-11-
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FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
EXCESS OF THE MAXIMUM INTEREST RATE, (3) ANY SUCH EXCESS WHICH MAY HAVE BEEN
COLLECTED SHALL BE EITHER APPLIED AS A CREDIT AGAINST THE THEN UNPAID PRINCIPAL
AMOUNT OF THE OBLIGATIONS OR REFUNDED TO BORROWER, AT FINOVA'S OPTION, AND (4)
THE EFFECTIVE RATE OF INTEREST SHALL BE AUTOMATICALLY REDUCED TO THE MAXIMUM
INTEREST RATE. IT IS FURTHER AGREED, WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, THAT TO THE EXTENT PERMITTED BY THE APPLICABLE USURY LAW; (X) ALL
CALCULATIONS OF INTEREST WHICH ARE MADE FOR THE PURPOSE OF DETERMINING WHETHER
SUCH RATE WOULD EXCEED THE MAXIMUM INTEREST RATE SHALL BE MADE BY AMORTIZING,
PRORATING, ALLOCATING AND SPREADING DURING THE PERIOD OF THE FULL STATED TERM OF
THE LOAN EVIDENCED HEREBY, ALL INTEREST AT ANY TIME CONTRACTED FOR, CHARGED OR
RECEIVED FROM BORROWER OR OTHERWISE IN CONNECTION WITH SUCH LOAN; AND (Y) N THE
EVENT THAT THE EFFECTIVE RATE OF INTEREST ON THE LOAN SHOULD AT ANY TIME EXCEED
THE MAXIMUM INTEREST RATE, SUCH EXCESS INTEREST THAT WOULD OTHERWISE HAVE BEEN
COLLECTED HAD THERE BEEN NO CEILING IMPOSED BY THE APPLICABLE USURY LAW SHALL BE
PAID TO FINOVA FROM TIME TO TIME, IF AND WHEN THE EFFECTIVE INTEREST RATE ON THE
LOAN OTHERWISE FALLS BELOW THE MAXIMUM INTEREST RATE, TO THE EXTENT THAT
INTEREST PAID TO THE DATE OF CALCULATION DOES NOT EXCEED THE MAXIMUM INTEREST
RATE, UNTIL THE ENTIRE AMOUNT OF INTEREST WHICH WOULD OTHERWISE HAVE BEEN
COLLECTED HAD THERE BEEN NO CEILING IMPOSED BY THE APPLICABLE USURY LAW HAS BEEN
PAID IN FULL. BORROWER FURTHER AGREES THAT SHOULD THE MAXIMUM INTEREST RATE BE
INCREASED AT ANY TIME HEREAFTER BECAUSE OF A CHANGE IN THE APPLICABLE USURY LAW,
THEN TO THE EXTENT NOT PROHIBITED BY THE APPLICABLE USURY LAW, SUCH INCREASES
SHALL APPLY TO ALL INDEBTEDNESS EVIDENCED HEREBY REGARDLESS OF WHEN INCURRED;
BUT, AGAIN TO THE EXTENT, NOT PROHIBITED BY THE APPLICABLE USURY LAW, SHOULD THE
MAXIMUM INTEREST RATE BE DECREASED BECAUSE OF A CHANGE IN THE APPLICABLE USURY
LAW, SUCH DECREASES SHALL NOT APPLY TO THE INDEBTEDNESS EVIDENCED HEREBY
REGARDLESS OF WHEN INCURRED.
2.10 PRINCIPAL PAYMENTS; PROCEEDS OF COLLATERAL.
------------------------------------------
(A) PRINCIPAL PAYMENTS. EXCEPT WHERE EVIDENCED BY NOTES OR OTHER
------------------
INSTRUMENTS ISSUED OR MADE BY BORROWER TO FINOVA SPECIFICALLY CONTAINING PAYMENT
PROVISIONS WHICH ARE IN CONFLICT WITH THIS SECTION 2. 10 (IN WHICH EVENT THE
CONFLICTING PROVISIONS OF SAID NOTES OR OTHER INSTRUMENTS SHALL GOVERN AND
CONTROL), THAT PORTION OF THE OBLIGATIONS CONSISTING OF PRINCIPAL PAYABLE ON
ACCOUNT OF LOANS SHALL BE PAYABLE BY BORROWER TO FINOVA IMMEDIATELY UPON THE
EARLIEST OF (I) THE RECEIPT BY FINOVA OR BORROWER OF ANY PROCEEDS OF ANY OF THE
COLLATERAL, TO THE EXTENT OF SAID PROCEEDS, (II) THE OCCURRENCE OF AN EVENT OF
DEFAULT IN CONSEQUENCE OF WHICH FINOVA ELECTS TO ACCELERATE THE MATURITY AND
PAYMENT OF SUCH LOANS, OR (III) ANY TERMINATION OF THIS AGREEMENT PURSUANT TO
SECTION 9.2 HEREOF; PROVIDED, HOWEVER, THAT ANY OVERADVANCE OR OVERLINE SHALL BE
-------- -------
PAYABLE ON DEMAND PURSUANT TO THE PROVISIONS OF SECTION 2.3 HEREOF.
(B) COLLECTIONS. UNTIL FINOVA NOTIFIES BORROWER TO THE CONTRARY, BORROWER
-----------
MAY MAKE COLLECTION OF ALL RECEIVABLES FOR FINOVA AND SHALL RECEIVE ALL SUCH
PAYMENTS OR SUMS AS TRUSTEE OF FINOVA AND IMMEDIATELY DELIVER ALL SUCH PAYMENTS
OR SUMS TO FINOVA IN THEIR ORIGINAL FORM, DULY ENDORSED IN BLANK OR CAUSE THE
SAME TO BE DEPOSITED INTO A BLOCKED ACCOUNT OR DOMINION ACCOUNT. FINOVA OR ITS
DESIGNEE MAY, AT ANY TIME, NOTIFY ACCOUNT DEBTORS AND/OR ANY BANK, FINANCE
COMPANY, OR OTHER ENTITY WHICH MAY BE PROVIDING FINANCING ON THE ACCOUNT
DEBTOR'S BEHALF, THAT THE RECEIVABLES HAVE BEEN ASSIGNED TO FINOVA AND OF
FINOVA'S SECURITY INTEREST THEREIN, AND MAY COLLECT THE RECEIVABLES DIRECTLY AND
CHARGE THE COLLECTION COSTS AND EXPENSES TO BORROWER'S LOAN ACCOUNT. BORROWER
AGREES THAT, IN COMPUTING THE CHARGES UNDER THIS AGREEMENT, ALL ITEMS OF PAYMENT
SHALL BE DEEMED APPLIED BY FINOVA ON ACCOUNT OF THE OBLIGATIONS THREE (3)
BUSINESS DAYS AFTER RECEIPT BY FINOVA OF GOOD FUNDS WHICH HAVE BEEN FINALLY
CREDITED TO
-12-
<PAGE>
FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
FINOVA'S ACCOUNT, WHETHER SUCH FUNDS ARE RECEIVED DIRECTLY FROM BORROWER OR FROM
THE BLOCKED ACCOUNT BANK OR THE DOMINION ACCOUNT BANK, PURSUANT TO SECTION
2.10(C) HEREOF, AND THIS PROVISION SHALL APPLY REGARDLESS OF THE AMOUNT OF THE
OBLIGATIONS OUTSTANDING OR WHETHER ANY OBLIGATIONS ARE OUTSTANDING; PROVIDED,
--------
THAT IF ANY SUCH GOOD FUNDS ARE RECEIVED AFTER 12:00 P.M. NOON (NEW YORK TIME)
ON ANY BUSINESS DAY OR AT ANY TIME ON ANY DAY NOT CONSTITUTING A BUSINESS DAY,
SUCH FUNDS SHALL BE DEEMED RECEIVED ON THE IMMEDIATELY FOLLOWING BUSINESS DAY.
FINOVA IS NOT, HOWEVER, REQUIRED TO CREDIT BORROWERS ACCOUNT FOR THE AMOUNT OF
ANY ITEM OF PAYMENT WHICH IS UNSATISFACTORY TO FINOVA IN ITS PERMITTED
DISCRETION AND FINOVA MAY CHARGE BORROWERS'S LOAN ACCOUNT FOR THE AMOUNT OF ANY
ITEM OF PAYMENT WHICH IS RETURNED TO FINOVA UNPAID.
(C) ESTABLISHMENT OF A DOMINION ACCOUNT. UNLESS BORROWER SHALL BE
-----------------------------------
OTHERWISE DIRECTED BY FINOVA IN WRITING, BORROWER SHALL CAUSE ALL PROCEEDS OF
COLLATERAL TO BE DEPOSITED INTO A DOMINION ACCOUNT AS FINOVA MAY REQUIRE (A
"BLOCKED ACCOUNT") PURSUANT TO AN ARRANGEMENT WITH SUCH BANK AS MAY BE SELECTED
- -----------------
BY BORROWER AND BE ACCEPTABLE TO FINOVA WHICH PROCEEDS, UNLESS OTHERWISE
PROVIDED HEREIN, SHALL BE APPLIED IN PAYMENT OF THE OBLIGATIONS IN SUCH ORDER AS
FINOVA DETERMINES IN ITS SOLE DISCRETION. BORROWER SHALL ISSUE TO ANY SUCH BANK
AN IRREVOCABLE LETTER OF INSTRUCTION DIRECTING SAID BANK TO TRANSFER SUCH FUNDS
SO DEPOSITED TO FINOVA, EITHER TO ANY ACCOUNT MAINTAINED BY FINOVA AT SAID BANK
OR BY WIRE TRANSFER TO APPROPRIATE ACCOUNT(S) OF FINOVA. ALL FUNDS DEPOSITED IN
A BLOCKED ACCOUNT SHALL IMMEDIATELY BECOME THE SOLE PROPERTY OF FINOVA AND
BORROWER SHALL OBTAIN THE AGREEMENT BY SUCH BANK TO WAIVE ANY OFFSET RIGHTS
AGAINST THE FUNDS SO DEPOSITED. FINOVA ASSUMES NO RESPONSIBILITY FOR ANY
BLOCKED ACCOUNT ARRANGEMENT, INCLUDING WITHOUT LIMITATION, ANY CLAIM OF ACCORD
AND SATISFACTION OR RELEASE WITH RESPECT TO DEPOSITS ACCEPTED BY ANY BANK
THEREUNDER. ALTERNATIVELY, FINOVA MAY ESTABLISH DEPOSITORY ACCOUNTS IN THE NAME
OF FINOVA AT A BANK OR BANKS FOR THE DEPOSIT OF SUCH FUNDS (EACH, A "DOMINION
--------
ACCOUNT") AND BORROWER SHALL DEPOSIT ALL PROCEEDS OF RECEIVABLES AND ALL CASH
- --------
PROCEEDS OF ANY SALE OF INVENTORY OR, TO THE EXTENT PERMITTED HEREIN, EQUIPMENT
OR CAUSE SAME TO BE DEPOSITED, IN KIND, IN SUCH DOMINION ACCOUNTS OF FINOVA IN
LIEU OF DEPOSITING SAME TO BLOCKED ACCOUNTS, AND, UNLESS OTHERWISE PROVIDED
HEREIN, ALL SUCH FUNDS SHALL BE APPLIED BY FINOVA TO THE OBLIGATIONS IN SUCH
ORDER AS FINOVA DETERMINES IN ITS SOLE DISCRETION.
(D) PAYMENTS WITHOUT DEDUCTIONS. BORROWER SHALL PAY PRINCIPAL, INTEREST,
---------------------------
AND ALL OTHER AMOUNTS PAYABLE HEREUNDER, OR UNDER ANY OTHER LOAN DOCUMENT,
WITHOUT ANY DEDUCTION WHATSOEVER, INCLUDING, BUT NOT LIMITED TO, ANY DEDUCTION
FOR ANY SETOFF OR COUNTERCLAIM.
(E) COLLECTION DAYS UPON PREPAYMENT. IN THE EVENT BORROWER REPAYS THE
-------------------------------
OBLIGATIONS IN FULL AT ANY TIME HEREAFTER, SUCH PAYMENT IN FULL SHALL BE
CREDITED (CONDITIONED UPON FINAL COLLECTION) TO BORROWERS LOAN ACCOUNT THREE (3)
BUSINESS DAYS AFTER FINOVA'S RECEIPT THEREOF.
(F) MONTHLY ACCOUNTINGS. FINOVA SHALL PROVIDE BORROWER MONTHLY WITH AN
-------------------
ACCOUNT OF ADVANCES, CHARGES, EXPENSES AND PAYMENTS MADE PURSUANT TO THIS
AGREEMENT. SUCH ACCOUNT SHALL BE DEEMED CORRECT, ACCURATE AND BINDING ON
BORROWER AND AN ACCOUNT STATED (EXCEPT FOR REVERSES AND REAPPLICATIONS OF
PAYMENTS MADE AND CORRECTIONS OF ERRORS DISCOVERED BY FINOVA), ABSENT MANIFEST
ERROR, UNLESS BORROWER NOTIFIES FINOVA IN WRITING TO THE CONTRARY WITHIN THIRTY
(30) DAYS AFTER EACH ACCOUNT IS RENDERED, DESCRIBING THE NATURE OF ANY ALLEGED
ERRORS OR ADMISSIONS.
2.11 APPLICATION OF COLLATERAL. EXCEPT AS OTHERWISE PROVIDED HEREIN,
-------------------------
FINOVA SHALL HAVE THE CONTINUING AND EXCLUSIVE RIGHT TO APPLY OR REVERSE AND RE-
APPLY ANY AND ALL PAYMENTS TO ANY PORTION OF THE OBLIGATIONS IN SUCH ORDER AND
-13-
<PAGE>
FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
MANNER AS FINOVA SHALL DETERMINE IN ITS SOLE DISCRETION. TO THE EXTENT THAT
BORROWER MAKES A PAYMENT OR FINOVA RECEIVES ANY PAYMENT OR PROCEEDS OF THE
COLLATERAL FOR BORROWER'S BENEFIT WHICH IS SUBSEQUENTLY INVALIDATED, DECLARED TO
BE FRAUDULENT OR PREFERENTIAL, SET ASIDE OR REQUIRED TO BE REPAID TO A TRUSTEE,
DEBTOR IN POSSESSION, RECEIVER OR ANY OTHER PARTY UNDER ANY BANKRUPTCY LAW,
COMMON LAW OR EQUITABLE CAUSE, OR OTHERWISE, THEN, TO SUCH EXTENT, THE
OBLIGATIONS OR PART THEREOF INTENDED TO BE SATISFIED SHALL BE REVIVED AND
CONTINUE AS IF SUCH PAYMENT OR PROCEEDS HAD NOT BEEN RECEIVED BY FINOVA.
2.12 APPLICATION OF PAYMENTS. THE AMOUNT OF ALL PAYMENTS OR AMOUNTS
-----------------------
RECEIVED BY FINOVA WITH RESPECT TO THE LOANS SHALL BE APPLIED TO THE EXTENT
APPLICABLE UNDER THIS AGREEMENT: (I) FIRST, TO ACCRUED INTEREST THROUGH THE
DATE OF SUCH PAYMENT, INCLUDING ANY DEFAULT INTEREST; (II) THEN, TO ANY LATE
FEES, OVERDUE RISK ASSESSMENTS, EXAMINATION FEE AND EXPENSES, COLLECTION FEES
AND EXPENSES AND ANY OTHER FEES AND EXPENSES DUE TO FINOVA HEREUNDER; AND (III)
LAST, THE REMAINING BALANCE, IF ANY, TO THE UNPAID PRINCIPAL BALANCE OF THE
LOAN; PROVIDED HOWEVER, WHILE AN EVENT OF DEFAULT EXISTS UNDER THIS AGREEMENT,
OR UNDER ANY OTHER LOAN DOCUMENT, EACH PAYMENT HEREUNDER SHALL BE (X) HELD AS
CASH COLLATERAL TO SECURE OBLIGATIONS RELATING TO ANY LETTERS OF CREDIT OR OTHER
CONTINGENT OBLIGATIONS ARISING UNDER THE LOAN DOCUMENTS AND/OR (Y) APPLIED TO
AMOUNTS OWED TO FINOVA BY BORROWER AS FINOVA IN ITS SOLE DISCRETION MAY
DETERMINE. IN CALCULATING INTEREST AND APPLYING PAYMENTS AS SET FORTH ABOVE:
(A) INTEREST SHALL BE CALCULATED AND COLLECTED THROUGH THE DATE A PAYMENT IS
ACTUALLY APPLIED BY FINOVA UNDER THE TERMS OF THIS AGREEMENT; (B) INTEREST ON
THE OUTSTANDING BALANCE SHALL BE CHARGED DURING ANY GRACE PERIOD PERMITTED
HEREUNDER; (C) AT THE END OF EACH MONTH, ALL ACCRUED AND UNPAID INTEREST AND
OTHER CHARGES PROVIDED FOR HEREUNDER SHALL BE ADDED TO THE PRINCIPAL BALANCE OF
THE LOAN; AND (D) TO THE EXTENT THAT BORROWER MAKES A PAYMENT OR FINOVA RECEIVES
ANY PAYMENT OR PROCEEDS OF THE COLLATERAL FOR BORROWER'S BENEFIT THAT IS
SUBSEQUENTLY INVALIDATED, SET ASIDE OR REQUIRED TO BE REPAID TO ANY OTHER
PERSON, THEN, TO SUCH EXTENT, THE OBLIGATIONS INTENDED TO BE SATISFIED SHALL BE
REVIVED AND CONTINUE AS IF SUCH PAYMENT OR PROCEEDS HAD NOT BEEN RECEIVED BY
FINOVA AND FINOVA MAY ADJUST THE LOAN BALANCES AS FINOVA, IN ITS SOLE
DISCRETION, DEEMS APPROPRIATE UNDER THE CIRCUMSTANCES.
2.13 NOTIFICATION OF CLOSING. BORROWER SHALL PROVIDE FINOVA WITH AT LEAST
-----------------------
FORTY-EIGHT (48) HOURS PRIOR WRITTEN NOTICE OF THE CLOSING DATE, TO ENABLE
FINOVA TO ARRANGE FOR THE AVAILABILITY OF FUNDS.
3. SECURITY.
3.1 SECURITY INTEREST IN THE COLLATERAL. TO SECURE THE PAYMENT AND
-----------------------------------
PERFORMANCE OF THE OBLIGATIONS WHEN DUE, BORROWER HEREBY GRANTS TO FINOVA A
FIRST PRIORITY SECURITY REST (SUBJECT ONLY TO PERMITTED ENCUMBRANCES) IN ALL OF
BORROWER'S NOW OWNED OR HEREAFTER ACQUIRED OR ARISING INVENTORY, EQUIPMENT,
RECEIVABLES, LIFE INSURANCE POLICIES AND THE PROCEEDS THEREOF, TRADEMARKS,
COPYRIGHTS, LICENSES AND PATENTS, INVESTMENT PROPERTY (AS DEFINED IN SECTION 9-
115 OF THE CODE) AND GENERAL INTANGIBLES, INCLUDING, WITHOUT LIMITATION, ALL OF
BORROWERS DEPOSIT ACCOUNTS, MONEY, ANY AND ALL PROPERTY NOW OR AT ANY TIME OTHER
IN FINOVA'S POSSESSION (INCLUDING CLAIMS AND CREDIT BALANCES), AND ALL PROCEEDS
(INCLUDING PROCEEDS OF ANY INSURANCE POLICIES, PROCEEDS OF PROCEEDS AND CLAIMS
AGAINST THIRD PARTIES), ALL PRODUCTS AND ALL BOOKS AND RECORDS AND COMPUTER DATA
RELATED TO ANY OF THE FOREGOING (ALL OF THE FOREGOING, TOGETHER WITH ALL OTHER
PROPERTY IN WHICH FINOVA, MAY BE GRANTED A LIEN OR SECURITY INTEREST, IS
REFERRED TO HEREIN, COLLECTIVELY, AS THE "COLLATERAL").
--------------
3.2 PERFECTION AND PROTECTION OF SECURITY INTEREST. BORROWER SHALL, AT
----------------------------------------------
ITS EXPENSE, TAKE ALL ACTIONS REQUESTED BY FINOVA AT ANY TIME
-14-
<PAGE>
FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
TO PERFECT, MAINTAIN, PROTECT AND ENFORCE FINOVA'S FIRST PRIORITY SECURITY
INTEREST AND OTHER RIGHTS IN THE COLLATERAL AND THE PRIORITY THEREOF FROM TIME
TO TIME,INCLUDING, WITHOUT LIMITATION, (I) EXECUTING AND FILING FINANCING OR
CONTINUATION STATEMENTS AND AMENDMENTS THEREOF AND EXECUTING AND DELIVERING SUCH
DOCUMENTS AND TITLES IN CONNECTION WITH MOTOR VEHICLES AS FINOVA SHALL REQUIRE,
ALL IN FORM AND SUBSTANCE SATISFACTORY TO FINOVA, (II) MAINTAINING A PERPETUAL
INVENTORY AND COMPLETE AND ACCURATE STOCK RECORDS, (III) DELIVERING TO FINOVA
WAREHOUSE RECEIPTS COVERING ANY PORTION OF THE COLLATERAL LOCATED IN WAREHOUSES
AND FOR WHICH WAREHOUSE RECEIPTS ARE ISSUED, AND TRANSFERRING INVENTORY TO
WAREHOUSES DESIGNATED BY FINOVA, (IV) PLACING NOTATIONS ON BORROWER'S BOOKS OF
ACCOUNT TO DISCLOSE FINOVA'S SECURITY INTEREST THEREIN AND (V) DELIVERING TO
FINOVA ALL LETTERS OF CREDIT ON WHICH BORROWER IS NAMED BENEFICIARY. FINOVA MAY
FILE, WITHOUT BORROWERS SIGNATURE, ONE OR MORE FINANCING STATEMENTS DISCLOSING
FINOVA'S SECURITY INTEREST UNDER THIS AGREEMENT. BORROWER AGREES THAT A CARBON,
PHOTOGRAPHIC, PHOTOSTATIC OR OTHER REPRODUCTION OF THIS AGREEMENT OR OF A
FINANCING STATEMENT IS SUFFICIENT AS A FINANCING STATEMENT. IF ANY COLLATERAL IS
AT ANY TIME IN THE POSSESSION OR CONTROL OF ANY WAREHOUSEMAN, BAILEE OR ANY OF
BORROWERS'S AGENTS OR PROCESSORS, BORROWER SHALL NOTIFY SUCH PERSON OF FINOVA'S
SECURITY INTEREST IN SUCH COLLATERAL AND, UPON FINOVA'S REQUEST, INSTRUCT THEM
TO HOLD ALL SUCH COLLATERAL FOR FINOVA'S ACCOUNT SUBJECT TO FINOVA'S
INSTRUCTIONS. FROM TIME TO TIME, BORROWER SHALL, UPON FINOVA'S REQUEST, EXECUTE
AND DELIVER CONFIRMATORY WRITTEN INSTRUMENTS PLEDGING THE COLLATERAL TO FINOVA,
BUT BORROWER'S FAILURE TO DO SO SHALL NOT AFFECT OR LIMIT FINOVA'S SECURITY
INTEREST OR OTHER RIGHTS IN AND TO THE COLLATERAL. UNTIL THE OBLIGATIONS HAVE
BEEN FULLY SATISFIED AND FINOVA'S OBLIGATION TO MAKE FURTHER ADVANCES HEREUNDER
HAS TERMINATED, FINOVA'S SECURITY INTEREST IN THE COLLATERAL SHALL CONTINUE IN
FULL FORCE AND EFFECT.
3.3 PRESERVATION OF COLLATERAL. FINOVA MAY, IN ITS PERMITTED DISCRETION,
--------------------------
AT ANY TIME DISCHARGE ANY LIEN OR ENCUMBRANCE ON THE COLLATERAL OR BOND THE
SAME, PAY ANY INSURANCE, MAINTAIN GUARDS, PAY ANY SERVICE BUREAU, OBTAIN ANY
RECORD OR TAKE ANY OTHER ACTION TO PRESERVE THE COLLATERAL AND CHARGE THE COST
THEREOF TO BORROWER'S LOAN ACCOUNT AS AN OBLIGATION.
3.4 INSURANCE. BORROWER WILL MAINTAIN AND DELIVER EVIDENCE TO FINOVA OF
---------
SUCH INSURANCE AS IS REQUIRED BY FINOVA, WRITTEN BY INSURERS, IN AMOUNTS, AND
WITH LENDER'S LOSS PAYEE, ADDITIONAL INSURED, AND OTHER ENDORSEMENTS,
SATISFACTORY TO FINOVA. ALL PREMIUMS WITH RESPECT TO SUCH INSURANCE SHALL BE
PAID BY BORROWER AS AND WHEN DUE. ACCURATE AND CERTIFIED COPIES OF THE POLICIES
SHALL BE DELIVERED BY BORROWER TO FINOVA. IF BORROWER FAILS TO COMPLY WITH THIS
SECTION, FINOVA MAY (BUT SHALL NOT BE REQUIRED TO) PROCURE SUCH INSURANCE AND
ENDORSEMENTS AT BORROWER'S EXPENSE AND CHARGE THE COST THEREOF TO BORROWER'S
LOAN ACCOUNT AS AN OBLIGATION.
3.5 COLLATERAL REPORTING, INVENTORY.
-------------------------------
(A) INVOICES. BORROWER SHALL NOT REDATE ANY INVOICE OR SALE FROM THE
--------
ORIGINAL DATE THEREOF OR, MAKE SALES ON EXTENDED TERMS BEYOND THOSE CUSTOMARY IN
BORROWER'S INDUSTRY, OR OTHERWISE EXTEND OR MODIFY THE TERM OF ANY RECEIVABLE.
IF BORROWER BECOMES AWARE OF ANY MATTER AFFECTING ANY RECEIVABLE, INCLUDING
INFORMATION AFFECTING THE CREDIT OF THE ACCOUNT DEBTOR THEREON, BORROWER SHALL
PROMPTLY NOTIFY FINOVA IN WRITING.
(B) INSTRUMENTS. IN THE EVENT ANY RECEIVABLE IS OR BECOMES EVIDENCED BY A
-----------
PROMISSORY NOTE, TRADE ACCEPTANCE OR ANY OTHER INSTRUMENT FOR THE PAYMENT OF
MONEY, BORROWER SHALL IMMEDIATELY DELIVER SUCH INSTRUMENT TO FINOVA
APPROPRIATELY ENDORSED TO FINOVA AND, REGARDLESS OF THE FORM OF ANY PRESENTMENT,
DEMAND, NOTICE OF DISHONOR, PROTEST AND NOTICE OF PROTEST WITH RESPECT THERETO,
BORROWER SHALL
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<PAGE>
FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
REMAIN LIABLE THEREON UNTIL SUCH INSTRUMENT IS PAID IN FULL.
(C) PHYSICAL INVENTORY. BORROWER SHALL CONDUCT A PHYSICAL COUNT OF THE
------------------
INVENTORY AT SUCH INTERVALS AS FINOVA REQUESTS AND PROMPTLY SUPPLY FINOVA WITH A
COPY OF SUCH ACCOUNTS ACCOMPANIED BY A REPORT OF THE VALUE (CALCULATED AT THE
LOWER OF COST OR MARKET VALUE ON A FIRST IN, FIRST OUT BASIS) OF THE INVENTORY
AND SUCH ADDITIONAL INFORMATION WITH RESPECT TO THE INVENTORY AS FINOVA MAY
REQUEST FROM TIME TO TIME.
(D) RETURNS. FOR SO LONG AS NO EVENT OF DEFAULT HAS OCCURRED AND IS
-------
CONTINUING, SUBJECT TO THE PROVISIONS OF SECTION 3.6(B), IF ANY ACCOUNT DEBTOR
RETURNS ANY INVENTORY TO BORROWER IN THE ORDINARY COURSE OF ITS BUSINESS,
BORROWER SHALL PROMPTLY DETERMINE THE REASON FOR SUCH RETURN AND PROMPTLY ISSUE
A CREDIT MEMORANDUM TO THE ACCOUNT DEBTOR (SENDING A COPY TO FINOVA) IN THE
APPROPRIATE AMOUNT. IN THE EVENT ANY ATTEMPTED RETURN OCCURS AFTER THE
OCCURRENCE OF ANY EVENT OF DEFAULT, BORROWER SHALL (I) HOLD THE RETURNED
INVENTORY IN TRUST FOR FINOVA, (II) SEGREGATE ALL RETURNED INVENTORY FROM ALL OF
BORROWER'S OTHER PROPERTY, (III) CONSPICUOUSLY LABEL THE RETURNED INVENTORY AS
FINOVA'S PROPERTY, AND (IV) IMMEDIATELY NOTIFY FINOVA OF THE RETURN OF ANY
INVENTORY, SPECIFYING THE REASON FOR SUCH RETURN, THE LOCATION AND CONDITION OF
THE RETURNED INVENTORY, AND ON FINOVA'S REQUEST DELIVER SUCH RETURNED INVENTORY
TO FINOVA.
(E) BORROWER SHALL NOT CONSIGN ANY INVENTORY.
3.6 RECEIVABLES.
-----------
(a) ELIGIBILITY. (I) BORROWER REPRESENTS AND WARRANTS THAT EACH RECEIVABLE
-----------
COVERS AND SHALL COVER A BONA FIDE SALE OR LEASE AND DELIVERY BY IT OF GOODS OR
THE RENDITION BY IT OF SERVICES IN THE ORDINARY COURSE OF ITS BUSINESS, AND
SHALL BE FOR A LIQUIDATED AMOUNT AND FINOVA'S SECURITY INTEREST SHALL NOT BE
SUBJECT TO ANY OFFSET, DEDUCTION, COUNTERCLAIM, RIGHTS OF RETURN OR
CANCELLATION, LIEN OR OTHER CONDITION. IF ANY REPRESENTATION OR WARRANTY HEREIN
IS BREACHED AS TO ANY RECEIVABLE OR ANY RECEIVABLE CEASES TO BE AN ELIGIBLE
RECEIVABLE FOR ANY REASON OTHER THAN PAYMENT THEREOF, THEN FINOVA MAY, IN
ADDITION TO ITS OTHER RIGHTS HEREUNDER, DESIGNATE ANY AND ALL RECEIVABLES OWING
BY THAT ACCOUNT DEBTOR AS NOT ELIGIBLE RECEIVABLES; PROVIDED, THAT FINOVA SHALL
--------
IN ANY SUCH EVENT RETAIN ITS SECURITY INTEREST IN ALL RECEIVABLES, WHETHER OR
NOT ELIGIBLE RECEIVABLES, UNTIL THE OBLIGATIONS HAVE BEEN FULLY SATISFIED AND
FINOVA'S OBLIGATION TO PROVIDE LOANS HEREUNDER HAS TERMINATED. (II) FINOVA AT
ANY TIME SHALL BE ENTITLED TO (I) ESTABLISH AND INCREASE OR DECREASE RESERVES
AGAINST ELIGIBLE RECEIVABLES AND ELIGIBLE INVENTORY, (II) REDUCE THE ADVANCE
RATES IN THE SCHEDULE OR RESTORE SUCH ADVANCE RATES TO ANY LEVEL EQUAL TO OR
BELOW THE ADVANCE RATES SET FORTH IN THE SCHEDULE OR (III) IMPOSE ADDITIONAL
RESTRICTIONS (OR ELIMINATE THE SAME) TO THE STANDARDS OF ELIGIBILITY SET FORTH
IN THE DEFINITIONS OF "ELIGIBLE RECEIVABLES" AND "ELIGIBLE INVENTORY", IN THE
EXERCISE OF ITS PERMITTED DISCRETION. FINOVA MAY BUT SHALL NOT BE REQUIRED TO
RELY ON THE SCHEDULES AND/OR REPORTS DELIVERED TO FINOVA IN CONNECTION HEREWITH
IN DETERMINING THE THEN ELIGIBILITY OF RECEIVABLES AND INVENTORY. RELIANCE
THEREON BY FINOVA FROM TIME TO TIME SHALL NOT BE DEEMED TO LIMIT THE RIGHT OF
FINOVA TO REVISE ADVANCE OR STANDARDS OF ELIGIBILITY AS PROVIDED ABOVE.
(B) DISPUTE. BORROWER SHALL NOTIFY FINOVA PROMPTLY OF ALL DISPUTES OR
-------
CLAIMS AND SETTLE OR ADJUST SUCH DISPUTES OR CLAIMS AT NO EXPENSE TO FINOVA, BUT
NO DISCOUNT, CREDIT OR ALLOWANCE SHALL BE GRANTED TO ANY ACCOUNT DEBTOR AND NO
RETURNS OF MERCHANDISE SHALL BE ACCEPTED BY BORROWER WITHOUT FINOVA'S CONSENT,
EXCEPT FOR DISCOUNTS, CREDITS AND ALLOWANCES MADE OR GIVEN IN THE ORDINARY
COURSE OF BORROWER'S BUSINESS. FINOVA MAY, AT ANY TIME
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<PAGE>
FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT, SETTLE OR ADJUST DISPUTES OR CLAIMS
DIRECTLY WITH ACCOUNT DEBTORS FOR AMOUNTS AND UPON TERMS WHICH FINOVA CONSIDERS
ADVISABLE IN ITS REASONABLE CREDIT JUDGMENT AND, IN ALL CASES, FINOVA SHALL
CREDIT BORROWER'S LOAN ACCOUNT WITH ONLY THE NET AMOUNTS RECEIVED BY FINOVA IN
PAYMENT OF ANY RECEIVABLES.
3.7 EQUIPMENT. BORROWER SHALL KEEP AND MAINTAIN THE EQUIPMENT IN GOOD
---------
OPERATING CONDITION AND REPAIR AND MAKE ALL NECESSARY REPLACEMENTS THERETO TO
MAINTAIN AND PRESERVE THE VALUE AND OPERATING EFFICIENCY THEREOF AT ALL TIMES
CONSISTENT WITH BORROWER'S PAST PRACTICE, ORDINARY WEAR AND TEAR EXCEPTED.
BORROWER SHALL NOT PERMIT ANY ITEM OF EQUIPMENT TO BECOME A FIXTURE (OTHER THAN
A TRADE FIXTURE) TO REAL ESTATE OR AN ACCESSION TO OTHER PROPERTY.
3.8 OTHER LIENS; NO DISPOSITION OF COLLATERAL. BORROWER REPRESENTS,
-----------------------------------------
WARRANTS AND COVENANTS THAT EXCEPT FOR FINOVA'S SECURITY INTEREST, PERMITTED
ENCUMBRANCES, AND SUCH OTHER LIENS, CLAIMS AND ENCUMBRANCES AS MAY BE PERMITTED
BY FINOVA IN ITS SOLE DISCRETION FROM TIME TO TIME IN WRITING, (A) ALL
COLLATERAL IS AND SHALL CONTINUE TO BE OWNED BY IT FREE AND CLEAR OF ALL LIENS,
CLAIMS AND ENCUMBRANCES WHATSOEVER AND (B) BORROWER SHALL NOT, WITHOUT FINOVA'S
PRIOR WRITTEN APPROVAL, SELL, ENCUMBER OR DISPOSE OF OR PERMIT THE SALE,
ENCUMBRANCE OR DISPOSAL OF ANY COLLATERAL OR ALL OR ANY SUBSTANTIAL PART OF ANY
OF ITS OTHER ASSETS (OR ANY INTEREST OF BORROWER THEREIN), EXCEPT FOR THE SALE
OF INVENTORY IN THE ORDINARY COURSE OF BORROWER'S BUSINESS. IN THE EVENT FINOVA
GIVES ANY SUCH PRIOR WRITTEN APPROVAL WITH RESPECT TO ANY SUCH SALE OF
COLLATERAL, THE SAME MAY BE CONDITIONED ON THE SALE PRICE BEING EQUAL TO, OR
GREATER THAN, AN AMOUNT ACCEPTABLE TO FINOVA. THE PROCEEDS OF ANY SUCH SALES OF
COLLATERAL SHALL BE PERMITTED TO FINOVA PURSUANT TO THIS AGREEMENT FOR
APPLICATION TO THE OBLIGATIONS.
3.9 COLLATERAL SECURITY. THE OBLIGATIONS SHALL CONSTITUTE ONE LOAN
-------------------
SECURED BY THE COLLATERAL. FINOVA MAY, IN ITS SOLE DISCRETION, (I) EXCHANGE,
ENFORCE, WAIVE OR RELEASE ANY OF THE COLLATERAL, (II) APPLY COLLATERAL AND
DIRECT THE ORDER OR MANNER OF SALE THEREOF AS IT MAY DETERMINE, AND (III) AFTER
THE OCCURRENCE OF AN EVENT OF DEFAULT SETTLE, COMPROMISE, COLLECT OR OTHERWISE
LIQUIDATE ANY COLLATERAL IN ANY MANNER WITHOUT AFFECTING ITS RIGHT TO TAKE ANY
OTHER ACTION WITH RESPECT TO ANY OTHER COLLATERAL.
4. CONDITIONS OF CLOSING.
4.1 INITIAL ADVANCE. THE OBLIGATION OF FINOVA TO MAKE THE INITIAL ADVANCE
---------------
HEREUNDER OR TO ISSUE OR ARRANGE FOR THE ISSUANCE OF THE INITIAL LETTER OF
CREDIT HEREUNDER IS SUBJECT TO THE FULFILLMENT, TO THE SATISFACTION OF FINOVA
AND ITS COUNSEL, OF EACH OF THE FOLLOWING CONDITIONS ON OR PRIOR TO THE DATE SET
FORTH ON THE SCHEDULE:
(A) LOAN DOCUMENTS. FINOVA SHALL HAVE RECEIVED EACH OF THE FOLLOWING LOAN
--------------
DOCUMENTS: (I) THE AGREEMENT FULLY AND PROPERLY EXECUTED BY BORROWER; (II)
PROMISSORY NOTES IN SUCH AMOUNTS AND ON SUCH TERMS AND CONDITIONS AS FINOVA
SHALL SPECIFY, EXECUTED BY BORROWER; (III) GUARANTIES EXECUTED BY EACH OF THE
GUARANTORS; (IV) SUCH SECURITY AGREEMENTS, INTELLECTUAL PROPERTY ASSIGNMENTS, AS
FINOVA MAY REQUIRE WITH RESPECT TO THIS AGREEMENT AND ANY GUARANTIES, EXECUTED
BY EACH OF THE PARTIES THERETO AND, IF APPLICABLE, DULY ACKNOWLEDGED FOR
RECORDING OR FILING IN THE APPROPRIATE GOVERNMENTAL OFFICES; (V) SUBORDINATION
AGREEMENTS IN FORM AND SUBSTANCE ACCEPTABLE TO FINOVA, EXECUTED BY EACH OF THE
SUBORDINATING CREDITORS, TOGETHER WITH COPIES OF ALL INSTRUMENTS SUBJECT THERETO
SHOWING A LEGEND INDICATING SUCH SUBORDINATION; (VI) SUCH DOMINION ACCOUNT
AGREEMENTS AS IT SHALL DETERMINE; AND (VII) SUCH OTHER DOCUMENTS, INSTRUMENTS
AND AGREEMENTS IN CONNECTION HEREWITH AS FINOVA SHALL REQUIRE, EXECUTED,
CERTIFIED AND/OR ACKNOWLEDGED BY SUCH PARTIES AS FINOVA SHALL DESIGNATE;
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FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
(B) MINIMUM EXCESS AVAILABILITY. BORROWER SHALL HAVE EXCESS AVAILABILITY
---------------------------
UNDER THE REVOLVING CREDIT LOANS FACILITY OF NOT LESS THAN THE AMOUNT SPECIFIED
IN THE SCHEDULE, AFTER GIVING EFFECT TO THE INITIAL ADVANCE HEREUNDER AND AFTER
GIVING EFFECT TO ANY APPLICABLE LOAN RESERVES AGAINST BORROWING AVAILABILITY
UNDER THE REVOLVING CREDIT LOANS.
(C) TERMINATIONS BY EXISTING LENDER. BORROWER'S EXISTING LENDER(S) SHALL
-------------------------------
HAVE EXECUTED AND DELIVERED UCC TERMINATION STATEMENTS AND OTHER DOCUMENTATION
EVIDENCING THE TERMINATION OF ITS LIENS AND SECURITY INTERESTS IN THE ASSETS OF
BORROWER OR A SUBORDINATION AGREEMENT IN FORM AND SUBSTANCE SATISFACTORY TO
FINOVA IN ITS SOLE DISCRETION;
(D) CHARTER DOCUMENTS. FINOVA SHALL HAVE RECEIVED COPIES OF BORROWER'S BY-
-----------------
LAWS AND ARTICLES OR CERTIFICATE OF INCORPORATION, AS AMENDED, MODIFIED, OR
SUPPLEMENTED TO THE CLOSING DATE, CERTIFIED BY THE SECRETARY OF BORROWER;
(E) GOOD STANDING. FINOVA SHALL HAVE RECEIVED A CERTIFICATE OF CORPORATE
-------------
STATUS WITH RESPECT TO BORROWER, DATED WITHIN TEN (10) DAYS OF THE CLOSING DATE,
BY THE SECRETARY OF STATE OF THE STATE OF INCORPORATION OF BORROWER, WHICH
CERTIFICATE SHALL INDICATE THAT BORROWER IS IN GOOD STANDING IN SUCH STATE;
(F) FOREIGN QUALIFICATION. FINOVA SHALL HAVE RECEIVED CERTIFICATES OF
---------------------
CORPORATE STATUS WITH RESPECT TO BORROWER AND EACH OTHER LOAN PARTY, EACH DATED
WITHIN TEN (10) DAYS OF THE CLOSING DATE, ISSUED BY THE SECRETARY OF STATE OF
EACH STATE IN WHICH SUCH PARTY'S FAILURE TO BE DULY QUALIFIED OR LICENSED WOULD
HAVE A MATERIAL ADVERSE EFFECTS ON ITS FINANCIAL CONDITION OR ASSETS, INDICATING
THAT SUCH PARTY IS IN GOOD STANDING;
(G) AUTHORIZING RESOLUTIONS AND INCUMBENCY. FINOVA SHALL HAVE RECEIVED A
--------------------------------------
CERTIFICATE FROM THE SECRETARY OF BORROWER ATTESTING TO (I) THE ADOPTION OF
RESOLUTIONS OF BORROWER'S BOARD OF DIRECTORS, AND SHAREHOLDERS OR MEMBERS IF
NECESSARY, AUTHORIZING THE BORROWING OF MONEY FROM FINOVA AND EXECUTION AND
DELIVERY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH BORROWER IS A
PARTY, AND AUTHORIZING SPECIFIC OFFICERS OF BORROWER TO EXECUTE SAME, AND (II)
THE AUTHENTICITY OF ORIGINAL SPECIMEN SIGNATURES OF SUCH OFFICERS;
(H) INSURANCE. FINOVA SHALL HAVE RECEIVED THE INSURANCE CERTIFICATES AND
---------
CERTIFIED COPIES OF POLICIES REQUIRED BY SECTION 3.4 HEREOF, IN FORM AND
SUBSTANCE SATISFACTORY TO FINOVA AND ITS COUNSEL, TOGETHER WITH AN ADDITIONAL
INSURED ENDORSEMENT IN FAVOR OF FINOVA WITH RESPECT TO ALL LIABILITY POLICIES
AND A LENDER'S LOSS PAYABLE ENDORSEMENT IN FAVOR OF FINOVA WITH RESPECT TO ALL
CASUALTY AND BUSINESS INTERRUPTION POLICIES, EACH IN FORM AND SUBSTANCE
ACCEPTABLE TO FINOVA AND ITS COUNSEL;
(I) INTENTIONALLY OMITTED.
---------------------
(J) SEARCHES: CERTIFICATES OF TITLE. FINOVA SHALL HAVE RECEIVED SEARCHES
--------------------------------
REFLECTING THE FILING OF ITS FINANCING STATEMENTS AND FIXTURE FILINGS IN SUCH
JURISDICTIONS AS IT SHALL DETERMINE, AND SHALL HAVE RECEIVED CERTIFICATES OF
TITLE WITH RESPECT TO THE COLLATERAL WHICH SHALL HAVE BEEN DULY EXECUTED IN A
MANNER SUFFICIENT TO PERFECT ALL OF THE SECURITY INTERESTS GRANTED TO FINOVA;
(K) LANDLORD, BAILEE AND MORTGAGEE. FINOVA SHALL HAVE RECEIVED LANDLORD,
------------------------------
BAILEE AND/OR MORTGAGEE WAIVERS FROM THE LESSORS, BAILEES AND/OR MORTGAGEES OF
ALL LOCATIONS WHERE ANY COLLATERAL IS LOCATED;
(L) FEES. BORROWER SHALL HAVE PAID ALL FEES PAYABLE BY IT ON THE CLOSING
----
DATE PURSUANT TO THIS AGREEMENT;
(M) OPINION OF COUNSEL. FINOVA SHALL HAVE RECEIVED AN OPINION OF
------------------
BORROWER'S COUNSEL COVERING SUCH MATERIALS AS FINOVA SHALL DETERMINE IN ITS SOLE
DISCRETION;
(N) OFFICER CERTIFICATE. FINOVA SHALL HAVE RECEIVED A CERTIFICATE OF THE
-------------------
PRESIDENT AND THE CHIEF FINANCIAL OFFICER OR SIMILAR OFFICIAL OF
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FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
BORROWER, ATTESTING TO THE ACCURACY OF EACH OF THE REPRESENTATIONS AND
WARRANTIES OF BORROWER SET FORTH IN THIS AGREEMENT AND THE FULFILLMENT OF ALL
CONDITIONS PRECEDENT TO THE INITIAL ADVANCE HEREUNDER;
(O) SOLVENCY CERTIFICATE. IF REQUESTED, FINOVA SHALL HAVE RECEIVED A
--------------------
SIGNED CERTIFICATE OF THE BORROWER'S DULY ELECTED CHIEF FINANCIAL OFFICER
CONCERNING THE SOLVENCY AND FINANCIAL CONDITION OF BORROWER, ON FINOVA'S
STANDARD FORM;
(P) DOMINION ACCOUNT. THE DOMINION ACCOUNT REFERRED TO IN SECTION 2.10(C)
----------------
HEREOF SHALL HAVE BEEN ESTABLISHED TO THE SATISFACTION OF FINOVA IN ITS SOLE
DISCRETION;
(Q) INTENTIONALLY OMITTED.
---------------------
(R) ENVIRONMENTAL CERTIFICATE. FINOVA SHALL HAVE RECEIVED AN ENVIRONMENTAL
-------------------------
CERTIFICATE FROM BORROWER, IN FORM AND SUBSTANCE SATISFACTORY TO FINOVA IN ITS
DISCRETION, WITH RESPECT TO ALL LOCATIONS OF COLLATERAL;
(S) SEARCH AND REFERENCES. FINOVA SHALL HAVE RECEIVED AND APPROVED THE
---------------------
RESULTS OF UCC, TAX LIEN, LITIGATION, JUDGMENT, AND BANKRUPTCY SEARCHES
REGARDING BORROWER.
(T) INTENTIONALLY OMITTED.
---------------------
(U) INTENTIONALLY OMITTED.
---------------------
(V) NO MATERIAL ADVERSE CHANGES. PRIOR TO THE CLOSING DATE, THERE SHALL
---------------------------
HAVE OCCURRED NO MATERIAL ADVERSE CHANGE IN THE FINANCIAL CONDITION OF SELLER OR
BORROWER, OR IN THE CONDITION OF THE ASSETS OF SELLER, FROM THAT SHOWN ON THE
DRAFT FINANCIAL STATEMENTS FOR SELLER DATED ON THE DATE SET FORTH IN THE
SCHEDULE. AT THE CLOSING, BORROWER SHALL DELIVER TO FINOVA AN OFFICER'S
CERTIFICATION CONFIRMING THAT BORROWER IS UNAWARE OF THE EXISTENCE OF ANY SUCH
MATERIAL ADVERSE CHANGE IN SELLER'S FINANCIAL CONDITION.
(W) MATERIAL AGREEMENTS. FINOVA SHALL HAVE RECEIVED, REVIEWED AND APPROVED
-------------------
ALL MATERIAL AGREEMENTS TO WHICH BORROWER SHALL BE A PARTY, INCLUDING ANY SUCH
AGREEMENTS OF SELLER WHICH BORROWER SHALL ASSUME.
(X) PROJECTIONS. BORROWER SHALL SUBMIT CASH FLOW PROJECTIONS AND PRO FORMA
-----------
BALANCE SHEET WITH ADJUSTING ENTRIES (I) SHOWING THAT THE PROPOSED FINANCING
WILL PROVIDE SUFFICIENT FUNDS FOR THE BORROWER'S PROJECTED WORKING CAPITAL
NEEDS, AND (II) SHOWING: (1) THAT THE BORROWER WILL HAVE REASONABLY SUFFICIENT
CAPITAL FOR THE CONDUCT OF ITS BUSINESS FOLLOWING THE INITIAL FUNDING, AND (2)
THAT THE BORROWER WILL NOT INCUR DEBTS BEYOND ITS ABILITY TO PAY SUCH DEBTS AS
THEY MATURE.
(Y) OPINIONS. TO THE EXTENT ANY PERSON OTHER THAN BORROWER SHALL BE
--------
PARTIES TO THE LOAN DOCUMENTS, FINOVA RESERVES THE RIGHT TO REQUIRE SATISFACTORY
OPINIONS OF COUNSEL FOR EACH SUCH PERSON CONCERNING THE PROPER ORGANIZATION OF
SUCH PERSON AND THE DUE AUTHORIZATION, EXECUTION, DELIVERY, ENFORCEABILITY,
VALIDITY AND BINDING EFFECT OF THE LOAN DOCUMENTS TO WHICH SUCH PERSON IS A
PARTY. EACH SUCH OPINION OF COUNSEL SHALL CONFIRM, TO THE SATISFACTION OF
FINOVA, THAT THE OPINION IS BEING DELIVERED TO FINOVA AT THE INSTRUCTION OF THE
PARTY REPRESENTED BY SUCH COUNSEL, THAT FINOVA IS ENTITLED TO RELY ON SUCH
OPINION AND THAT FOR PURPOSES OF SUCH RELIANCE, FINOVA IS DEEMED TO BE IN
PRIVITY WITH THE OPINING COUNSEL.
(Z) ADA COMPLIANCE. IF NECESSARY, AS OF THE CLOSING DATE, BORROWER SHALL
--------------
BE IN COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT OF 1990 ("ADA"), OR,
IF ANY RENOVATIONS OF BORROWER'S FACILITIES OR MODIFICATIONS OF BORROWER'S
EMPLOYMENT PRACTICES SHALL BE REQUIRED TO BRING THEM INTO COMPLIANCE WITH THE
ADA, REVIEW AND APPROVAL BY FINOVA OF BORROWER'S PROPOSED PLAN TO COME INTO SUCH
COMPLIANCE. BORROWER SHALL DELIVER REPRESENTATIONS AND WARRANTIES TO FINOVA
CONCERNING BORROWER'S COMPLIANCE WITH THE ADA, AND NO EVIDENCE SHALL HAVE COME
TO THE ATTENTION
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FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
OF FINOVA INDICATING THAT BORROWER IS NOT IN COMPLIANCE WITH THE ADA (EXCEPT TO
THE EXTENT THAT FINOVA HAS REVIEWED AND APPROVED BORROWER'S PLAN TO COME INTO
COMPLIANCE).
(AA) SUBORDINATION AND INTERCREDITOR AGREEMENTS. FINOVA AND EACH
------------------------------------------
SUBORDINATING CREDITOR SHALL HAVE ENTERED INTO A SUBORDINATION AGREEMENT, IN
FORM AND SUBSTANCE SATISFACTORY TO FINOVA. WITHOUT LIMITING THE GENERALITY OF
THE FOREGOING, SELLER SHALL ENTER INTO ONE OR MORE SUBORDINATION AGREEMENTS WITH
FINOVA, IN FORM AND SUBSTANCE SATISFACTORY TO FINOVA, PROVIDING THAT SELLER'S
RIGHT TO PAYMENTS IN RESPECT OF THE SELLER SUBORDINATED INDEBTEDNESS SHALL BE
SUBORDINATED IN RIGHT OF PAYMENT TO THE LOAN.
(BB) INTENTIONALLY OMITTED.
---------------------
(CC) INTENTIONALLY OMITTED.
---------------------
(DD) INTENTIONALLY OMITTED.
---------------------
(EE) ASSET APPRAISAL. BORROWER SHALL HAVE PROVIDED TO FINOVA, AT
---------------
BORROWER'S SOLE COST AND EXPENSE, AN ASSET APPRAISAL OF ALL BORROWER'S FIXED
ASSETS UPON WHICH FINOVA SHALL BE GRANTED A FIRST PRIORITY LIEN AND SECURITY
INTEREST, WHICH APPRAISAL MUST BE ACCEPTABLE TO FINOVA IN ALL RESPECTS.
(FF) TRANSACTION COSTS. BORROWER SHALL PROVIDE TO FINOVA A COMPLETE,
-----------------
ITEMIZED SUMMARY OF ALL TRANSACTION COSTS PAID OR INCURRED BY ANY PERSON IN
CONNECTION WITH THE MAKING OF THE LOAN AND THE CONSUMMATION OF THE ACQUISITION,
WHICH TRANSACTION COSTS SHALL NOT EXCEED THE AMOUNT OF SET FORTH IN THE
SCHEDULE, AS WELL AS APPROPRIATE DOCUMENTATION EVIDENCING SUCH COSTS AND THE
PAYMENT THEREOF. ALL SUCH INFORMATION MUST BE ACCEPTABLE TO FINOVA, IN FINOVA'S
SOLE DISCRETION, EXERCISED IN GOOD FAITH.
(GG) SCHEDULE CONDITIONS. BORROWER SHALL HAVE COMPLIED WITH ALL ADDITIONAL
-------------------
CONDITIONS PRECEDENT AS SET FORTH IN THE SCHEDULE ATTACHED HERETO.
(HH) OTHER MATTERS. ALL OTHER DOCUMENTS AND LEGAL MATTERS IN CONNECTION
-------------
WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT SHALL HAVE BEEN DELIVERED,
EXECUTED AND RECORDED AND SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO FINOVA
AND ITS COUNSEL.
4.2 SUBSEQUENT ADVANCES. THE OBLIGATION OF FINOVA TO MAKE ANY ADVANCE
-------------------
HEREUNDER (INCLUDING THE INITIAL ADVANCE) SHALL BE SUBJECT TO THE FURTHER
CONDITIONS PRECEDENT THAT, ON AND AS OF THE DATE OF SUCH ADVANCE; (A) THE
REPRESENTATIONS AND WARRANTIES OF BORROWER SET FORTH IN THIS AGREEMENT SHALL BE
ACCURATE, BEFORE AND AFTER GIVING EFFECT TO SUCH ADVANCE OR ISSUANCE AND TO THE
APPLICATION OF ANY PROCEEDS THEREOF; (B) NO EVENT OF DEFAULT AND NO EVENT WHICH,
WITH NOTICE OR PASSAGE OF TIME OR BOTH, WOULD CONSTITUTE AN EVENT OF DEFAULT HAS
OCCURRED AND IS CONTINUING, OR WOULD RESULT FROM SUCH ADVANCE OR ISSUANCE OR
FROM THE APPLICATION OF ANY PROCEEDS THEREOF; (C) NO MATERIAL ADVERSE CHANGE HAS
OCCURRED IN THE BORROWER'S BUSINESS, OPERATIONS, FINANCIAL CONDITION, IN THE
CONDITION OF THE COLLATERAL OR OTHER ASSETS OF BORROWER OR IN THE PROSPECT OF
REPAYMENT OF THE OBLIGATIONS; AND (D) FINOVA SHALL HAVE RECEIVED SUCH OTHER
APPROVALS, OPINIONS OR DOCUMENTS AS FINOVA SHALL REASONABLY REQUEST.
5. REPRESENTATION AND WARRANTIES.
BORROWER REPRESENTS AND WARRANTS THAT:
5.1 DUE ORGANIZATION. IT IS A CORPORATION DULY ORGANIZED, VALIDLY
----------------
EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE STATE SET FORTH ON THE
SCHEDULE, IS QUALIFIED AND AUTHORIZED TO DO BUSINESS AND IS IN GOOD STANDING IN
ALL STATES IN WHICH SUCH QUALIFICATION AND GOOD STANDING ARE NECESSARY IN ORDER
FOR IT TO CONDUCT ITS BUSINESS AND OWN ITS PROPERTY, AND HAS ALL REQUISITE POWER
AND AUTHORITY TO CONDUCT ITS BUSINESS AS PRESENTLY CONDUCTED, TO OWN ITS
PROPERTY AND TO EXECUTE AND DELIVER EACH OF THE LOAN DOCUMENTS TO WHICH IT IS A
PARTY AND PERFORM ALL OF ITS OBLIGATIONS
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FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
THEREUNDER, AND HAS NOT TAKEN ANY STEPS TO WINDUP, DISSOLVE OR OTHERWISE
LIQUIDATE ITS ASSETS;
5.2 OTHER NAMES. BORROWER HAS NOT, DURING THE PRECEDING FIVE (5) YEARS,
-----------
BEEN KNOWN BY OR USED ANY OTHER CORPORATE OR FICTITIOUS NAME EXCEPT AS SET FORTH
ON THE SCHEDULE, NOR HAS BORROWER BEEN THE SURVIVING CORPORATION OF A MERGER OR
CONSOLIDATION OR ACQUIRED ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF ANY PERSON
DURING SUCH TIME.
5.3 DUE AUTHORIZATION. THE EXECUTION, DELIVERY AND PERFORMANCE BY
-----------------
BORROWER OF THE LOAN DOCUMENTS TO WHICH IT IS A PARTY HAVE BEEN AUTHORIZED BY
ALL NECESSARY CORPORATE ACTION AND DO NOT AND SHALL NOT CONSTITUTE A VIOLATION
OF ANY APPLICABLE LAW OR OF BORROWERS ARTICLES OR CERTIFICATE OF INCORPORATION
OR BYLAWS OR ANY OTHER DOCUMENT, AGREEMENT OR INSTRUMENT TO WHICH BORROWER IS A
PARTY OR BY WHICH BORROWER OR ITS ASSETS ARE BOUND;
5.4 BINDING OBLIGATION. EACH OF THE LOAN DOCUMENTS TO WHICH BORROWER IS A
------------------
PARTY IS THE LEGAL, VALID AND BINDING OBLIGATION OF BORROWER ENFORCEABLE AGAINST
BORROWER IN ACCORDANCE WITH ITS TERMS;
5.5 INTANGIBLE PROPERTY. BORROWER POSSESSES ADEQUATE ASSETS, LICENSES,
-------------------
PATENTS, PATENT APPLICATIONS, COPYRIGHTS, TRADEMARKS, TRADEMARK APPLICATIONS AND
TRADE NAMES FOR THE PRESENT AND PLANNED FUTURE CONDUCT OF ITS BUSINESS WITHOUT
ANY KNOWN CONFLICT WITH THE RIGHTS OF OTHERS, AND EACH IS VALID AND HAS BEEN
DULY REGISTERED OR FILED WITH THE APPROPRIATE GOVERNMENTAL AUTHORITIES; EACH OF
BORROWER'S PATENTS, PATENT APPLICATIONS, COPYRIGHTS, TRADEMARKS AND TRADEMARK
APPLICATIONS WHICH HAVE BEEN REGISTERED OR FILED WITH ANY GOVERNMENTAL AUTHORITY
(INCLUDING THE U . S. PATENT AND TRADEMARK OFFICE AND THE LIBRARY OF CONGRESS)
ARE LISTED BY NAME, DATE AND FILING NUMBER ON THE SCHEDULE;
5.6 CAPITAL. BORROWER HAS CAPITAL SUFFICIENT TO CONDUCT ITS BUSINESS, IS
-------
ABLE TO PAY ITS DEBTS AS THEY MATURE, AND OWNS PROPERTY HAVING A FAIR SALABLE
VALUE GREATER THAN THE AMOUNT REQUIRED TO PAY ALL OF ITS DEBTS (INCLUDING
CONTINGENT DEBTS);
5.7 MATERIAL LITIGATION. BORROWER HAS NO PENDING OR OVERTLY THREATENED
-------------------
LITIGATION, ACTIONS OR PROCEEDINGS WHICH WOULD MATERIALLY AND ADVERSELY AFFECT
ITS BUSINESS, ASSETS, OPERATIONS, PROSPECTS OR CONDITION, FINANCIAL OR
OTHERWISE, OR THE COLLATERAL OR ANY OF FINOVA'S INTERESTS THEREIN;
5.8 TITLE: SECURITY INTERESTS OF FINOVA. BORROWER HAS GOOD, INDEFEASIBLE
------------------------------------
AND MERCHANTABLE TITLE TO THE COLLATERAL AND, UPON THE EXECUTION AND DELIVERY OF
THE LOAN DOCUMENTS, THE FILING OF UCC-1 FINANCING STATEMENTS, DELIVERY OF THE
CERTIFICATE(S) EVIDENCING ANY PLEDGED SECURITIES, THE FILING OF ANY COLLATERAL
ASSIGNMENTS OR SECURITY AGREEMENTS REGARDING BORROWER, TRADEMARKS, COPYRIGHTS,
LICENSES AND/OR PATENTS, IF ANY, WITH THE APPROPRIATE GOVERNMENTAL OFFICES AND
THE RECORDING OF ANY MORTGAGES OR DEEDS OF TRUST WITH RESPECT TO REAL PROPERTY,
IN EACH CASE IN THE APPROPRIATE OFFICES, THIS AGREEMENT AND SUCH DOCUMENTS SHALL
CREATE VALID AND PERFECTED FIRST PRIORITY LIENS IN THE COLLATERAL, SUBJECT ONLY
TO PERMITTED ENCUMBRANCES;
5.9 RESTRICTIVE AGREEMENTS; LABOR CONTRACTS. BORROWER IS NOT A PARTY OR
---------------------------------------
SUBJECT TO ANY CONTRACT OR SUBJECT TO ANY CHARGE, CORPORATE RESTRICTION,
JUDGMENT, DECREE OR ORDER MATERIALLY AND ADVERSELY AFFECTING ITS BUSINESS,
ASSETS, OPERATIONS, PROSPECTS OR CONDITION, FINANCIAL OR OTHERWISE, OR WHICH
RESTRICTS ITS RIGHT OR ABILITY TO INCUR INDEBTEDNESS, AND IT IS NOT PARTY TO ANY
LABOR DISPUTE. IN ADDITION, NO LABOR CONTRACT IS SCHEDULED TO EXPIRE DURING THE
INITIAL TERM OF THIS AGREEMENT, EXCEPT AS DISCLOSED TO FINOVA IN WRITING PRIOR
TO THE DATE HEREOF;
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5.10 LAWS. BORROWER IS NOT IN VIOLATION OF ANY APPLICABLE STATUTE,
----
REGULATION, ORDINANCE OR ANY ORDER OF ANY COURT, TRIBUNAL OR GOVERNMENTAL
AGENCY, IN ANY RESPECT MATERIALLY AND ADVERSELY AFFECTING THE COLLATERAL OR ITS
BUSINESS, ASSETS, OPERATIONS, PROSPECTS OR CONDITION, FINANCIAL OR OTHERWISE;
5.11 CONSENTS. BORROWER HAS OBTAINED OR CAUSED TO BE OBTAINED OR ISSUED
---------
ANY REQUIRED CONSENT OF A GOVERNMENTAL AGENCY OR OTHER PERSON IN CONNECTION WITH
THE FINANCING CONTEMPLATED HEREBY;
5.12 DEFAULTS. BORROWER IS NOT IN DEFAULT WITH RESPECT TO ANY NOTE,
--------
INDENTURE, LOAN AGREEMENT, MORTGAGE, LEASE, DEED OR OTHER AGREEMENT TO WHICH IT
IS A PARTY OR BY WHICH IT OR ITS ASSETS ARE BOUND, NOR HAS ANY EVENT OCCURRED
WHICH, WITH THE GIVING OF NOTICE OR THE LAPSE OF TIME, OR BOTH, WOULD CAUSE SUCH
A DEFAULT;
5.13 FINANCIAL CONDITION. THE PREPARED FINANCIALS FAIRLY PRESENT BORROWERS
-------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND THOSE OF SUCH OTHER PERSONS
DESCRIBED THEREIN AS OF THE DATE THEREOF IN ACCORDANCE WITH GAAP; THERE ARE NO
MATERIAL OMISSIONS FROM THE PREPARED FINANCIALS OR OTHER FACTS OR CIRCUMSTANCES
NOT REFLECTED IN THE PREPARED FINANCIALS; AND THERE HAS BEEN NO MATERIAL AND
ADVERSE CHANGE IN SUCH FINANCIAL CONDITION OR OPERATIONS SINCE THE DATE OF THE
INITIAL PREPARED FINANCIALS DELIVERED TO FINOVA HEREUNDER;
5.14 ERISA. NONE OF BORROWER, ANY ERISA AFFILIATE, OR ANY PLAN IS OR HAS
-----
BEEN IN VIOLATION OF ANY OF THE PROVISIONS OF ERISA, ANY OF THE QUALIFICATION
REQUIREMENTS OF IRC SECTION 401(A) OR ANY OF THE PUBLISHED INTERPRETATIONS
THEREUNDER, NOR HAS BORROWER OR ANY ERISA AFFILIATE RECEIVED ANY NOTICE TO SUCH
EFFECT. NO NOTICE OF INTENT TO TERMINATE A PLAN HAS BEEN FILED UNDER SECTION
4041 OF ERISA, NOR HAS ANY PLAN BEEN TERMINATED UNDER ERISA. THE PBGC HAS NOT
INSTITUTED PROCEEDINGS TO TERMINATE, OR APPOINTED A TRUSTEE TO ADMINISTER, A
PLAN. NO LIEN UPON THE ASSETS OF BORROWER HAS ARISEN WITH RESPECT TO A PLAN.
NO PROHIBITED TRANSACTION OR REPORTABLE EVENT HAS OCCURRED WITH RESPECT TO A
PLAN. NEITHER BORROWER NOR ANY ERISA AFFILIATE HAS INCURRED ANY WITHDRAWAL
LIABILITY WITH RESPECT TO ANY MULTIEMPLOYER PLAN. BORROWER AND EACH ERISA
AFFILIATE HAVE MADE ALL CONTRIBUTIONS REQUIRED TO BE MADE BY THEM TO ANY PLAN OR
MULTIEMPLOYER PLAN WHEN DUE. THERE IS NO ACCUMULATED FUNDING DEFICIENCY IN ANY
PLAN, WHETHER OR NOT WAIVED;
5.15 TAXES. BORROWER HAS FILED ALL TAX RETURNS AND SUCH OTHER REPORTS AS
-----
IT IS REQUIRED BY LAW TO FILE AND HAS PAID OR MADE ADEQUATE PROVISION FOR THE
PAYMENT ON OR PRIOR TO THE DATE WHEN DUE OF ALL TAXES, ASSESSMENTS AND SIMILAR
CHARGES THAT ARE DUE AND PAYABLE;
5.16 LOCATIONS: FEDERAL TAX ID No. BORROWER'S CHIEF EXECUTIVE OFFICE AND
----------------------------
THE OFFICES AND LOCATIONS WHERE IT KEEPS THE COLLATERAL (EXCEPT FOR INVENTORY IN
TRANSIT) ARE AT THE LOCATIONS SET FORTH ON THE SCHEDULE, EXCEPT TO THE EXTENT
THAT SUCH LOCATIONS MAY HAVE BEEN CHANGED AFTER NOTICE TO FINOVA N ACCORDANCE
WITH SECTION 6.4 HEREOF; BORROWER'S FEDERAL TAX IDENTIFICATION NUMBER IS AS
SHOWN ON THE SCHEDULE;
5.17 BUSINESS RELATIONSHIPS. THERE EXISTS NO ACTUAL OR THREATENED
----------------------
TERMINATION, CANCELLATION OR LIMITATION OF, OR MODIFICATION OR CHANGE IN, THE
BUSINESS RELATIONSHIP BETWEEN BORROWER AND 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 THERE EXISTS NO PRESENT
CONDITION OR STATE OF FACTS OR CIRCUMSTANCES WHICH WOULD MATERIALLY AND
ADVERSELY AFFECT BORROWER OR PREVENT BORROWER FROM CONDUCTING SUCH BUSINESS
AFTER THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT IN
SUBSTANTIALLY THE SAME MANNER IN WHICH IT HAS HERETOFORE BEEN CONDUCTED; AND
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FINOVA LOAN AND SECURITY AGREEMENT
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5.18 REAFFIRMATIONS. EACH REQUEST FOR A LOAN MADE BY BORROWER PURSUANT TO
--------------
THIS AGREEMENT SHALL CONSTITUTE (I) AN AUTOMATIC REPRESENTATION AND WARRANTY BY
BORROWER TO FINOVA THAT THERE DOES NOT THEN EXIST ANY EVENT OF DEFAULT AND (II)
A REAFFIRMATION AS OF THE DATE OF SAID REQUEST OF ALL OF THE REPRESENTATIONS AND
WARRANTIES OF BORROWER CONTAINED IN THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
5.19 YEAR 2000 COMPLIANCE. BORROWER HAS TAKEN ALL ACTION NECESSARY TO
--------------------
ASSURE THAT THERE WILL BE NO MATERIAL ADVERSE CHANGE TO BORROWER'S BUSINESS BY
REASON OF THE ADVENT OF THE YEAR 2000, INCLUDING WITHOUT LIMITATION THAT ALL
COMPUTER-BASED SYSTEMS, EMBEDDED MICROCHIPS AND OTHER PROCESSING CAPABILITIES
EFFECTIVELY RECOGNIZE AND PROCESS DATES AFTER APRIL 1, 1999.
6. COVENANTS.
6.1 AFFIRMATIVE COVENANTS. BORROWER COVENANTS THAT, SO LONG AS ANY
---------------------
OBLIGATION REMAINS OUTSTANDING AND THIS AGREEMENT IS IN EFFECT, IT SHALL:
6.1.1 TAXES. FILE ALL TAX RETURNS AND PAY OR MAKE ADEQUATE
-----
PROVISION FOR THE PAYMENT OF ALL TAXES, ASSESSMENTS AND OTHER CHARGES ON OR
PRIOR TO THE DATE WHEN DUE UNLESS SUCH TAXES ARE BEING CONTESTED IN GOOD FAITH
BY BORROWER AND FINOVA ESTABLISHES APPROPRIATE RESERVES TO THE EXTENT OF SUCH
CONTESTED AMOUNT;
6.1.2 NOTICE OF LITIGATION. PROMPTLY NOTIFY FINOVA IN WRITING OF
--------------------
ANY LITIGATION, SUIT OR ADMINISTRATIVE PROCEEDING WHICH MAY MATERIALLY AND
ADVERSELY AFFECT THE COLLATERAL OR BORROWER'S BUSINESS, ASSETS, OPERATIONS,
PROSPECTS OR CONDITION, FINANCIAL OR OTHERWISE, WHETHER OR NOT THE CLAIM IS
COVERED BY INSURANCE;
6.1.3 ERISA. NOTIFY FINOVA IN WRITING (I) PROMPTLY UPON THE
-----
OCCURRENCE OF ANY EVENT DESCRIBED IN PARAGRAPH 4043 OF ERISA, OTHER THAN A
TERMINATION, PARTIAL TERMINATION OR MERGER OF A PLAN OR A TRANSFER OF A PLAN'S
ASSETS AND (II) PRIOR TO ANY TERMINATION, PARTIAL TERMINATION OR MERGER OF A
PLAN OR A TRANSFER OF A PLAN'S ASSETS;
6.1.4 CHANGE IN LOCATION. NOTIFY FINOVA IN WRITING FORTY-FIVE
------------------
(45) DAYS PRIOR TO ANY CHANGE IN THE LOCATION OF BORROWER'S CHIEF EXECUTIVE
OFFICE OR THE LOCATION OF ANY COLLATERAL, OR BORROWER'S OPENING OR CLOSING OF
ANY OTHER PLACE OF BUSINESS;
6.1.5 CORPORATE EXISTENCE. MAINTAIN ITS CORPORATE EXISTENCE AND
-------------------
ITS QUALIFICATION TO DO BUSINESS AND GOOD STANDING IN ALL STATES NECESSARY FOR
THE CONDUCT OF ITS BUSINESS AND THE OWNERSHIP OF ITS PROPERTY AND MAINTAIN
ADEQUATE ASSETS, LICENSES, PATENTS, COPYRIGHTS, TRADEMARKS AND TRADE NAMES FOR
THE CONDUCT OF ITS BUSINESS;
6.1.6 LABOR DISPUTES. PROMPTLY NOTIFY FINOVA IN WRITING OF ANY
--------------
LABOR DISPUTE TO WHICH BORROWER IS OR MAY BECOME SUBJECT AND THE EXPIRATION OF
ANY LABOR CONTRACT TO WHICH BORROWER IS A PARTY OR BOUND;
6.1.7 VIOLATIONS OF LAW. PROMPTLY NOTIFY FINOVA IN WRITING OF ANY
-----------------
VIOLATION OF ANY LAW, STATUTE, REGULATION OR ORDINANCE OF ANY GOVERNMENTAL
ENTITY, OR OF ANY AGENCY THEREOF, APPLICABLE TO BORROWER WHICH MAY MATERIALLY
AND ADVERSELY AFFECT THE COLLATERAL OR BORROWER BUSINESS, ASSETS, PROSPECTS,
OPERATIONS OR CONDITION, FINANCIAL OR OTHERWISE;
6.1.8 DEFAULTS. NOTIFY FINOVA IN WRITING WITHIN FIVE (5) BUSINESS
--------
DAYS OF BORROWER'S DEFAULT UNDER ANY NOTE, INDENTURE, LOAN AGREEMENT, MORTGAGE,
LEASE OR OTHER AGREEMENT TO WHICH BORROWER IS A PARTY OR BY WHICH BORROWER IS
BOUND, OR OF ANY OTHER DEFAULT UNDER ANY INDEBTEDNESS OF BORROWER;
6.1.9 CAPITAL EXPENDITURES. PROMPTLY NOTIFY FINOVA IN WRITING OF
--------------------
THE MAKING OF ANY CAPITAL EXPENDITURE MATERIALLY AFFECTING BORROWER'S BUSINESS,
ASSETS, PROSPECTS, OPERATIONS
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FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
OR CONDITION, FINANCIAL OR OTHERWISE, EXCEPT TO THE EXTENT PERMITTED IN THE
SCHEDULE;
6.1.10 BOOKS AND RECORDS. KEEP ADEQUATE RECORDS AND BOOKS OF
-----------------
ACCOUNT WITH RESPECT TO ITS BUSINESS ACTIVITIES IN WHICH PROPER ENTRIES ARE MADE
IN ACCORDANCE WITH GAAP, REFLECTING ALL OF ITS FINANCIAL TRANSACTIONS;
6.1.11 LEASES: WAREHOUSE AGREEMENTS. PROVIDE FINOVA WITH (I)
----------------------------
COPIES OF ALL AGREEMENTS BETWEEN BORROWER AND ANY LANDLORD, WAREHOUSEMAN OR
BAILEE WHICH OWNS ANY PREMISES AT WHICH ANY COLLATERAL MAY, FROM TIME TO TIME,
BE LOCATED (WHETHER FOR PROCESSING, STORAGE OR OTHERWISE), AND (II) WITHOUT
LIMITING THE LANDLORD, BAILEE AND/OR MORTGAGEE WAIVERS TO BE PROVIDED PURSUANT
TO SECTION 4.1(J) HEREOF, ADDITIONAL LANDLORD, BAILEE AND/OR MORTGAGEE WAIVERS
IN FORM ACCEPTABLE TO FINOVA WITH RESPECT TO ALL LOCATIONS WHERE ANY COLLATERAL
IS HEREAFTER LOCATED;
6.1.12 ADDITIONAL DOCUMENTS. AT FINOVA'S REQUEST, PROMPTLY EXECUTE
--------------------
OR CAUSE TO BE EXECUTED AND DELIVERED TO FINOVA ANY AND ALL DOCUMENTS,
INSTRUMENTS OR AGREEMENTS DEEMED NECESSARY BY FINOVA TO FACILITATE THE
COLLECTION OF THE OBLIGATIONS OR THE COLLATERAL OR OTHERWISE TO GIVE EFFECT TO
OR CARRY OUT THE TERMS OR INTENT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IF ANY OF THE
RECEIVABLES WITH A FACE VALUE IN EXCESS OF $1,000 ARISES OUT OF A CONTRACT WITH
THE UNITED STATES OF AMERICA OR ANY DEPARTMENT, AGENCY, SUBDIVISION OR
INSTRUMENTALITY THEREOF, BORROWER SHALL PROMPTLY NOTIFY FINOVA OF SUCH FACT IN
WRITING AND SHALL EXECUTE ANY INSTRUMENTS AND TAKE ANY OTHER ACTION REQUIRED OR
REQUESTED BY FINOVA TO COMPLY WITH THE PROVISIONS OF THE FEDERAL ASSIGNMENT OF
CLAIMS ACT; AND
6.1.13 YEAR 2000 COMPLIANCE. BORROWER SHALL TAKE ALL ACTION
--------------------
NECESSARY TO ASSURE THAT THERE WILL BE NO MATERIAL ADVERSE CHANGE TO BORROWER'S
BUSINESS BY REASON OF THE ADVENT OF THE YEAR 2000, INCLUDING WITHOUT LIMITATION
THAT ALL COMPUTER-BASED SYSTEMS, EMBEDDED MICROCHIPS AND OTHER PROCESSING
CAPABILITIES EFFECTIVELY RECOGNIZE AND PROCESS DATES AFTER APRIL 1, 1999. AT
FINOVA'S REQUEST, BORROWER SHALL PROVIDE TO FINOVA ASSURANCE REASONABLY
ACCEPTABLE TO FINOVA THAT BORROWER'S COMPUTER-BASED SYSTEMS, EMBEDDED MICROCHIPS
AND OTHER PROCESSING CAPABILITIES ARE YEAR 2000 COMPATIBLE.
6.1.14 FINANCIAL COVENANTS. COMPLY WITH THE FINANCIAL COVENANTS
-------------------
SET FORTH ON THE SCHEDULE.
6.2 NEGATIVE COVENANTS. WITHOUT FINOVA'S PRIOR WRITTEN CONSENT,
------------------
WHICH CONSENT FINOVA MAY WITHHOLD IN ITS SOLE DISCRETION, SO LONG AS ANY
OBLIGATION REMAINS OUTSTANDING AND THIS AGREEMENT IS N EFFECT, BORROWER SHALL
NOT:
6.2.1 MERGERS. MERGE OR CONSOLIDATE WITH OR ACQUIRE ANY OTHER
-------
PERSON, OR MAKE ANY OTHER MATERIAL CHANGE IN ITS CAPITAL STRUCTURE OR IN ITS
BUSINESS OR OPERATIONS, WHICH MIGHT ADVERSELY AFFECT THE REPAYMENT OF THE
OBLIGATIONS;
6.2.2 LOANS. MAKE ADVANCES, LOANS OR EXTENSIONS OF CREDIT TO, OR
-----
INVEST IN, ANY PERSON, EXCEPT FOR LOANS OR CASH ADVANCES TO EMPLOYEES WHICH ARE
PERMITTED IN THE SCHEDULE;
6.2.3 DIVIDENDS. DECLARE OR PAY CASH DIVIDENDS UPON ANY OF ITS
---------
STOCK OR DISTRIBUTE ANY OF ITS PROPERTY OR REDEEM, RETIRE, PURCHASE OR ACQUIRE
DIRECTLY OR INDIRECTLY ANY OF ITS STOCK; PROVIDED, HOWEVER BORROWER MAY MAKE
DISTRIBUTIONS TO ITS PREFERRED SHAREHOLDERS ("PERMITTED DISTRIBUTIONS") AS LONG
AS, AFTER TAKING SUCH DISTRIBUTIONS INTO EFFECT NO EVENT OF DEFAULT EXISTS OR
WOULD EXIST AFTER THE PASSAGE OF TIME, GIVING OF NOTICE OR BOTH;
6.2.4 ADVERSE TRANSACTIONS. ENTER INTO ANY TRANSACTION WHICH
--------------------
MATERIALLY AND ADVERSELY AFFECTS THE COLLATERAL OR ITS ABILITY TO REPAY THE
OBLIGATIONS IN FULL AS AND WHEN DUE;
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FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
6.2.5 INDEBTEDNESS OF OTHERS. GUARANTEE OR BECOME DIRECTLY OR
----------------------
CONTINGENTLY LIABLE FOR THE INDEBTEDNESS OF ANY PERSON, EXCEPT BY ENDORSEMENT OF
INSTRUMENTS FOR DEPOSIT AND EXCEPT FOR THE EXISTING GUARANTEES MADE BY BORROWER
PRIOR TO THE DATE HEREOF, IF ANY, WHICH ARE SET FORTH IN THE SCHEDULE;
6.2.6 REPURCHASE. MAKE A SALE TO ANY CUSTOMER ON A BILL-AND-HOLD,
----------
GUARANTEED SALE, SALE AND RETURN, SALE ON APPROVAL, CONSIGNMENT, OR ANY OTHER
REPURCHASE OR RETURN;
6.2.7 NAME. USE ANY CORPORATE OR FICTITIOUS NAME OTHER THAN ITS
----
CORPORATE NAME AS SET FORTH IN ITS ARTICLES OR CERTIFICATE OF INCORPORATION ON
THE DATE HEREOF OR AS SET FORTH ON THE SCHEDULE;
6.2.8 PREPAYMENT. PREPAY ANY INDEBTEDNESS OTHER THAN TRADE
----------
PAYABLES AND OTHER THAN THE OBLIGATIONS; HOWEVER, BORROWER MAY MAKE REGULARLY
SCHEDULED PAYMENTS TO ITS SUBORDINATING CREDITORS AT THE TIME OF THE INITIAL
PUBLIC OFFERING;
6.2.9 CAPITAL EXPENDITURE. MAKE OR INCUR ANY CAPITAL EXPENDITURE
-------------------
IF, AFTER GIVING EFFECT THERETO, THE AGGREGATE AMOUNT OF ALL CAPITAL
EXPENDITURES BY BORROWER IN ANY FISCAL YEAR WOULD EXCEED THE AMOUNT SET FORTH ON
THE SCHEDULE;
6.2.10 COMPENSATION. PAY TOTAL COMPENSATION, INCLUDING SALARIES,
------------
WITHDRAWALS, FEES, BONUSES, COMMISSIONS, DRAWING ACCOUNTS AND OTHER PAYMENTS,
WHETHER DIRECTLY OR INDIRECTLY, IN MONEY OR OTHERWISE, DURING ANY FISCAL YEAR TO
ALL OF BORROWER'S EXECUTIVES, OFFICERS AND DIRECTORS (OR ANY RELATIVE THEREOF)
IN AN AMOUNT IN EXCESS OF THE AMOUNT SET FORTH ON THE SCHEDULE;
6.2.11 INDEBTEDNESS. CREATE, INCUR, ASSUME OR PERMIT TO EXIST ANY
------------
INDEBTEDNESS (INCLUDING INDEBTEDNESS IN CONNECTION WITH CAPITAL LEASES) IN
EXCESS OF THE AMOUNT SET FORTH ON THE SCHEDULE, OTHER THAN (I) THE OBLIGATIONS,
(II) TRADE PAYABLES AND OTHER CONTRACTUAL OBLIGATIONS TO SUPPLIERS AND CUSTOMERS
INCURRED IN THE ORDINARY COURSE OF BUSINESS, AND (III) OTHER INDEBTEDNESS
EXISTING ON THE DATE OF THIS AGREEMENT AND REFLECTED IN THE PREPARED FINANCIALS
(EXCEPT INDEBTEDNESS PAID ON THE DATE OF THIS AGREEMENT FROM THE PROCEEDS OF THE
INITIAL ADVANCES HEREUNDER), AND (IV) SUBORDINATED DEBT;
6.2.12 AFFILIATE TRANSACTIONS. EXCEPT AS SET FORTH BELOW, SELL,
----------------------
TRANSFER, DISTRIBUTE OR PAY ANY MONEY OR PROPERTY TO ANY AFFILIATE, OR INVEST IN
(BY CAPITAL CONTRIBUTION OR OTHERWISE) OR PURCHASE OR REPURCHASE ANY STOCK OR
INDEBTEDNESS, OR ANY PROPERTY, OF ANY AFFILIATE, OR BECOME LIABLE ON ANY
GUARANTY OF THE INDEBTEDNESS, DIVIDENDS OR OTHER OBLIGATIONS OF ANY AFFILIATE.
NOTWITHSTANDING THE FOREGOING, BORROWER MAY PAY COMPENSATION PERMITTED BY
SECTION 6.2.3 TO EMPLOYEES WHO ARE AFFILIATES AND, IF NO EVENT OF DEFAULT HAS
OCCURRED, BORROWER MAY (I) ENGAGE IN TRANSACTIONS WITH AFFILIATES IN THE NORMAL
COURSE OF BUSINESS, IN AMOUNTS AND UPON TERMS WHICH ARE FULLY DISCLOSED TO
FINOVA AND WHICH ARE NO LESS FAVORABLE TO BORROWER THAN WOULD BE OBTAINABLE IN A
COMPARABLE ARM'S LENGTH TRANSACTION WITH A PERSON WHO IS NOT AN AFFILIATE, AND
(II) MAKE PAYMENTS TO A SUBORDINATING CREDITOR THAT IS AN AFFILIATE, SUBJECT TO
AND ONLY TO THE EXTENT EXPRESSLY PERMITTED IN THE SUBORDINATION AGREEMENT
BETWEEN SUCH SUBORDINATING CREDITOR AND FINOVA;
6.2.13 NATURE OF BUSINESS. ENTER INTO ANY NEW BUSINESS OR MAKE ANY
------------------
MATERIAL CHANGE IN ANY OF BORROWER'S BUSINESS OBJECTIVES, PURPOSES OR
OPERATIONS;
6.2.14 FINOVA'S NAME. USE THE NAME OF FINOVA IN CONNECTION WITH
-------------
ANY OF BORROWER'S BUSINESS OR ACTIVITIES, EXCEPT IN CONNECTION WITH INTERNAL
BUSINESS MATTERS OR AS REQUIRED IN DEALINGS WITH GOVERNMENTAL AGENCIES AND
FINANCIAL INSTITUTIONS OR WITH TRADE CREDITORS OF
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FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
BORROWER, SOLELY FOR CREDIT REFERENCE PURPOSES; OR
6.2.15 MARGIN SECURITY. BORROWER WILL NOT (AND HAS NOT IN THE
---------------
PAST) ENGAGED PRINCIPALLY, OR AS ONE OF ITS IMPORTANT ACTIVITIES, IN THE
BUSINESS OF EXTENDING CREDIT FOR THE PURPOSE OF PURCHASING OR CARRYING MARGIN
STOCK (WITHIN THE MEANING OF REGULATION G OR REGULATION U ISSUED BY THE BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM), AND NO PROCEEDS OF ANY LOAN OR OTHER
ADVANCE WILL BE USED TO PURCHASE OR CARRY ANY MARGIN STOCK OR TO EXTEND CREDIT
TO OTHERS FOR THE PURPOSE OF PURCHASING OR CARRYING ANY MARGIN STOCK, OR IN ANY
MANNER WHICH MIGHT CAUSE SUCH LOAN OR OTHER ADVANCE OR THE APPLICATION OF SUCH
PROCEEDS TO VIOLATE (OR REQUIRE ANY REGULATORY FILING UNDER) REGULATION G,
REGULATION T, REGULATION U, REGULATION X OR ANY OTHER REGULATION OF THE BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM, IN EACH CASE AS IN EFFECT ON THE DATE
OR DATES OF SUCH LOAN OR OTHER ADVANCE AND SUCH USE OF PROCEEDS. FURTHER, NO
PROCEEDS OF ANY LOAN OR OTHER ADVANCE WILL BE USED TO ACQUIRE ANY SECURITY OF A
CLASS WHICH IS REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT
OF 1934.
6.2.16 REAL PROPERTY. PURCHASE OR ACQUIRE ANY PROPERTY WITHOUT
-------------
FINOVA'S PRIOR WRITTEN CONSENT, A CONDITION OF WHICH CONSENT SHALL INCLUDE
DELIVERY OF APPROPRIATE ENVIRONMENTAL REPORTS AND ANALYSIS, IN FORM AND
SUBSTANCE SATISFACTORY TO FINOVA AND ITS COUNSEL.
7. DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. ONE OR MORE OF THE FOLLOWING EVENTS SHALL
-----------------
CONSTITUTE AN EVENT OF DEFAULT UNDER THIS AGREEMENT:
(A) BORROWER FAILS TO PAY WHEN DUE AND PAYABLE ANY PORTION OF THE
OBLIGATIONS AT STATED MATURITY, UPON ACCELERATION OR OTHERWISE EXCEPT WITH
RESPECT TO THOSE REGULARLY SCHEDULED MONTHLY PAYMENTS BY BORROWER TO FINOVA
PURSUANT TO THAT CERTAIN SECURED PROMISSORY TERM NOTE DATED APRIL 7, 1998 AND
SUCH PAYMENTS ARE NOT CURED WITHIN FIVE (5) DAYS OF THE DUE DATE;
(B) BORROWER OR ANY OTHER LOAN PARTY FAILS OR NEGLECTS TO PERFORM, KEEP,
OR OBSERVE ANY OBLIGATION INCLUDING, BUT NOT LIMITED TO, ANY TERM, PROVISION,
CONDITION, COVENANT OR AGREEMENT CONTAINED IN ANY LOAN DOCUMENT TO WHICH
BORROWER OR SUCH OTHER LOAN PARTY IS A PARTY, UNLESS WITH RESPECT TO SECTIONS
6.1.4 AND 6.1.10 ONLY IF SUCH FAILURE IS NOT CURED WITHIN 15 DAYS AFTER BORROWER
KNOWS OR SHOULD HAVE KNOWN OF SUCH FAILURE;
(C) ANY MATERIAL ADVERSE CHANGE OCCURS IN BORROWER'S BUSINESS, ASSETS,
OPERATIONS, PROSPECTS OR CONDITION, FINANCIAL OR OTHERWISE;
(D) THE PROSPECT OF REPAYMENT OF ANY PORTION OF THE OBLIGATIONS OR THE
VALUE OR PRIORITY OF FINOVA'S SECURITY INTEREST IN THE COLLATERAL IS MATERIALLY
IMPAIRED;
(E) ANY PORTION OF BORROWER'S ASSETS IS SEIZED, ATTACHED, SUBJECTED TO A
WRIT OR DISTRESS WARRANT, IS LEVIED UPON OR COMES INTO THE POSSESSION OF ANY
JUDICIAL OFFICER;
(F) BORROWER SHALL GENERALLY NOT PAY ITS DEBTS AS THEY BECOME DUE OR SHALL
ENTER INTO ANY AGREEMENT (WHETHER WRITTEN OR ORAL), OR OFFER TO ENTER INTO ANY
AGREEMENT, WITH ALL OR A SIGNIFICANT NUMBER OF ITS CREDITORS REGARDING ANY
MORATORIUM OR OTHER INDULGENCE WITH RESPECT TO ITS DEBTS OR THE PARTICIPATION OF
SUCH CREDITORS OR THEIR REPRESENTATIVES IN THE SUPERVISION, MANAGEMENT OR
CONTROL OF THE BUSINESS OF BORROWER;
(G) ANY BANKRUPTCY OR OTHER INSOLVENCY PROCEEDING IS COMMENCED BY
BORROWER, OR ANY SUCH PROCEEDING IS COMMENCED AGAINST BORROWER AND REMAINS
UNDISCHARGED OR UNSTAYED FOR FORTY-FIVE (45) DAYS;
(H) ANY NOTICE OF LIEN, LEVY OR ASSESSMENT IS FILED OF RECORD WITH RESPECT
TO ANY OF BORROWERS ASSETS;
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<PAGE>
(I) ANY JUDGMENTS ARE ENTERED AGAINST BORROWER IN AN AGGREGATE AMOUNT
EXCEEDING $25,000 IN ANY FISCAL YEAR;
(J) ANY DEFAULT SHALL OCCUR UNDER (I) ANY MATERIAL AGREEMENT BETWEEN
BORROWER AND ANY THIRD PARTY INCLUDING, WITHOUT LIMITATION, ANY DEFAULT WHICH
WOULD RESULT IN A RIGHT BY SUCH THIRD PARTY TO ACCELERATE THE MATURITY OF ANY
INDEBTEDNESS OF BORROWER TO SUCH THIRD PARTY, OR (II) ANY SUBORDINATED DEBT;
(K) ANY REPRESENTATION OR WARRANTY MADE OR DEEMED TO BE MADE BY BORROWER,
ANY AFFILIATE OR ANY OTHER LOAN PARTY IN ANY LOAN DOCUMENT OR ANY OTHER
STATEMENT, DOCUMENT OR REPORT MADE OR DELIVERED TO FINOVA IN CONNECTION
THEREWITH SHALL PROVE TO HAVE BEEN MISLEADING IN ANY MATERIAL RESPECT;
(L) ANY GUARANTOR DIES, TERMINATES OR ATTEMPTS TO TERMINATE ITS GUARANTY OR
ANY SECURITY THEREFOR OR BECOMES SUBJECT TO ANY BANKRUPTCY OR OTHER INSOLVENCY
PROCEEDING;
(M) ANY PROHIBITED TRANSACTION OR REPORTABLE EVENT SHALL OCCUR WITH RESPECT
TO A PLAN WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON THE FINANCIAL CONDITION
OF BORROWER; ANY LIEN UPON THE ASSETS OF BORROWER IN CONNECTION WITH ANY PLAN
SHALL ARISE; BORROWER OR ANY OF ITS ERISA AFFILIATES SHALL FAIL TO MAKE FULL
PAYMENT WHEN DUE OF ALL AMOUNTS WHICH BORROWER OR ANY OF ITS ERISA AFFILIATES
MAY BE REQUIRED TO PAY TO ANY PLAN OR ANY MULTI-EMPLOYER PLAN AS ONE OR MORE
CONTRIBUTIONS THERETO; BORROWER OR ANY OF ITS ERISA AFFILIATES CREATES OR
PERMITS THE CREATION OF ANY ACCUMULATED FUNDING DEFICIENCY, WHETHER OR NOT
WAIVED; OR
(N) PRIOR TO AN INITIAL PUBLIC OFFERING ("IPO") BY BORROWER, ANY TRANSFER
OF MORE THAN TEN PERCENT (10%) OF THE ISSUED AND OUTSTANDING SHARES OF COMMON
STOCK OR OTHER EVIDENCE OF OWNERSHIP OF BORROWER, OTHER THAN A TRANSFER TO AN
EXISTING SHAREHOLDER OF BORROWER AS OF THE CLOSING DATE, PROVIDED THAT, MURRAY
H. GROSS CONTROLS DIRECTLY OR INDIRECTLY AT LEAST 15% OF THE COMMON STOCK OR
OTHER EVIDENCE OF OWNERSHIP OF BORROWER; AND AFTER THE IPO, ANY TRANSFER OF THE
ISSUED AND OUTSTANDING SHARES OF COMMON STOCK OR OTHER EVIDENCE OF BORROWER OR
ELECTION OF THE BOARD OF DIRECTORS WHICH WOULD CONSTITUTE A CHANGE OF CONTROL IN
THE BORROWER.
NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, FINOVA RESERVES THE RIGHT TO
CEASE MAKING ANY LOANS IF AN EVENT OF DEFAULT HAS OCCURRED.
7.2 REMEDIES. UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, FINOVA MAY, AT
--------
ITS OPTION AND IN ITS SOLE DISCRETION AND IN ADDITION TO ALL OF ITS OTHER RIGHTS
UNDER THE LOAN DOCUMENTS, CEASE MAKING LOANS, TERMINATE THIS AGREEMENT AND/OR
DECLARE ALL OF THE OBLIGATIONS TO BE IMMEDIATELY PAYABLE IN FULL. BORROWER
AGREES THAT FINOVA SHALL ALSO HAVE ALL OF ITS RIGHTS AND REMEDIES UNDER
APPLICABLE LAW, INCLUDING, WITHOUT LIMITATION, THE DEFAULT RIGHTS AND REMEDIES
OF A SECURED PARTY UNDER THE CODE, AND UPON THE OCCURRENCE OF AN EVENT OF
DEFAULT BORROWER HEREBY CONSENTS TO THE APPOINTMENT OF A RECEIVER BY FINOVA IN
ANY ACTION INITIATED BY FINOVA PURSUANT TO THIS AGREEMENT AND TO THE
JURISDICTION AND VENUE SET FORTH IN SECTION 9.26 HEREOF, AND BORROWER WAIVES
NOTICE AND POSTING OF A BOND IN CONNECTION THEREWITH. FURTHER, FINOVA MAY, AT
ANY TIME, TAKE POSSESSION OF THE COLLATERAL AND KEEP IT ON BORROWER'S PREMISES,
AT NO COST TO FINOVA, OR REMOVE ANY PART OF IT TO SUCH OTHER PLACE(S) AS FINOVA
MAY DESIRE, OR BORROWER SHALL, UPON FINOVA'S DEMAND, AT BORROWERS SOLE COST,
ASSEMBLE THE COLLATERAL AND MAKE IT AVAILABLE TO FINOVA AT A PLACE REASONABLY
CONVENIENT TO FINOVA. FINOVA MAY SELL AND DELIVER ANY COLLATERAL AT PUBLIC OR
PRIVATE SALES, FOR CASH, UPON CREDIT OR OTHERWISE, AT SUCH PRICES AND UPON SUCH
TERMS AS FINOVA DEEMS ADVISABLE, AT FINOVA'S DISCRETION, AND MAY, IF FINOVA
DEEMS IT REASONABLE, POSTPONE OR ADJOURN ANY SALE OF THE COLLATERAL BY AN
ANNOUNCEMENT AT THE TIME AND PLACE OF SALE OR OF SUCH POSTPONED OR ADJOURNED
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FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
SALE WITHOUT GIVING A NEW NOTICE OF SALE. BORROWER AGREES THAT FINOVA HAS NO
OBLIGATION TO PRESERVE RIGHTS TO THE COLLATERAL OR MARSHALL ANY COLLATERAL FOR
THE BENEFIT OF ANY PERSON. FINOVA IS HEREBY GRANTED A LICENSE OR OTHER RIGHT TO
USE, WITHOUT CHARGE, BORROWER'S LABELS, PATENTS, COPYRIGHTS, NAME, TRADE
SECRETS, TRADE NAMES, TRADEMARKS AND ADVERTISING MATTER, OR ANY SIMILAR
PROPERTY, IN COMPLETING PRODUCTION, ADVERTISING OR SELLING ANY COLLATERAL AND
BORROWER'S RIGHTS UNDER ALL LICENSES AND ALL FRANCHISE AGREEMENTS SHALL INURE TO
FINOVA'S BENEFIT. ANY REQUIREMENT OF REASONABLE NOTICE SHALL BE MET IF SUCH
NOTICE IS MAILED POSTAGE PREPAID TO BORROWER AT ITS ADDRESS SET FORTH IN THE
HEADING TO THIS AGREEMENT AT LEAST FIVE (5) DAYS BEFORE SALE OR OTHER
DISPOSITION. THE PROCEEDS OF SALE SHALL BE APPLIED, FIRST, TO ALL ATTORNEYS
FEES AND OTHER EXPENSES OF SALE, AND SECOND, TO THE OBLIGATIONS IN SUCH ORDER AS
FINOVA SHALL ELECT, IN ITS SOLE DISCRETION. FINOVA SHALL RETURN ANY EXCESS TO
BORROWER AND BORROWER SHALL REMAIN LIABLE FOR ANY DEFICIENCY TO THE FULLEST
EXTENT PERMITTED BY LAW.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. BORROWER AND
---------------------------------------------------
FINOVA AGREE THAT THE FOLLOWING CONDUCT BY FINOVA WITH RESPECT TO ANY
DISPOSITION OF COLLATERAL SHALL CONCLUSIVELY BE DEEMED COMMERCIALLY REASONABLE
(BUT OTHER CONDUCT BY FINOVA, INCLUDING, BUT NOT LIMITED TO, FINOVA'S USE IN ITS
SOLE DISCRETION OF OTHER OR DIFFERENT TIMES, PLACES AND MANNERS OF NOTICING AND
CONDUCTING ANY DISPOSITION OF COLLATERAL SHALL NOT BE DEEMED UNREASONABLE): ANY
PUBLIC OR PRIVATE DISPOSITION: (I) AS TO WHICH ON NO LATER THAN THE FIFTH
CALENDAR DAY PRIOR THERETO WRITTEN NOTICE THEREOF IS MAILED OR PERSONALLY
DELIVERED TO BORROWER AND, WITH RESPECT TO ANY PUBLIC DISPOSITION, ON NO LATER
THAN THE FIFTH CALENDAR DAY PRIOR THERETO NOTICE THEREOF DESCRIBING IN GENERAL
NON-SPECIFIC TERMS, THE COLLATERAL TO BE DISPOSED OF IS PUBLISHED ONCE IN A
NEWSPAPER OF GENERAL CIRCULATION IN THE COUNTY WHERE THE SALE IS TO BE CONDUCTED
(PROVIDED THAT NO NOTICE OF ANY PUBLIC OR PRIVATE DISPOSITION NEED BE GIVEN TO
THE BORROWER OR PUBLISHED IF THE COLLATERAL IS PERISHABLE OR THREATENS TO
DECLINE SPEEDILY IN VALUE OR IS OF A TYPE CUSTOMARILY SOLD ON A RECOGNIZED
MARKET); (II) WHICH IS CONDUCTED AT ANY PLACE DESIGNATED BY FINOVA, WITH OR
WITHOUT THE COLLATERAL BEING PRESENT; AND (III) WHICH COMMENCES AT ANY TIME
BETWEEN 8:00 A.M. AND 5:00 P.M. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, BORROWER EXPRESSLY AGREES THAT, WITH RESPECT TO ANY DISPOSITION OF
ACCOUNTS, INSTRUMENTS AND GENERAL INTANGIBLES, IT SHALL BE COMMERCIALLY
REASONABLE FOR FINOVA TO DIRECT ANY PROSPECTIVE PURCHASER THEREOF TO ASCERTAIN
DIRECTLY FROM BORROWER ANY AND ALL INFORMATION CONCERNING THE SAME, INCLUDING,
BUT NOT LIMITED TO, THE TERMS OF PAYMENT, AGING AND DELINQUENCY, IF ANY, THE
FINANCIAL CONDITION OF ANY OBLIGOR OR ACCOUNT DEBTOR THEREON OR GUARANTOR
THEREOF, AND ANY COLLATERAL THEREFOR.
8. EXPENSES AND INDEMNITIES
8.1 EXPENSES. BORROWER COVENANTS THAT, SO LONG AS ANY OBLIGATION REMAINS
--------
OUTSTANDING AND THIS AGREEMENT REMAINS IN EFFECT, IT SHALL PROMPTLY REIMBURSE
FINOVA FOR ALL COSTS, FEES AND EXPENSES INCURRED BY FINOVA IN CONNECTION WITH
THE NEGOTIATION, PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION AND
ENFORCEMENT OF EACH OF THE LOAN DOCUMENTS, INCLUDING, BUT NOT LIMITED TO, THE
ATTORNEYS' AND PARALEGALS' FEES OF IN-HOUSE AND OUTSIDE COUNSEL, EXPERT WITNESS
FEES, LIEN, TITLE SEARCH AND INSURANCE FEES, APPRAISAL FEES, ALL CHARGES AND
EXPENSES INCURRED IN CONNECTION WITH ANY AND ALL ENVIRONMENTAL REPORTS AND
ENVIRONMENTAL REMEDIATION ACTIVITIES, AND ALL OTHER COSTS, EXPENSES, TAXES AND
FILING OR RECORDING FEES PAYABLE IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT, INCLUDING WITHOUT LIMITATION ALL SUCH COSTS,
FEES AND EXPENSES AS FINOVA SHALL INCUR OR FOR WHICH FINOVA SHALL BECOME
OBLIGATED IN CONNECTION WITH (I) ANY INSPECTION OR VERIFICATION OF THE
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COLLATERAL, (II) ANY PROCEEDING RELATING TO THE LOAN DOCUMENTS OR THE
COLLATERAL, (III) ACTIONS TAKEN WITH RESPECT TO THE COLLATERAL AND FINOVA'S
SECURITY INTEREST THEREIN, INCLUDING, WITHOUT LIMITATION, THE DEFENSE OR
PROSECUTION OF ANY ACTION INVOLVING FINOVA AND BORROWER OR ANY THIRD PARTY, (IV)
ENFORCEMENT OF ANY OF FINOVA'S RIGHTS AND REMEDIES WITH RESPECT TO THE
OBLIGATIONS OR COLLATERAL AND (V) CONSULTATION WITH FINOVA'S ATTORNEYS AND
PARTICIPATION IN ANY WORKOUT, BANKRUPTCY OR OTHER INSOLVENCY OR OTHER PROCEEDING
INVOLVING ANY LOAN PARTY OR ANY AFFILIATE, WHETHER OR NOT SUIT IS FILED OR THE
ISSUES ARE PECULIAR TO FEDERAL BANKRUPTCY OR STATE INSOLVENCY LAWS. BORROWER
SHALL ALSO PAY ALL FINOVA CHARGES IN CONNECTION WITH BANK WIRE TRANSFERS,
FORWARDING OF LOAN PROCEEDS, DEPOSITS OF CHECKS AND OTHER ITEMS OF PAYMENT,
RETURNED CHECKS, ESTABLISHMENT AND MAINTENANCE OF LOCKBOXES AND OTHER BLOCKED
ACCOUNTS, AND ALL OTHER BANK AND ADMINISTRATIVE MATTERS, IN ACCORDANCE WITH
FINOVA'S SCHEDULE OF BANK AND ADMINISTRATIVE FEES AND CHARGES IN EFFECT FROM
TIME TO TIME.
8.2 ENVIRONMENTAL MATTERS.
---------------------
THE ENVIRONMENTAL CERTIFICATE DATED ON OR ABOUT THE DATE OF THIS AGREEMENT
IS INCORPORATED HEREIN FOR ALL PURPOSES AS IF FULLY STATED N THIS AGREEMENT.
9. MISCELLANEOUS.
9.1 EXAMINATION OF RECORDS; FINANCIAL REPORTING.
-------------------------------------------
(A) EXAMINATIONS. FINOVA SHALL AT ALL REASONABLE TIMES HAVE FULL
------------
ACCESS TO AND THE RIGHT TO EXAMINE, AUDIT, MAKE ABSTRACTS AND COPIES FROM AND
INSPECT BORROWERS RECORDS, FILES, BOOKS OF ACCOUNT AND ALL OTHER DOCUMENTS,
INSTRUMENTS AND AGREEMENTS RELATING TO THE COLLATERAL AND THE RIGHT TO CHECK,
TEST AND APPRAISE THE COLLATERAL. BORROWER SHALL DELIVER TO FINOVA ANY
INSTRUMENT NECESSARY FOR FINOVA TO OBTAIN RECORDS FROM ANY SERVICE BUREAU
MAINTAINING RECORDS FOR BORROWER. ALL INSTRUMENTS AND CERTIFICATES PREPARED BY
BORROWER SHOWING THE VALUE OF ANY OF THE COLLATERAL SHALL BE ACCOMPANIED, UPON
FINOVA'S REQUEST, BY COPIES OF RELATED PURCHASE ORDERS AND INVOICES. FINOVA MAY,
AT ANY TIME, AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT, REMOVE FROM BORROWER'S
PREMISES BORROWER'S BOOKS AND RECORDS (OR COPIES THEREOF) OR REQUIRE BORROWER TO
DELIVER SUCH BOOKS AND RECORDS OR COPIES TO FINOVA. FINOVA MAY, WITHOUT EXPENSE
TO FINOVA, USE SUCH OF BORROWER'S PERSONNEL, SUPPLIES AND PREMISES AS MAY BE
REASONABLY NECESSARY FOR MAINTAINING OR ENFORCING FINOVA'S SECURITY INTEREST.
(B) REPORTING REQUIREMENTS. BORROWER SHALL FURNISH FINOVA, UPON REQUEST,
----------------------
SUCH INFORMATION AND STATEMENTS AS FINOVA SHALL REQUEST FROM TIME TO TIME
REGARDING BORROWERS BUSINESS AFFAIRS, FINANCIAL CONDITION AND THE RESULTS OF ITS
OPERATIONS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BORROWER SHALL
PROVIDE FINOVA WITH: (I) FINOVA'S STANDARD FORM COLLATERAL AND LOAN REPORT,
DAILY, AND UPON FINOVA'S REQUEST, COPIES OF SALES JOURNALS, CASH RECEIPT
JOURNALS, AND DEPOSIT SLIPS; (II) UPON FINOVA'S REQUEST, COPIES OF SALES
INVOICES, CUSTOMER STATEMENTS AND CREDIT MEMORANDA ISSUED, REMITTANCE ADVICES
AND REPORTS; (III) COPIES OF SHIPPING AND DELIVERY DOCUMENTS, UPON REQUEST; (IV)
ON OR PRIOR TO THE DATE SET FORTH ON THE SCHEDULE, MONTHLY AGINGS (AGED FROM
INVOICE DATE) AND RECONCILIATIONS OF RECEIVABLES (WITH LISTINGS OF CONCENTRATED
ACCOUNTS), PAYABLES REPORTS, INVENTORY REPORTS, COMPLIANCE CERTIFICATES AND
UNAUDITED FINANCIAL STATEMENTS WITH RESPECT TO THE PRIOR MONTH PREPARED ON A
BASIS CONSISTENT WITH SUCH STATEMENTS PREPARED IN PRIOR MONTHS AND OTHERWISE N
ACCORDANCE WITH GAAP; (V) AUDITED ANNUAL CONSOLIDATED AND CONSOLIDATING
FINANCIAL STATEMENTS, PREPARED IN ACCORDANCE WITH GAAP APPLIED ON A BASIS
CONSISTENT WITH THE MOST RECENT PREPARED FINANCIALS PROVIDED TO FINOVA BY
BORROWER, INCLUDING BALANCE SHEETS, INCOME AND CASH FLOW STATEMENTS, ACCOMPANIED
BY THE
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FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
UNQUALIFIED REPORT THEREON OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ACCEPTABLE TO FINOVA, AS SOON AS AVAILABLE, AND IN ANY EVENT, WITHIN ONE HUNDRED
TWENTY (120) DAYS AFTER THE END OF EACH OF BORROWER'S FISCAL YEARS; AND (VI)
SUCH CERTIFICATES RELATING TO THE FOREGOING AS FINOVA MAY REQUEST, INCLUDING,
WITHOUT LIMITATION, A MONTHLY CERTIFICATE FROM THE PRESIDENT AND THE CHIEF
FINANCIAL OFFICER OF BORROWER SHOWING BORROWER'S COMPLIANCE WITH EACH OF THE
FINANCIAL COVENANTS SET FORTH IN THIS AGREEMENT, AND STATING WHETHER ANY EVENT
OF DEFAULT HAS OCCURRED OR EVENT WHICH, WITH GIVING OF NOTICE OR THE PASSAGE OF
TIME, OR BOTH, WOULD CONSTITUTE AN EVENT OF DEFAULT, AND IF SO, THE STEPS BEING
TAKEN TO PREVENT OR CURE SUCH EVENT OF DEFAULT. ALL REPORTS OR FINANCIAL
STATEMENTS SUBMITTED BY BORROWER SHALL BE IN REASONABLE DETAIL AND SHALL BE
CERTIFIED BY THE PRINCIPAL FINANCIAL OFFICER OF BORROWER AS BEING COMPLETE AND
CORRECT.
(C) GUARANTOR'S FINANCIAL STATEMENTS AND TAX RETURNS. BORROWER SHALL CAUSE
------------------------------------------------
EACH OF THE GUARANTORS TO DELIVER TO FINOVA SUCH GUARANTOR'S ANNUAL FINANCIAL
STATEMENT (IN FORM ACCEPTABLE TO FINOVA) AND A COPY OF SUCH GUARANTOR'S FEDERAL
INCOME TAX RETURN WITH RESPECT TO THE CORRESPONDING YEAR, IN EACH CASE ON THE
DATE WHEN SUCH TAX RETURN IS DUE OR, IF EARLIER, ON THE DATE WHEN AVAILABLE.
9.2 TERM; TERMINATION.
-----------------
(A) TERM. THE INITIAL TERM OF THE REVOLVING CREDIT LOANS FACILITY AND THE
----
OBLIGATION OF FINOVA TO MADE ADVANCES WITH RESPECT THERETO IN ACCORDANCE WITH
THIS AGREEMENT SHALL BE AS SET FORTH ON THE SCHEDULE, AND THE REVOLVING CREDIT
LOANS FACILITY AND THIS AGREEMENT SHALL BE AUTOMATICALLY RENEWED FOR ONE OR MORE
RENEWAL TERM(S) AS SET FORTH IN THE SCHEDULE, UNLESS EARLIER TERMINATED AS
PROVIDED HEREIN.
(B) PRIOR NOTICE. EACH PARTY SHALL HAVE THE RIGHT TO TERMINATE THIS
------------
AGREEMENT EFFECTIVE AT THE END OF THE INITIAL TERM OR AT THE END OF ANY RENEWAL
TERM BY GIVING THE OTHER PARTY WRITTEN NOTICE NOT LESS THAN SIXTY (60) DAYS
PRIOR TO THE EFFECTIVE DATE OF SUCH TERMINATION, BY REGISTERED OR CERTIFIED
MAIL.
(C) PAYMENT IN FULL. UPON THE EFFECTIVE DATE OF TERMINATION, THE
---------------
OBLIGATIONS SHALL BECOME IMMEDIATELY DUE AND PAYABLE IN FULL IN CASH.
(D) EARLY TERMINATION; TERMINATION FEE. IN ADDITION TO THE PROCEDURE SET
----------------------------------
FORTH IN SECTION 9.2(B), BORROWER MAY TERMINATE THIS AGREEMENT AT ANY TIME BUT
ONLY UPON SIXTY (60) DAYS' PRIOR WRITTEN NOTICE AND PREPAYMENT OF THE
OBLIGATIONS. UPON ANY SUCH EARLY TERMINATION BY BORROWER OR ANY TERMINATION OF
THIS AGREEMENT BY FINOVA UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, THEN, AND
IN ANY SUCH EVENT, BORROWER SHALL PAY TO FINOVA UPON THE EFFECTIVE DATE OF SUCH
TERMINATION A FEE (THE "TERMINATION FEE") IN AN AMOUNT EQUAL TO THE AMOUNT SHOWN
---------------
ON THE SCHEDULE.
9.3 RECOURSE TO SECURITY; CERTAIN WAIVERS. ALL OBLIGATIONS SHALL BE
-------------------------------------
PAYABLE BY BORROWER AS PROVIDED FOR HEREIN AND, IN FULL, AT THE TERMINATION OF
THIS AGREEMENT; RECOURSE TO SECURITY SHALL NOT BE REQUIRED AT ANY TIME. BORROWER
WAIVES PRESENTMENT AND PROTEST OF ANY INSTRUMENT AND NOTICE THEREOF, NOTICE OF
DEFAULT AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ALL OTHER NOTICES TO
WHICH BORROWER MIGHT OTHERWISE BE ENTITLED.
9.4 NO WAIVER BY FINOVA. NEITHER FINOVA'S FAILURE TO EXERCISE ANY RIGHT,
-------------------
REMEDY OR OPTION UNDER THIS AGREEMENT, ANY SUPPLEMENT, THE LOAN DOCUMENTS OR
OTHER AGREEMENT BETWEEN FINOVA AND BORROWER NOR ANY DELAY BY FINOVA IN
EXERCISING THE SAME SHALL OPERATE AS A WAIVER. NO WAIVER BY FINOVA SHALL BE
EFFECTIVE UNLESS IN WRITING AND THEN ONLY TO THE EXTENT STATED. NO WAIVER BY
FINOVA SHALL AFFECT ITS RIGHT TO REQUIRE STRICT PERFORMANCE OF THIS AGREEMENT.
FINOVA'S RIGHTS AND REMEDIES SHALL BE CUMULATIVE AND NOT EXCLUSIVE.
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FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
9.5 BINDING ON SUCCESSOR AND ASSIGNS. ALL TERMS, CONDITIONS, PROMISES,
--------------------------------
COVENANTS, PROVISIONS AND WARRANTIES SHALL INURE TO THE BENEFIT OF AND BIND
FINOVA'S AND BORROWER'S RESPECTIVE REPRESENTATIVES, SUCCESSORS AND ASSIGNS.
9.6 SEVERABILITY. IF ANY PROVISION OF THIS AGREEMENT SHALL BE PROHIBITED
------------
OR INVALID UNDER APPLICABLE LAW, IT SHALL BE INEFFECTIVE ONLY TO SUCH EXTENT,
WITHOUT INVALIDATING THE REMAINDER OF THIS AGREEMENT.
9.7 AMENDMENTS; ASSIGNMENTS. THIS AGREEMENT MAY NOT BE MODIFIED, ALTERED
-----------------------
OR AMENDED, EXCEPT BY AN AGREEMENT TN WRITING SIGNED BY BORROWER AND FINOVA.
BORROWER MAY NOT SELL, ASSIGN OR TRANSFER ANY INTEREST IN THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR ANY PORTION THEREOF, INCLUDING, WITHOUT LIMITATION, ANY
OF BORROWER'S RIGHTS, TITLE, INTERESTS, REMEDIES, POWERS AND DUTIES HEREUNDER OR
THEREUNDER. BORROWER HEREBY CONSENTS TO FINOVA'S PARTICIPATION, SALE,
ASSIGNMENT, TRANSFER OR OTHER DISPOSITION, AT ANY TIME OR TIMES HEREAFTER, OF
THIS AGREEMENT AND ANY OF THE OTHER LOAN DOCUMENTS, OR OF ANY PORTION HEREOF OR
THEREOF, INCLUDING, WITHOUT LIMITATION, FINOVA'S RIGHTS, TITLE, RESTS, REMEDIES,
POWERS AND DUTIES HEREUNDER OR THEREUNDER. IN CONNECTION THEREWITH, FINOVA MAY
DISCLOSE ALL DOCUMENTS AND INFORMATION WHICH FINOVA NOW OR HEREAFTER MAY HAVE
RELATING TO BORROWER OR BORROWER'S BUSINESS. TO THE EXTENT THAT FINOVA ASSIGNS
ITS RIGHTS AND OBLIGATIONS HEREUNDER TO A THIRD PARTY, FINOVA SHALL THEREAFTER
BE RELEASED FROM SUCH ASSIGNED OBLIGATIONS TO BORROWER AND SUCH ASSIGNMENT SHALL
EFFECT A NOVATION BETWEEN BORROWER AND SUCH THIRD PARTY.
9.8 INTEGRATION. THIS AGREEMENT, TOGETHER WITH THE SCHEDULE (WHICH IS A
-----------
PART HEREOF) AND THE OTHER LOAN DOCUMENTS, REFLECT THE ENTIRE UNDERSTANDING OF
THE PARTIES WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY.
9.9 SURVIVAL. ALL OF THE REPRESENTATIONS AND WARRANTIES OF BORROWER
--------
CONTAINED IN THIS AGREEMENT SHALL SURVIVE THE EXECUTION, DELIVERY AND ACCEPTANCE
OF THIS AGREEMENT BY THE PARTIES. NO TERMINATION OF THIS AGREEMENT OR OF ANY
GUARANTY OF THE OBLIGATIONS SHALL AFFECT OR IMPAIR THE POWERS, OBLIGATIONS,
DUTIES, RIGHTS, REPRESENTATIONS, WARRANTIES OR LIABILITIES OF THE PARTIES HERETO
AND ALL SHALL SURVIVE SUCH TERMINATION.
9.10 EVIDENCE OF OBLIGATIONS. EACH OBLIGATION MAY, IN FINOVA'S DISCRETION,
-----------------------
BE EVIDENCED BY NOTES OR OTHER INSTRUMENTS ISSUED OR MADE BY
BORROWER TO FINOVA. IF NOT SO EVIDENCED, SUCH OBLIGATION SHALL BE EVIDENCED
SOLELY BY ENTRIES UPON FINOVA'S BOOKS AND RECORDS.
9.11 LOAN REQUESTS. EACH ORAL OR WRITTEN REQUEST FOR A LOAN BY ANY PERSON
-------------
WHO PURPORTS TO BE ANY EMPLOYEE, OFFICER OR AUTHORIZED AGENT OF BORROWER SHALL
BE MADE TO FINOVA ON OR PRIOR TO 11:00 A.M., EASTERN TIME, ON THE BUSINESS DAY
ON WHICH THE PROCEEDS THEREOF ARE REQUESTED TO BE PAID TO BORROWER AND SHALL BE
CONCLUSIVELY PRESUMED TO BE MADE BY A PERSON AUTHORIZED BY BORROWER TO DO SO AND
THE CREDITING OF A LOAN TO BORROWER'S OPERATING ACCOUNT SHALL CONCLUSIVELY
ESTABLISH BORROWER'S OBLIGATION TO REPAY SUCH LOAN. UNLESS AND UNTIL BORROWER
OTHERWISE DIRECTS FINOVA IN WRITING, ALL LOANS SHALL BE WIRED TO BORROWER'S
OPERATING ACCOUNT SET FORTH ON THE SCHEDULE.
9.12 NOTICES. ANY NOTICE REQUIRED HEREUNDER SHALL BE IN WRITING AND
-------
ADDRESSED TO THE BORROWER AND FINOVA AT THEIR ADDRESSES SET FORTH AT THE
BEGINNING OF THIS AGREEMENT. NOTICES HEREUNDER SHALL BE DEEMED RECEIVED ON THE
EARLIER OF RECEIPT, WHETHER BY MAIL, PERSONAL DELIVERY, FACSIMILE, OR OTHERWISE,
OR UPON DEPOSIT IN THE UNITED STATES MAIL, POSTAGE PREPAID.
9.13 BROKERAGE FEES. BORROWER REPRESENTS AND WARRANTS TO FINOVA THAT, WITH
--------------
RESPECT TO THE FINANCING TRANSACTION HEREIN CONTEMPLATED, NO PERSON, OTHER THAN
JAMES
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<PAGE>
FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
RICHARDS, IS ENTITLED TO ANY BROKERAGE FEE OR OTHER COMMISSION AND
BORROWER AGREES TO INDEMNIFY AND HOLD FINOVA HARMLESS AGAINST ANY AND ALL SUCH
CLAIMS.
9.14 DISCLOSURE. NO REPRESENTATION OR WARRANTY, MADE BY BORROWER IN THIS
----------
AGREEMENT, OR IN ANY FINANCIAL STATEMENT, REPORT, CERTIFICATE OR ANY OTHER
DOCUMENT FURNISHED IN CONNECTION HEREWITH CONTAINS ANY UNTRUE STATEMENT OF A
MATERIAL FACT OR OMITS TO STATE ANY MATERIAL FACT NECESSARY TO MAKE THE
STATEMENTS HEREIN OR THEREIN NOT MISLEADING. THERE IS NO FACT KNOWN TO BORROWER
OR WHICH REASONABLY SHOULD BE KNOWN TO BORROWER WHICH BORROWER HAS NOT DISCLOSED
TO FINOVA IN WRITING WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT WHICH MATERIALLY AND ADVERSELY AFFECTS THE BUSINESS, ASSETS,
OPERATIONS, PROSPECTS OR CONDITION (FINANCIAL OR OTHERWISE), OF BORROWER.
9.15 PUBLICITY. FINOVA IS HEREBY AUTHORIZED TO CAUSE A TOMBSTONE TO BE
---------
PUBLISHED ANNOUNCING THE CONSUMMATION OF THIS TRANSACTION AND THE AGGREGATE
AMOUNT THEREOF.
9.16 CAPTIONS. THE SECTION TITLES CONTAINED IN THIS AGREEMENT ARE WITHOUT
--------
SUBSTANTIVE MEANING AND ARE NOT PART OF THIS AGREEMENT.
9.17 INJUNCTIVE RELIEF. BORROWER RECOGNIZES THAT, IN THE EVENT BORROWER
-----------------
FAILS TO PERFORM, OBSERVE OR DISCHARGE ANY OF ITS OBLIGATIONS UNDER THIS
AGREEMENT, ANY REMEDY AT LAW MAY PROVE TO BE INADEQUATE RELIEF TO FINOVA.
THEREFORE, FINOVA, IF IT SO REQUESTS, SHALL BE ENTITLED TO TEMPORARY AND
PERMANENT INJUNCTIVE RELIEF IN ANY SUCH CASE WITHOUT THE NECESSITY OF PROVING
ACTUAL DAMAGES.
9.18 COUNTERPARTS; FACSIMILE EXECUTION. THIS AGREEMENT MAY BE EXECUTED IN
---------------------------------
ONE OR MORE COUNTERPARTS, EACH OF WHICH TAKEN TOGETHER SHALL CONSTITUTE ONE AND
THE SAME INSTRUMENT, ADMISSIBLE INTO EVIDENCE. DELIVERY OF AN EXECUTED
COUNTERPART OF THIS AGREEMENT BY TELEFACSIMILE SHALL BE EQUALLY AS EFFECTIVE AS
DELIVERY OF A MANUALLY EXECUTED COUNTERPART OF THIS AGREEMENT. ANY PARTY
DELIVERING AN EXECUTED COUNTERPART OF THIS AGREEMENT BY TELEFACSIMILE SHALL ALSO
DELIVER A MANUALLY EXECUTED COUNTERPART OF THIS AGREEMENT, BUT THE FAILURE TO
DELIVER A MANUALLY EXECUTED COUNTERPART SHALL NOT AFFECT THE VALIDITY,
ENFORCEABILITY, AND BINDING EFFECT OF THIS AGREEMENT.
9.19 CONSTRUCTION. THE PARTIES ACKNOWLEDGE THAT EACH PARTY AND ITS COUNSEL
------------
HAVE REVIEWED THIS AGREEMENT AND THAT THE NORMAL RULE OF CONSTRUCTION TO THE
EFFECT THAT ANY AMBIGUITIES ARE TO BE RESOLVED AGAINST THE DRAFTING PARTY SHALL
NOT BE EMPLOYED IN THE INTERPRETATION OF THIS AGREEMENT OR ANY AMENDMENTS OR
EXHIBITS HERETO.
9.20 TIME OF ESSENCE. TIME IS OF THE ESSENCE FOR THE PERFORMANCE BY
---------------
BORROWER OF THE OBLIGATIONS SET FORTH IN THIS AGREEMENT.
9.21 LIMITATION OF ACTIONS. BORROWER AGREES THAT ANY CLAIM OR CAUSE OF
---------------------
ACTION BY BORROWER AGAINST FINOVA, OR ANY OF FINOVA'S DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ACCOUNTANTS OR ATTORNEYS, BASED UPON, ARISING FROM, OR
RELATING TO THIS AGREEMENT, OR ANY OTHER PRESENT OR FUTURE AGREEMENT, OR ANY
OTHER TRANSACTION CONTEMPLATED HEREBY OR THEREBY OR RELATING HERETO OR THERETO,
OR ANY OTHER MATTER, CAUSE OR THING WHATSOEVER, WHETHER OR NOT RELATING HERETO
OR THERETO, OCCURRED, DONE, OMITTED OR SUFFERED TO BE DONE BY FINOVA, OR BY
FINOVA'S DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ACCOUNTANTS OR ATTORNEYS,
WHETHER SOUNDING IN CONTRACT OR IN TORT OR OTHERWISE, SHALL BE BARRED UNLESS
ASSERTED BY BORROWER BY THE COMMENCEMENT OF AN ACTION OR PROCEEDING IN A COURT
OF COMPETENT JURISDICTION BY THE FILING OF A COMPLAINT WITHIN ONE YEAR AFTER THE
FIRST ACT, OCCURRENCE OR OMISSION UPON WHICH SUCH CLAIM OR CAUSE OF ACTION, OR
ANY PART THEREOF, IS BASED AND SERVICE OF A SUMMONS AND COMPLAINT ON AN OFFICER
OF FINOVA OR ANY OTHER PERSON AUTHORIZED TO
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FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
ACCEPT SERVICE OF PROCESS ON BEHALF OF FINOVA, WITHIN 30 DAYS THEREAFTER.
BORROWER AGREES THAT SUCH ONE-YEAR PERIOD OF TIME IS A REASONABLE AND SUFFICIENT
TIME FOR BORROWER TO INVESTIGATE AND ACT UPON ANY SUCH CLAIM OR CAUSE OF ACTION.
THE ONE-YEAR PERIOD PROVIDED HEREIN SHALL NOT BE WAIVED, TOLLED, OR EXTENDED
EXCEPT BY A SPECIFIC WRITTEN AGREEMENT OF FINOVA. THIS PROVISION SHALL SURVIVE
ANY TERMINATION OF THIS LOAN AGREEMENT OR ANY OTHER AGREEMENT.
9.22 LIABILITY. NEITHER FINOVA NOR ANY FINOVA AFFILIATE SHALL BE LIKEABLE
---------
FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES N CONNECTION WITH
ANY BREACH OF CONTRACT, TORT OR OTHER WRONG RELATING TO THIS AGREEMENT OR THE
OBLIGATIONS OR THE ESTABLISHMENT, ADMINISTRATION OR COLLECTION THEREOF
(INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OF PROFITS, BUSINESS
INTERRUPTION, OR THE LIKE), WHETHER SUCH DAMAGES ARE FORESEEABLE OR
UNFORESEEABLE, EVEN IF FINOVA HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. NEITHER FINOVA, NOR ANY FINOVA AFFILIATE SHALL BE LIABLE FOR ANY
CLAIMS, DEMANDS, LOSSES OR DAMAGES, OF ANY KIND WHATSOEVER, MADE, CLAIMED,
INCURRED OR SUFFERED BY THE BORROWER THROUGH THE ORDINARY NEGLIGENCE OF FINOVA,
OR ANY FINOVA AFFILIATE. "FINOVA AFFILIATE" SHALL MEAN FINOVA'S DIRECTORS,
----------------
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSON OR ENTITY AFFILIATED
WITH OR REPRESENTING FINOVA.
9.23 NOTICE OF BREACH BY FINOVA. BORROWER AGREES TO GIVE FINOVA WRITTEN
--------------------------
NOTICE OF (I) ANY ACTION OR INACTION BY FINOVA OR ANY ATTORNEY OF FINOVA IN
CONNECTION WITH ANY LOAN DOCUMENTS THAT MAY BE ACTIONABLE AGAINST FINOVA OR ANY
ATTORNEY OF FINOVA OR (II) ANY DEFENSE TO THE PAYMENT OF THE OBLIGATIONS FOR ANY
REASON, INCLUDING, BUT NOT LIMITED TO, COMMISSION OF A TORT OR VIOLATION OF ANY
CONTRACTUAL DUTY OR DUTY IMPLIED BY LAW. BORROWER AGREES THAT UNLESS SUCH
NOTICE IS FULLY GIVEN AS PROMPTLY AS POSSIBLE (AND IN ANY EVENT WITHIN THIRTY
(30) DAYS) AFTER BORROWER HAS KNOWLEDGE, OR WITH THE EXERCISE OF REASONABLE
DILIGENCE SHOULD HAVE HAD KNOWLEDGE, OF ANY SUCH ACTION, INACTION OR DEFENSE,
BORROWER SHALL NOT ASSERT, AND BORROWER SHALL BE DEEMED TO HAVE WAIVED, ANY
CLAIM OR DEFENSE ARISING THEREFROM.
9.24 APPLICATION OF INSURANCE PROCEEDS. THE NET PROCEEDS OF ANY CASUALTY
---------------------------------
INSURANCE INSURING THE COLLATERAL, AFTER DEDUCTING ALL COSTS AND EXPENSES
(INCLUDING ATTORNEYS' FEES) OF COLLECTION, SHALL BE APPLIED, AT FINOVA'S OPTION,
EITHER TOWARD REPLACING OR RESTORING THE COLLATERAL, IN A MANNER AND ON TERMS
SATISFACTORY TO FINOVA, OR TOWARD PAYMENT OF THE OBLIGATIONS. ANY PROCEEDS
APPLIED TO THE PAYMENT OF OBLIGATIONS SHALL BE APPLIED IN SUCH MANNER AS FINOVA
MAY ELECT. IN NO EVENT SHALL SUCH APPLICATION RELIEVE BORROWER FROM PAYMENT IN
FULL OF ALL INSTALLMENTS OF PRINCIPAL AND INTEREST WHICH THEREAFTER BECOME DUE
IN THE ORDER OF MATURITY THEREOF.
9.25 POWER OF ATTORNEY. BORROWER APPOINTS FINOVA AND ITS DESIGNEES AS
-----------------
BORROWER'S ATTORNEY, WITH THE POWER TO ENDORSE BORROWER'S NAME ON ANY CHECKS,
NOTES, ACCEPTANCES, MONEY ORDERS OR OTHER FORMS OF PAYMENT OR SECURITY THAT COME
INTO FINOVA'S POSSESSION; TO SIGN BORROWER'S NAME ON ANY INVOICE OR BILL OF
LADING RELATING TO ANY RECEIVABLE, ON DRAFTS AGAINST CUSTOMERS, ON ASSIGNMENTS
OF RECEIVABLES, ON NOTICES OF ASSIGNMENT, FINANCING STATEMENTS AND OTHER PUBLIC
RECORDS, ON VERIFICATIONS OF ACCOUNTS AND ON NOTICES TO CUSTOMERS OR ACCOUNT
DEBTORS; TO SEND REQUESTS FOR VERIFICATION OF RECEIVABLES TO CUSTOMERS OR
ACCOUNT DEBTORS; AFTER THE OCCURRENCE OF ANY EVENT OF DEFAULT, TO NOTIFY THE
POST OFFICE AUTHORITIES TO CHANGE THE ADDRESS FOR DELIVERY OF BORROWER'S MAIL TO
AN ADDRESS DESIGNATED BY FINOVA AND TO OPEN AND DISPOSE OF ALL MAIL ADDRESSED TO
BORROWER; AND TO DO ALL OTHER THINGS FINOVA DEEMS NECESSARY OR DESIRABLE TO
CARRY OUT THE TERMS OF THIS AGREEMENT. BORROWER HEREBY RATIFIES AND APPROVES ALL
ACTS OF SUCH ATTORNEY. NEITHER FINOVA NOR ANY OF ITS DESIGNEES SHALL BE LIABLE
FOR ANY ACTS OR OMISSIONS NOR FOR ANY ERROR OF
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<PAGE>
FINOVA LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
JUDGMENT OR MISTAKE OF FACT OR LAW WHILE ACTING AS BORROWER'S ATTORNEY. THIS
POWER, BEING COUPLED WITH AN INTEREST, IS IRREVOCABLE UNTIL THE OBLIGATIONS HAVE
BEEN FULLY SATISFIED AND FINOVA'S OBLIGATION TO PROVIDE LOANS HEREUNDER SHALL
HAVE TERMINATED, BUT SHALL ONLY BE EFFECTIVE AFTER THE OCCURRENCE OF AN EVENT OF
DEFAULT.
9.26 GOVERNING LAW; WAIVERS. THIS AGREEMENT, INCLUDING WITHOUT LIMITATION
------------------------
ENFORCEMENT OF THE OBLIGATIONS, SHALL BE INTERPRETED IN ACCORDANCE WITH THE
INTERNAL LAWS (AND NOT THE CONFLICT OF LAWS RULES) OF THE STATE OF ARIZONA
GOVERNING CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. BORROWER HEREBY
CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED
WITHIN THE COUNTY OF MARICOPA IN THE STATE OF ARIZONA OR, AT THE SOLE OPTION OF
FINOVA, IN ANY OTHER COURT IN WHICH FINOVA SHALL INITIATE LEGAL OR EQUITABLE
PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN
CONTROVERSY. BORROWER WAIVES ANY OBJECTION OF FORUM NON CONVENIENS AND VENUE.
BORROWER FURTHER WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE IN THE MANNER SET FORTH IN
SECTION 9.12 HEREOF FOR THE GIVING OF NOTICE. BORROWER FURTHER WAIVES ANY RIGHT
IT MAY OTHERWISE HAVE TO COLLATERALLY ATTACK ANY JUDGMENT ENTERED AGAINST IT.
9.27 MUTUAL WAIVER OF RIGHT TO JURY TRIAL. FINOVA AND BORROWER EACH
------------------------------------
HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; (II) ANY OTHER
PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN FINOVA AND BORROWER; OR (III)
ANY CONDUCT, ACTS OR OMISSIONS OF FINOVA OR BORROWER OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
FINOVA OR BORROWER; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.
BORROWER:
U.S. REMODELERS, INC.
FED. TAX ID #75-2686765
BY: /S/ MURRAY H. GROSS
-------------------
MURRAY H. GROSS, PRESIDENT
FINOVA:
FINOVA CAPITAL CORPORATION
BY: /S/ MELISSA SCHNECK
-------------------
MELISSA SCHNECK,
ASSISTANT VICE PRESIDENT
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<PAGE>
EXHIBIT 10.8
AMENDED AND RESTATED CONTINUING LIMITED PERSONAL GUARANTY
---------------------------------------------------------
FOR VALUE RECEIVED, and in consideration of any loan or other
financial accommodation heretofore or hereafter at any time made or granted to
U.S. REMODELERS, INC. ("Borrower"), by FINOVA CAPITAL CORPORATION ("Lender"),
the undersigned, Murray H. Gross ("Guarantor"), hereby agrees as follows:
1. Guaranty of Obligations. Guarantor unconditionally, absolutely
-----------------------
and irrevocably guarantees the full and prompt payment and performance when due,
whether by acceleration or otherwise, and at all times thereafter, of all
obligations of Borrower to Lender, howsoever created, arising or evidenced,
whether direct or indirect, absolute or contingent, or now or hereafter existing
or due or to become due, including, without limitation, under or in connection
with that certain Loan and Security Agreement and Schedule to Loan and Security
Agreement (collectively, the "Loan Agreement") of even date between Borrower and
Lender, that certain Secured Promissory Term Note dated April 7, 1998 in the
original principal amount of Seven Hundred Thousand Dollars ($700,000.00)
executed by Borrower in favor of Lender, that certain Secured Revolving Credit
Note dated of even date in the principal amount of One Million Dollars
($1,000,000.00) executed by Borrower in favor of Lender, and each of the
documents, instruments and agreements executed and delivered in connection
therewith, as each may be modified, amended, supplemented or replaced from time
to time (all such obligations are herein referred to collectively as the
"Liabilities", and all documents evidencing or securing any of the Liabilities
are herein referred to, collectively, as the "Loan Documents"). This Continuing
Limited Personal Guaranty (this "Continuing Guaranty") is a guaranty of payment
and performance when due and not of collection.
In the event of any default by Borrower in making payment of, or
default by Borrower in performance of, any of the Liabilities, Guarantor agrees
on demand by Lender to pay and perform all of the Liabilities as are then or
thereafter become due and owing or are to be performed under the terms of the
Loan Documents. Guarantor further agrees to pay all expenses (including
reasonable attorneys' fees and expenses) paid or incurred by Lender in
endeavoring to collect the Liabilities, or any part thereof, and in enforcing
this Continuing Guaranty.
2. Limitation on Guaranty. Notwithstanding any other provision of
----------------------
this
<PAGE>
Continuing Guaranty, the aggregate liability of Guarantor hereunder shall not
exceed an amount equal to one-half of the Total Facility (as defined in the Loan
Agreement), as reduced or increased from time to time; plus costs and----
expenses of enforcement of this Continuing Guaranty, and interest on the amount
due under this Continuing Guaranty calculated from the date of demand by Lender
at the Default Rate. Provided that no default has occurred under the Loan
Documents and, Borrower has met at least eighty percent (80%) of its projected
profitability and net worth goals attached hereto as Exhibit A for Borrower's
fiscal year ending December 31, 1998, based upon audited financial statements
from an accounting firm acceptable to Lender, the aggregate liability of
Guarantor hereunder shall be reduced to one-quarter of the Total Facility
effective as of the six month anniversary of the Closing Date of the credit
facility; plus costs and expenses of enforcement of this Continuing Guaranty,
----
and interest on the amount due under this Continuing Guaranty calculated from
the date of demand by Lender at the Default Rate.
3. Continuing Nature of Guaranty and Liabilities. This Continuing
---------------------------------------------
Guaranty shall be continuing and shall not be discharged, impaired or affected
by:
a. the insolvency of Borrower;
b. the power or authority or lack thereof of Borrower to incur
the Liabilities;
c. the validity or invalidity of any of the Loan Documents or
the documents securing the same;
d. the existence or non-existence of Borrower as a legal
entity;
e. any transfer by Borrower of all or any part of any
collateral in which Lender has been granted a lien or security interest
pursuant to the Loan Documents;
f. any statute of limitations affecting the liability of
Guarantor under this Continuing Guaranty or the Loan Documents or the
ability of Lender to enforce this Continuing Guaranty or any provision of
the Loan Documents; or
g. any right of offset, counterclaim or defense of Guarantor,
including, without limitation, those which have been waived by Guarantor
pursuant to Paragraph [7] hereof.
4. Insolvency of Borrower or Guarantor. Without limiting the
-----------------------------------
generality of any
2
<PAGE>
other provision hereof, Guarantor agrees that, in the event of the dissolution
or insolvency of Borrower or Guarantor or the inability of Borrower or Guarantor
to pay their respective debts as they mature, or an assignment by Borrower or
Guarantor for the benefit of creditors, or the institution of any proceeding by
or against Borrower or Guarantor alleging that Borrower or Guarantor is
insolvent or unable to pay their respective debts as they mature, Guarantor will
pay to Lender forthwith the full amount which would be payable hereunder by
Guarantor if all of the Liabilities were then due and payable, whether or not
such event occurs at a time when any of the Liabilities are otherwise due and
payable.
5. Payment of the Liabilities. Any amounts received by Lender from
--------------------------
whatever source on account of the Liabilities may be applied by Lender toward
the payment of such of the Liabilities, and in such order of application, as
Lender may from time to time elect, and notwithstanding any payments made by or
for the account of Guarantor pursuant to this Continuing Guaranty.
Guarantor agrees that, if at any time all or any part of any payment
theretofore applied by Lender to any of the Liabilities is or must be rescinded
or returned by Lender for any reason whatsoever (including, without limitations
the insolvency, bankruptcy or reorganization of Borrower), such Liabilities
shall, for the purposes of this Continuing Guaranty and to the extent that such
payment is or must be rescinded or returned, be deemed to have continued in
existence notwithstanding such application by Lender, and this Continuing
Guaranty shall continue to be effective or be reinstated, as the case may be, as
to such Liabilities, all as though such application by Lender had not been made.
6. Permitted Actions of Lender. Lender may from time to time, in
---------------------------
its sole discretion and without notice to Guarantor, take any or all of the
following actions:
a. retain or obtain a security interest in any assets of
Borrower or any third party to secure any of the Liabilities or any obligations
of Guarantor hereunder;
b. retain or obtain the primary or secondary obligation of any
obligor or obligors, in addition to Guarantor, with respect to any of the
Liabilities;
c. extend or renew for one or more periods (whether or not
longer than the original period), alter or exchange any of the Liabilities;
d. waive, ignore or forbear from taking action or otherwise
exercising any of its
3
<PAGE>
default rights or remedies with respect to any default by Borrower under the
Loan Documents;
e. release, waive or compromise any obligation of Guarantor
hereunder or any obligation of any nature of any other obligor primarily or
secondarily obligated with respect to any of the Liabilities;
f. release its security interest in, or surrender, release or
permit any substitution or exchange for, all or any part of any collateral now
or hereafter securing any of the Liabilities or any obligation hereunder, or
extend or renew for one or more periods (whether or not longer than the original
period) or release, waive, compromise, alter or exchange any obligations of any
nature of any obligor with respect to any such property; and
g. demand payment or performance of any of the Liabilities from
Guarantor at any time or from time to time, whether or not Lender shall have
exercised any of its rights or remedies with respect to any property securing
any of the Liabilities or any obligation hereunder or proceeded against any
other obligor primarily or secondarily liable for payment or performance of any
of the Liabilities.
7. Specific Waivers. Without limiting the generality of any other
----------------
provision of this Continuing Guaranty, Guarantor hereby expressly waives:
a. notice of the acceptance by Lender of this Continuing
Guaranty;
b. notice of the existence, creation, payment, nonpayment,
performance or nonperformance of all or any of the Liabilities;
c. presentment, demand, notice of dishonor, protest, notice of
protest and all other notices whatsoever with respect to the payment or
performance of the Liabilities or the amount thereof or any payment or
performance by Guarantor hereunder;
d. all diligence in collection or protection of or realization
upon the Liabilities or any thereof, any obligation hereunder or any security
for or guaranty of any of the foregoing;
e. any right to direct or affect the manner or timing of
Lender's enforcement of its rights or remedies;
f. any and all defenses which would otherwise arise upon the
occurrence of any event or contingency described in Paragraph 1 hereof or upon
the taking of any action by Lender permitted hereunder;
4
<PAGE>
g. any defense, right of set-off, claim or counterclaim
whatsoever and any and all other rights, benefits, protections and other
defenses available to Guarantor now or at any time hereafter; and
h. all other principles or provisions of law, if any, that
conflict with the terms of this Continuing Guaranty, including, without
limitation, the effect of any circumstances that may or might constitute a legal
or equitable discharge of a guarantor or surety.
8. Irrevocability. Guarantor hereby further waives all rights to
--------------
revoke this Continuing Guaranty at any time, and all rights to revoke any
agreement executed by Guarantor at any time to secure the payment and
performance of Guarantor's obligations under this Continuing Guaranty.
9. Statutory Waiver of Rights and Defenses Regarding Election of
-------------------------------------------------------------
Remedies. Guarantor waives all rights and defenses arising out of an election of
- --------
remedies by Lender, even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
Guarantor's rights of subrogation and reimbursement against Borrower by the
operation of any applicable law or otherwise.
10. Subordination. Guarantor hereby subordinates any and all
-------------
indebtedness of Borrower to Guarantor to the full and prompt payment and
performance of all of the Liabilities. Guarantor agrees that Lender, after and
during the occurrence of an Event of Default, shall be entitled to receive
payment of all Liabilities prior to Guarantor's receipt of payment of any amount
of any indebtedness of Borrower to Guarantor. Any payments on such indebtedness
to Guarantor, after and during the occurrence of an Event of Default, if Lender
so requests, shall be collected, enforced and received by Guarantor, in trust,
as trustee for Lender and shall be paid over to Lender on account of the
Liabilities, but without reducing or affecting in any manner the liability of
Guarantor under the other provisions of this Guaranty. After and during the
continuance of an Event of Default, Lender is authorized and empowered, but not
obligated, in its discretion, (a) in the name of Guarantor, to collect and
enforce, and to submit claims in respect of, any indebtedness of Borrower to
Guarantor and to apply any amounts received thereon to the Liabilities, and (b)
to require Guarantor (i) to collect and enforce, and to submit claims in respect
of, any indebtedness of Borrower to Guarantor, and (ii) to pay any amounts
received on such indebtedness to Lender for application to the Liabilities.
11. Subrogation. Guarantor will not exercise any rights which it may
-----------
acquire by way of
5
<PAGE>
subrogation under this Continuing Guaranty, by any payment hereunder or
otherwise, until all of the Liabilities have been paid in full, in cash, and
Lender shall have no further obligations to Borrowers under the Loan Documents
or otherwise. After and during the continuance of an Event of Default, if any
amount shall be paid to Guarantor on account of such subrogation rights at any
other time, such amount shall be held in trust for the benefit of Lender and
shall be forthwith paid to Lender to be credited and applied to the Liabilities,
whether matured or unmatured, in such manner as Lender shall determine in its
sole discretion.
12. Assignment of Lender's Rights. Lender may, from time to time,
-----------------------------
without notice to Guarantor, assign or transfer any or all of the Liabilities or
any interest therein and, notwithstanding any such assignment or transfer of the
Liabilities or any subsequent assignment or transfer thereof, the Liabilities
shall be and remain the Liabilities for the purpose of this Continuing Guaranty.
Each and every immediate and successive assignee or transferee of any of the
Liabilities or of any interest therein shall, to the extent of such party's
interest in the Liabilities, be entitled to the benefits of this Continuing
Guaranty to the same extent as if such assignee or transferee were Lender;
however, that unless Lender shall otherwise consent in writing, Lender shall
- -------
have an unimpaired right, prior and superior to that of any such assignee or
transferee, to enforce this Continuing Guaranty for its own benefit as to those
of the Liabilities which Lender has not assigned or transferred.
13. Indulgences Not Waivers. No delay in the exercise of any right
-----------------------
or remedy shall operate as a waiver thereof, and no single or partial exercise
by Lender of any right or remedy shall preclude other or further exercise
thereof or the exercise of any other right or remedy; nor shall any modification
or waiver of any of the provisions of this Continuing Guaranty be binding upon
Lender, except as expressly set forth in a writing duly signed and delivered by
Lender. No action of Lender permitted hereunder shall in any way affect or
impair the rights of Lender or the obligations of Guarantor under this
Continuing Guaranty.
14. Financial Condition of Borrower. Guarantor represents and
-------------------------------
warrants that he is fully aware of the financial condition of Borrower, and
Guarantor delivers this Continuing Guaranty based solely upon his own
independent investigation of Borrower's financial condition and in no part upon
any representation or statement of Lender with respect thereto. Guarantor
further represents and
6
<PAGE>
warrants that he is in a position to and hereby does assume full responsibility
for obtaining such additional information concerning Borrower's financial
condition as Guarantor may deem material to its obligations hereunder, and
Guarantor is not relying upon, nor expecting Lender to furnish him any
information in Lender's possession concerning Borrower's financial condition or
concerning any circumstances bearing on the existence or creation, or the risk
of nonpayment or nonperformance of the Liabilities.
Guarantor hereby waives any duty on the part of Lender to disclose to
Guarantor any facts it may now or hereafter know about Borrower, regardless of
whether Lender has reason to believe that any such facts materially increase the
risk beyond that which Guarantor intends to assume or has reason to believe that
such facts are unknown to Guarantor.
Guarantor hereby knowingly accepts the full range of risk encompassed
within a contract of "Continuing Guaranty" which includes, without limitations
the possibility that Borrower will contract for additional indebtedness for
which Guarantor may be liable hereunder after Borrower's financial condition or
ability to pay its lawful debts when they fall due has deteriorated.
15. Representations and Warranties. Guarantor represents and
------------------------------
warrants to Lender that each of the following statements is accurate and
complete in all material respects as of the date of this Continuing Guaranty:
a. this Continuing Guaranty has been duly executed and
delivered by Guarantor and constitutes a legal, valid and binding obligation of
Guarantor, enforceable against Guarantor in accordance with its terms, except as
limited by bankruptcy, insolvency or other laws of general application relating
to or affecting the enforcement of creditors' rights generally;
b. the execution, delivery and performance of this Continuing
Guaranty do not (i) violate any provisions of law or any order of any court or
other agency of government (each, a "Requirement of Law"), (ii) contravene any
provision of any material contract or agreement to which Guarantor is a party or
by which Guarantor or Guarantor's assets are bound (each, a "Contractual
Obligation"), or (iii) result in the creation or imposition of any lien, charge
or encumbrance of any nature upon any property, asset or revenue of Guarantor;
c. all consents, approvals, orders and authorizations of, and
registrations, declarations and filings with, any governmental agency or
authority or other person or entity
7
<PAGE>
(including, without limitation, the shareholders or partners of any entity), if
any, which are required to be obtained in connection with the execution and
delivery of this Continuing Guaranty or the performance of Guarantor's
obligations hereunder have been obtained, and each is in full force and effect;
d. Guarantor has paid all taxes and other charges imposed by any
governmental agency or authority due and payable by Guarantor other than those
which are being challenged in good faith by appropriate proceedings;
e. Guarantor is not in violation of any Requirement of Law or
Contractual Obligation other than any violation the consequences of which could
not have a material adverse effect on Guarantor's ability to perform its
obligations hereunder (a "Material Adverse Effect"); and
f. no action, proceeding, investigation or litigation is pending or,
to the knowledge of Grantor, overtly threatened against Guarantor by any person
or entity which, if adversely determined, could have a Material Adverse Effect.
16. Guarantor Financial Information. Guarantor will provide Lender
-------------------------------
in writing such financial and other information with respect to Guarantor's
assets and liabilities as Lender shall reasonably request from time to time, in
form reasonably satisfactory to Lender.
17. Binding Upon Successors: Death of Guarantor. This Continuing
--------------------------------------------
Guaranty shall be binding upon Guarantor and Guarantor's successors and assigns
and shall inure to the benefit of Lender and its successors and assigns. This
Continuing Guaranty shall not terminate or be revoked upon the death of
Guarantor, notwithstanding any knowledge by Lender of Guarantor's death.
All references herein to Borrower shall be deemed to include its
successors and assigns, and all references herein to Guarantor shall be deemed
to include Guarantor and Guarantor's successors and assigns or, upon the death
of Guarantor, the duly appointed representative, executor or administrator of
Guarantor's estate.
In addition and notwithstanding anything to the contrary contained in
this Continuing Guaranty or in any other document, instrument or agreement
between or among any of Lender, Borrower, Guarantor or any third party, the
obligations of Guarantor with respect to the Liabilities shall be joint and
several with any other person or entity that now or hereafter executes a
guaranty of any of the Liabilities separate from this Continuing Guaranty.
8
<PAGE>
18. Notices. All notices required or permitted to be given hereunder
-------
shall be in writing and shall be either personally delivered, transmitted by
facsimile to the facsimile numbers provided herein or sent by United States
certified or registered mail, return receipt requested, addressed to Guarantor
or Lender at their respective addresses stated below or at such other address as
either party hereafter notifies the other party as herein provided. Notices
shall be deemed received on the earlier of (i) the date noted on the return
receipt as delivered if mail delivery of the notice is successful or the date
inscribed on a confirmation of successful transmission, if sent by facsimile;
(ii) the last date of attempted delivery, as noted by the United States Postal
Service on the envelope containing the notice, if mail delivery is unsuccessful;
or (iii) the date of the actual delivery if personally delivered.
19. Governing Law: Additional Waivers. This Continuing Guaranty has
---------------------------------
been delivered and shall be governed by and construed in accordance with the
internal laws (as opposed to the conflicts of law provisions) of the State of
Arizona.
GUARANTOR HEREBY
(i) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION TO ENFORCE OR
DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS CONTINUING GUARANTY, AND
ACKNOWLEDGES THAT LENDER ALSO WAIVES SUCH RIGHT;
(ii) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED IN MARICOPA COUNTY, ARIZONA, OVER ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS CONTINUING
GUARANTY;
(iii) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT GUARANTOR MAY
EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF
ANY SUCH ACTION OR PROCEEDING;
(iv) agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in any other jurisdictions by suit on
the judgment or in any other manner provided by law; and
(v) agrees not to institute any legal action or proceeding against
Lender or any of Lender's directors, officers, employees, agents or property
concerning any matter arising out of or relating to this Continuing Guaranty in
any court other than one located in Maricopa County, Arizona.
9
<PAGE>
Nothing herein shall affect or impair Lender's right to serve legal process in
any manner permitted by law or Lender's right to bring any action or proceeding
against Guarantor or Continuing Guaranty shall be interpreted as to be effective
and valid under applicable law, but if any provision of this Continuing Guaranty
shall be prohibited by or invalid under such law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Continuing Guaranty.
20. ADVICE OF COUNSEL GUARANTOR ACKNOWLEDGES THAT GUARANTOR HAS
-----------------
EITHER OBTAINED THE ADVICE OF COUNSEL OR HAS HAD THE OPPORTUNITY TO OBTAIN SUCH
ADVICE IN CONNECTION WITH THE TERMS AND PROVISIONS OF THIS CONTINUING GUARANTY.
21. Entire Agreement. This Continuing Guaranty consolidates, amends
----------------
and restates in its entirety, that certain Continuing Limited Personal Guaranty,
dated April 7, 1998, executed by Guarantor. This Continuing Guaranty contains
the complete understanding of the parties hereto with respect to the subject
matter herein. Guarantor acknowledges that Guarantor is not relying upon any
statements or representations of Lender not contained in this Continuing
Guaranty and that such statements or representations, if any, are of no force or
effect and are fully superseded by this Continuing Guaranty. This Continuing
Guaranty may only be modified by a writing executed by Guarantor and Lender.
22. Capitalized Terms. All capitalized terms not otherwise defined
-----------------
herein shall have the meaning set forth in the Loan Agreement and Secured
Promissory Term Note.
10
<PAGE>
IN WITNESS WHEREOF, Guarantor has executed this Continuing Guaranty this
5th day of June, 1998.
"Guarantor"
/s/ Murray H. Gross
-------------------
Murray H. Gross, President
SS # ###-##-####
Guarantor's address
for notices:
6539 Waggoner Drive
Dallas, Texas 75230
Lender's address for notices:
FINOVA Capital Corporation
111 West 40th Street, 14th Floor
New York, N.Y. 10018
Facsimile: (212) 403-0799
11
<PAGE>
EXHIBIT 10.9
FIRST AMENDED AND RESTATED
CONTRIBUTION AND INDEMNIFICATION AGREEMENT
------------------------------------------
THIS FIRST AMENDED AND RESTATED CONTRIBUTION AND INDEMNIFICATION AGREEMENT
(this "Agreement") dated as of June ___, 1998, is executed by and among Murray
---------
H. Gross, an individual ("Guarantor"), and each of the entities and persons
---------
listed as a "Stockholder" on Schedule A attached hereto and incorporated herein
----------
for all purposes (each a "Stockholder" and collectively the "Stockholders").
----------- ------------
WITNESSETH:
-----------
WHEREAS, U.S. Remodelers, Inc., a Delaware corporation ("Borrower"), has
--------
obtained from FINOVA Capital Corporation ("Lender") a credit facility (the
------
"Total Credit Facility") in the aggregate principal amount of $1,700,000,
- ----------------------
comprised of a term loan (the "Term Loan") in the original principal amount of
---------
$700,000, and a revolving line of credit (the "Revolving Credit Facility") in
-------------------------
the original principal amount of $1,000,000; and
WHEREAS, the Total Credit Facility is evidenced by (i) that certain Loan
and Security Agreement and Schedule to Loan and Security Agreement
(collectively, the "Loan Agreement") of even date herewith between Borrower and
--------------
Lender, (ii) that certain Secured Promissory Term Note dated April 7, 1998, in
the principal amount of $700,000, executed by Borrower in favor of Lender, and
(iii) each of the other documents, instruments and agreements executed and
delivered in connection therewith, as each may be modified, amended,
supplemented or replaced from time to time; and
WHEREAS, as a condition to the funding of the Revolving Credit Facility,
Lender has required that Guarantor execute and deliver that certain Amended and
Restated Continuing Limited Personal Guaranty (the "Guaranty Agreement"), by
------------------
which Guarantor agrees to guaranty payment of the Total Credit Facility subject
to the provisions therein contained limiting the obligations of Guarantor
thereunder to fifty percent (50%) or, if certain objectives are achieved (as
more fully explained in the Guaranty Agreement), twenty-five percent (25%) of
the Total Credit Facility, as it may be reduced from time to time, plus costs
and expenses which may be incurred by Lender in collecting such amounts, plus
interest at the default rate on the guaranteed amount from the date of demand
thereon to the date of payment (all amounts owed by Guarantor under the Guaranty
Agreement are referred to herein as the "Guaranteed Sum"); and
--------------
WHEREAS, the Guarantor and Stockholders have agreed that Stockholders shall
indemnify Guarantor against amounts paid with respect to the Guaranteed Sum in
excess of his pro rata stock ownership in Borrower; and
FIRST AMENDED AND RESTATED CONTRIBUTION AND INDEMNIFICATION AGREEMENT Page 1
<PAGE>
WHEREAS, the parties hereto have determined that valuable benefits will be
derived by each party hereto as a result of the extensions of credit to be made
available to Borrower pursuant to the Total Credit Facility.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged and confessed, each of the undersigned agrees as
follows:
ARTICLE I.
DEFINITIONS AND INTERPRETATION
------------------------------
1.01 Defined Terms. As used in this Agreement, each of the following terms
-------------
shall have the meaning assigned to such term below in this Section 1.01:
------------
"Contribution Percentage" shall mean for each Stockholder the percentage
-----------------------
obtained by dividing the total of the shares of common stock of Borrower owned
by such Stockholder by the total number of issued and outstanding shares of
Borrower.
"Guaranty Payments", "Indemnitee" and "Indemnitor" shall have the
----------------- ---------- ----------
respective meanings assigned to such terms in Section 2.01.
------------
1.02 References. References in this Agreement to Article or Section
----------
numbers shall be to Articles or Sections of this Agreement, unless expressly
stated to the contrary. References in this Agreement to "hereby," "herein,"
"hereinafter," "hereinabove," "hereinbelow," "hereof," "hereunder" and words of
similar import shall be to this Agreement in its entirety and not only to the
particular Article or Section in which such reference appears. References in
this Agreement to "includes" or "including" shall mean "includes, without
limitation," or "including, without limitation," as the case may be. References
in this Agreement to statutes, sections or regulations are to be construed as
including all statutory or regulatory provisions consolidating, amending,
replacing, succeeding or supplementing the statute, section or regulation to
which reference is made.
1.03 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 gender 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.
FIRST AMENDED AND RESTATED CONTRIBUTION AND INDEMNIFICATION AGREEMENT Page 2
<PAGE>
ARTICLE II.
TERMS OF CONTRIBUTION AND INDEMNIFICATION
-----------------------------------------
2.01 Contribution and Indemnification. In connection with the Total Credit
--------------------------------
Facility, and as a condition to Lender providing funds under the Total Credit
Facility, Guarantor has guaranteed repayment of the Guaranteed Sum pursuant to
the Guaranty Agreement. In the event that Guarantor (in such capacity,
"Indemnitee") pays (whether through direct payments or as a result of providing
- -----------
collateral for the Guaranteed Sum) any amounts on the Guaranteed Sum (the
"Guaranty Payment"), Indemnitee shall be entitled to receive from each
- -----------------
Stockholder (in such capacity, "Indemnitor"), such Indemnitor's Contribution
----------
Percentage of the Guaranty Payment. If any Indemnitor is unable to pay the
Contribution Percentage of the Guaranty Payment, each Stockholder agrees to make
a contribution to Indemnitee to the extent necessary so that each Stockholder
shares pro rata (based on the amount of Borrower's shares of common stock of
Shareholders which have paid) the liability for such nonpayment. IN SUCH
REGARD, TO THE MAXIMUM EXTENT PERMITTED BY LAW, EACH STOCKHOLDER SHALL
INDEMNIFY, DEFEND, AND HOLD HARMLESS INDEMNITEE FROM AND AGAINST ANY AND ALL
LIABILITY (WHETHER SOLE, CONCURRENT, CONTRIBUTORY, STRICT OR OTHERWISE), CLAIMS,
COSTS AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES AND EXPENSES) ARISING
WITH RESPECT TO THE OBLIGATIONS AND CONSTITUTING A GUARANTY PAYMENT.
2.02 Payments. Any amount due to Indemnitee by an Indemnitor under this
--------
Agreement shall be due and payable within ten (10) days of demand therefore by
Indemnitee. Interest shall accrue on amounts past due at the rate of interest
provided under Section 2.7 of the Loan Agreement; provided, however, that in no
-------- -------
event shall interest accrue on such amounts at a rate in excess of the maximum
rate of interest permitted by applicable law and interest shall accrue from the
date payment is due to, but not including, the date payment is made and on the
basis of a year of three hundred sixty-five (365) or three hundred sixty-six
(366) days, as the case may be. All payments to be made by any Indemnitor under
this Agreement shall be made to Indemnitee at Borrower's principal office in
Dallas, Texas, in immediately available funds, not later than 2:00 p.m., Dallas,
Texas time, on the date on which such payment shall come due (each such payment
made after such time on such due date shall be deemed to have been made on the
next succeeding business day and interest shall continue to accrue until such
time). If the due date of any payment under this Agreement would otherwise fall
on a day that is not a business day, such payment date shall be extended to the
next succeeding business day and interest shall be payable for any principal so
extended for the period of such extension.
2.03 Non-Exclusive Remedy. The remedies available to Indemnitee pursuant
--------------------
to the provisions of this Article II are not exclusive and, in such regard,
----------
Indemnitee shall be entitled to join any Indemnitor as a party to any proceeding
involving Indemnitee, any Indemnitor or the Lender, including for purposes of
enforcement of the provisions of this Agreement.
FIRST AMENDED AND RESTATED CONTRIBUTION AND INDEMNIFICATION AGREEMENT Page 3
<PAGE>
2.04 Term. The term of this Agreement shall commence as of the date hereof
----
and continue in effect until the Guaranteed Sum is terminated or extinguished
(but not by reason of the payment of the Guaranteed Sum by any party hereto in a
proportion other than as specified in Section 2.01). In the event that an
------------
Indemnitor sells his or its stock ownership in Borrower, the indemnity contained
herein shall terminate to the extent of such Indemnitor's stock ownership in the
Borrower so sold upon the execution and delivery to Indemnitee of an amendment
to this Agreement by the purchasing stockholder pursuant to which such
purchasing stockholder shall indemnify Indemnitee on the basis of such
purchasing stockholder's stock ownership in Borrower (notwithstanding anything
herein to the contrary, no party to this agreement other than Indemnitee, the
selling stockholder and the purchasing stockholder shall be required to execute
such amendment).
ARTICLE III.
MISCELLANEOUS PROVISIONS
------------------------
3.01 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto, and their respective heirs, legal
representatives, and assigns.
3.02 Amendments Waivers. Neither this Agreement nor any provision hereof
------------------
may be amended, waived, discharged, or terminated verbally, but only by an
instrument in writing signed by the party against whom enforcement of the
amendment, waiver, discharge, or termination is sought.
3.03 Non-Waiver. It is understood and agreed that any delay, waiver, or
----------
omission by any party hereto to exercise any right or power arising hereunder
shall not be construed to be a waiver by such party of any subsequently arising
right or power hereunder.
3.04 Notices. Any notice, demand, offer, or other written instrument
-------
required or permitted to be given pursuant to this Agreement shall be in writing
signed by the party giving such notice and shall be hand delivered or sent by
overnight courier, certified mail (return receipt requested), or telefax to the
other party(ies) at the relevant address set forth in the Borrower's corporate
records. Any party shall have the right to change the address to which notice
shall be sent or delivered to it hereunder by similar notice sent in like manner
to the other parties. A notice shall be deemed to be duly received (a) if sent
by hand, on the date when left with a responsible person at the address of the
recipient; (b) if sent by certified mail or overnight courier, on the date of
receipt by a responsible person at the address of the recipient; or (c) if sent
by telefax, upon receipt by the sender of an acknowledgment or transmission
report generated by the machine from which the telefax was sent indicating that
the telefax was sent in its entirety to the recipient's telefax number.
3.05 Attorneys' Fees. In the event any dispute between the parties to this
---------------
Agreement should result in litigation or any other proceeding (including
arbitration and mediation), the prevailing party shall be reimbursed by the
nonprevailing party for all reasonable costs and expenses,
FIRST AMENDED AND RESTATED CONTRIBUTION AND INDEMNIFICATION AGREEMENT Page 4
<PAGE>
including reasonable attorneys' fees, incurred by the prevailing party in
connection with such litigation or other proceeding and any appeal or
enforcement thereof.
3.06 Severability. If any term or provision of this Agreement or
------------
application thereof to any person or circumstance shall to any extent be invalid
or unenforceable, the remainder of this Agreement, or the application of such
terms or provisions to persons or circumstances other than those as to which it
is invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by applicable law.
3.07 Time of the Essence. The parties to this Agreement agree that time is
-------------------
of the essence to the performance of the obligations of the parties hereunder.
3.08 Counterparts. The parties hereto may execute this Agreement in
------------
multiple counterparts, all of which taken together shall constitute one and the
same instrument and each of which shall be deemed to be an original instrument
as against any party who has signed it.
3.09 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO,
----------------------
ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO OR FROM
THIS AGREEMENT SHALL BE LITIGATED IN COURTS HAVING SITUS IN DALLAS, DALLAS
COUNTY, TEXAS, AND EACH PARTY HERETO HEREBY SUBMITS TO THE JURISDICTION OF ANY
SUCH COURT IN ANY SUCH ACTION AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO
TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST
IT IN ACCORDANCE WITH THIS SECTION 3.10.
------------
3.10 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
-------------
AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO CHOICE OF LAW
PRINCIPLES OF SUCH LAWS.
3.11 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT OF
----------------
THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDES ALL
PRIOR AGREEMENTS AND UNDERSTANDINGS, BOTH WRITTEN AND VERBAL, BETWEEN THE
PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF.
This Agreement is executed in amendment and restatement in its entirety of
that certain Contribution and Indemnification Agreement dated as of April 7,
1998, executed by and among Murray H. Gross and each of the entities and persons
listed as a "Stockholder" on Schedule A attached thereto in connection with the
Term Loan.
FIRST AMENDED AND RESTATED CONTRIBUTION AND INDEMNIFICATION AGREEMENT Page 5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date first hereinabove written.
GUARANTOR:
---------
--------------------------
MURRAY H. GROSS
STOCKHOLDERS:
------------
FIRST AMENDED AND RESTATED CONTRIBUTION AND INDEMNIFICATION AGREEMENT
---------------------------------------------------------------------
<PAGE>
EXHIBIT 10.10
REVOLVING CREDIT PROGRAM AGREEMENT
This Program Agreement ("Agreement") is made as of the 23/rd/ day of
January, 1998, by and between GREEN TREE FINANCIAL CORPORATION, a Delaware
corporation, its successors and assigns ("Green Tree"), with its executive
offices at 1100 Landmark Towers, 345 Saint Peter Street, St. Paul, Minnesota
55102, and U.S. REMODELERS, INC. ("U.S. Remodelers"), with its executive offices
at 13740 Midway Road, Suite 800, Dallas, Texas 75244.
WHEREAS, U.S. Remodelers sells various goods and services to customers and
desires to have Green Tree provide revolving credit financing to its qualified
customers, and
WHEREAS, Green Tree is willing to provide revolving credit financing
(including the issuance of Credit Cards) to qualified U.S. Remodelers customers
as set forth herein during the term of this Agreement,
NOW THEREFORE, in consideration of the terms and conditions stated herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Green Tree and U.S. Remodelers agree as follows:
SECTION 1. DEFINITIONS
- ----------------------
The following words shall have the following meanings when used in this
Agreement:
"Account" means all of the accounts, receivables and contract rights
created between an Accountholder and Green Tree pursuant to the Program.
"Accountholder" means any person to whom Green Tree has extended credit
under the Program.
"Authorization" means permission from Green Tree to make a sale of
services, products, or goods to a cardholder pursuant to the agreement that is
charged to an Account.
"Chargeback" means the refusal of Green Tree to pay U.S. Remodelers or a
Dealer for a sales slip or payment by U.S. Remodelers or a Dealer to Green Tree
for a sales slip for which U.S. Remodelers or a Dealer was previously paid.
"Credit Agreement" means the open-end revolving credit agreement between
Green Tree and each Accountholder, together with any modifications or amendments
which may be made to such agreement.
"Credit Card" means a plastic card issued and owned by Green Tree under the
Program that may be used exclusively for the purchase of Products from U.S.
Remodelers or a Dealer.
1
<PAGE>
"Dealer" means an independent enterprise and independent entrepreneur which
has been expressly authorized by U.S. Remodelers to sell Products to consumers
in retail transactions.
"Dealer Agreement" means the Green Tree Dealer Agreement between a Dealer
and Green Tree substantially in the form of Exhibit A attached hereto.
"Default" means any Event of Default or the occurrence of any event which
would be an Event of Default with the giving of notice or lapse of any
applicable grace period.
"Event of Default" has the meaning given in Section 7.01.
"Program Documents" has the meaning given in Section 3.01.
"Products" means all products and services which may be purchased by an
Accountholder from U.S. Remodelers or a Dealer.
"Presentment Warranty" means each of the warranties set forth in this
Agreement made by U.S. Remodelers each time a Purchase is presented to Green
Tree for approval and settlement.
"Program" means the program established by Green Tree on the terms and
conditions outlined in this Agreement pursuant to which Green Tree will offer to
qualified U.S. Remodelers customers the revolving credit facility described in
Section 2.02 hereof. The term includes the extension of credit by Green Tree,
billings, collections, accounting between Green Tree and U.S. Remodelers, and
all aspects of the customized revolving credit plan contemplated herein.
"Purchase" means a purchase of Products from U.S. Remodelers or a Dealer
for which Green Tree has extended credit to an Accountholder.
"Secured Credit Card" means a Credit Card which is secured by a mortgage or
deed of trust on the Accountholders' primary residence, where allowed by law,
granted by the Accountholders and any other persons required by state law to
perfect a valid security instrument, in favor of Green Tree.
"Shared Risk Reserve Pool" means a reserve pool of discount fees which (i)
is owned by U.S. Remodelers; (ii) is managed and held by Green Tree; and (iii)
may be used by Green Tree to pay for any losses or collection costs experienced
by Green Tree in connection with Accounts held by Accountholders who fall within
a mutually agreed upon score band that will keep the reserve pool solvent. Any
proceeds in the Shared Risk Reserve Pool after the Program is terminated shall
be forwarded to U.S. Remodelers by Green Tree upon either (i) the Accounts
covered by the Shared Risk Reserve Pool are liquidated or (ii) the Accounts
covered by the Shared Risk Reserve Pool are sold by Green Tree.
"Unsecured Credit Card" means a Credit Card which is not secured by a
mortgage or deed of trust on the Accountholders' primary residence.
"Vision 21 System" means Green Tree's data and application processing
system.
<PAGE>
SECTION 2. ESTABLISHMENT OF PROGRAM
- -----------------------------------
Section 2.01 Commencement of Program. The Program shall commence at such
------------------------------------
date and time as is mutually agreed to by Green Tree and U.S. Remodelers.
Section 2.02 Revolving Credit Facility. Under the Program, Green Tree
--------------------------------------
agrees to offer qualified U.S. Remodelers and Dealer customers a revolving line
of credit that will include (i) a Credit Card that may be used exclusively for
Purchases, and (ii) a cash advance feature that will enable Accountholders to
obtain cash advances from Green Tree by requesting a specific cash advance
utilizing personalized convenience checks furnished by Green Tree.
Section 2.03 Credit Terms.
-------------------------
(a) Unsecured Credit Card Terms. (i) Green Tree shall establish all of the
---------------------------
terms and conditions of an Unsecured Credit Card, the Credit Agreement and the
terms and conditions under which credit is extended to Accountholders, including
without limitation the interest rate and fees and charges applicable to
Purchases. Green Tree intends initially to establish a variable rate of
interest which will yield a minimum annual percentage rate on all Accounts equal
to Prime Rate plus 8.49% for all Purchases. Green Tree may from time to time in
its sole discretion modify such terms and conditions to the extent it deems
necessary. (ii) Green Tree agrees to offer special credit promotions on
Purchases in accordance with the term and conditions as may be mutually agreed
to by the parties. (iii) Green Tree's financing of the Purchases is amortized
over the life of the Account at a payment factor of 2.0%, with a minimum payment
amount of $50.00.
(b) Secured Credit Card Option. Green Tree may offer a Secured Credit Card
--------------------------
option under the Program. The following terms will govern the Secured Credit
Card option, the terms are subject to change by Green Tree: (i) Green Tree
shall establish an interest rate for Purchases that will vary by the Customer's
credit score and credit limit; (ii) Green Tree will charge an Origination Fee of
$100.00 or if applicable the highest amount allowed by state law whichever is
less, to the customer, (iii) Green Tree's financing of the Purchases shall be
amortized over the life of the Account with the payment factor of 2.5%. Except
as modified in this section the Secured Credit Card option will be subject to
all other terms of the Agreement. Green Tree and U.S. Remodelers shall mutually
agree on the commencement date of the Secured Credit Card option.
Section 2.04 U.S. Remodelers and Dealers to Honor Credit Card. U.S.
-------------------------------------------------------------
Remodelers and Dealers hereby agrees to participate in the program and to honor
the Credit Card for Purchases. U.S. Remodelers and Dealers shall honor the
Credit Card only in accordance with the procedures outlined in Section 4 hereof,
as the same may be amended from time to time in accordance with the terms of
Section 4.01.
Section 2.05 Green Tree to Extend Credit. Subject to (i) the terms of this
----------------------------------------
Agreement, (ii) the credit limits applicable to each Account, and (iii) the
terms and conditions in the Credit Agreement, Green Tree shall extend credit to
Accountholders in accordance with Section 4.
Section 2.06 Confidential Information. Each party agrees that any
-------------------------------------
information concerning the content and/or conduct of any aspect of the other
party's business divulged as a result of this Agreement, including but not
limited to marketing techniques and methods of
<PAGE>
operation, are and shall be treated as confidential knowledge, unique and
proprietary information, and trade or business secrets. Each party warrants and
guarantees to hold in strict confidence any and all confidential knowledge,
proprietary information, trade or business secrets or any other knowledge or
information, other than that which is public knowledge or otherwise known to the
party, of or relating to the other party's business, which may come to its
knowledge during the term of this Agreement, and agrees that it will not, except
as authorized or directed by the other party in writing, disclose to others, use
for its own benefit, copy or make notes of such confidential knowledge, own
business, access to confidential information furnished under this Agreement to
those of its employees, agents or subcontractors who reasonably require the same
to carry out the purposes of this Agreement shall ensure the confidentiality of
said information.
Section 2.07. U.S. Remodelers' and Dealer Customer List. The names of U.S.
-------------------------------------------------------
Remodelers and Dealer customers who make application to become Accountholders
and credit and other information relating to them does not constitute
"Confidential Information."
Section 2.08. U.S. Remodelers Commitment. U.S. Remodelers agrees that U.S.
----------------------------------------
Remodelers and its Dealers shall give Green Tree the right of first refusal for
all financed business generated by U.S. Remodelers and its Dealers. U.S.
Remodelers promises and commits to Green Tree that the Purchases made under the
Program shall be as follows: (i) there will be at least $20 million in Purchases
made during months 1 through 15 under the Program; (ii) there will be at least
an additional $22 million in Purchases made during months 15 through 27; (iii)
there will be at least an additional $25 million in Purchases made during months
28 through 39 under the Program: (iv) there will be at least an additional $27
million in Purchases made during months 40 through 51 under the Program; and (v)
there will be at least an additional $30 million in Purchases made during months
52 through 63 under the Program.
Section 2.09. Fees. Discounts and Charges
-------------------------------------------
(a) U.S. REMODELERS ACTIVATION FEE: U.S. Remodelers agrees to reimburse
------------------------------
Green Tree for 50% of all Program Document, system set-up and all other
activation expenses incurred by Green Tree in the activation of the Program if
the total Purchases generated in the first twelve months under the Program is
less than $20 million on a pro rata basis.
(b) PROMOTIONAL CASH DISCOUNT FEE: For promotional financing options
-----------------------------
offered under the Program, U.S. Remodelers shall pay Green Tree the following
discount fees:
i. 90 days same as cash without payments, a Discount Fee equal to
3.00% of the Purchase.
ii. 180 days same as cash without payments, a Discount Fee equal to
6.00% of the Purchase.
iii. 90 days deferred payment with interest accruing, a Discount Fee
equal to 0.00% of the Purchase.
iv. 180 days deferred payment with interest accruing, a Discount Fee
equal to 1.00% of the Purchase.
<PAGE>
For a Purchase to qualify under a promotional financing option, the
Purchase must be at least $250.00. Purchases made under the promotional
financing shall not exceed 20% of total Purchases under the Program. Green Tree
reserves the right to change the discount fees if U.S. Remodelers exceeds this
limit.
Discount fees on the promotional financing options can also be adjusted
upward or downward as the case may be following the first anniversary of the
Program commencement date and on an annual basis thereafter. Any adjustments
will be based on the one year Treasury Bill rate. For each ten basis point
increase in the Treasury Bill rate, the discount fee on 90 days promotional
financing options will be increased by three basis points and the discount fee
on 180 days promotional financing options will be increased by five basis
points. Decreases to the one year Treasury Bill rate will have the opposite
effect.
(c) SHARED RISK RESERVE DISCOUNT: U.S. Remodelers will pay Green Tree a
-----------------------------
discount fee equal to 7% of each Purchase made by Accountholders who fall into a
mutually agreed upon credit score band for the Unsecured Credit Card program.
The discount fees for this section shall be maintained in the Shared Risk
Reserve Pool.
(d) CONVENIENCE USAGE CHARGE: None.
-------------------------
(e) RETURNED MERCHANDISE CHARGE: None.
----------------------------
(f) FORMS FEE: Forms will be supplied and its associated expense will be
----------
paid by Green Tree.
(g) CHARGEBACK FEE: None.
--------------
(h) U.S. REMODELERS INSERT FEE: Green Tree will not charge U.S. Remodelers
--------------------------
any fees for billing statement inserts requested and provided by U.S.
Remodelers, unless the insert increases the postage paid by Green Tree for the
billing statement. In which case, U.S. Remodelers shall pay Green Tree the
increased postage.
(i) U.S. REMODELERS PARTICIPATION FEES: On a monthly basis, Green Tree will
-----------------------------------
pay U.S. Remodelers a participation fee based on the total Unsecured Credit Card
Purchases generated during the month as follows, if the volume commitments of
Section 2.08 are met:
Total Unsecured Purchases Under the Program Participation Fee
------------------------------------------- -----------------
During the First Fifteen Months of the Program
----------------------------------------------
$0-less than $35 million 1.5%
$35-less than $50 million 1.75%
$50 million or greater 2.0%
Total Unsecured Purchases Under the Program Participation Fee
------------------------------------------- -----------------
During the Each Subsequent 12 Month Period
------------------------------------------
$0-less than $35 million 1.5%
$35-less than $50 million 1.75%
$50 million or greater 2.0%
<PAGE>
(1) Retroactive recapture of the participation fee. The parties agree that
----------------------------------------------
once the total Purchases are greater than $35 million, then the previous
Unsecured Credit Card Purchases shall be subject to the 1.75 % participation fee
and Green Tree shall forward the additional .25% to U.S. Remodelers within 30
days of the date when Unsecured Credit Card Purchases exceed $35 million. The
parties agree that once the total Unsecured Credit Card Purchases are greater
than $50 million, then the previous Unsecured Credit Card Purchases shall be
subject to the 2.0% participation fee and Green Tree shall forward the
additional .25% to U.S. Remodelers within 30 days of the date when Unsecured
Credit Card Purchases exceed $50 million. However, the provisions of this
paragraph shall not apply to any Purchases after the sixtieth month of the
Program.
(2) Examples. The following example illustrates the participation fee
--------
calculation for one month under the Program: (i) total Unsecured Credit Card
Purchases under the Program as of March 31 are $20 million; (ii) Unsecured
Credit Card Purchases made during the month of April are $20 million; (iii) the
participation payment for the month of April would be $400,000, which is the sum
of (x) the product of $20 million multiplied by 0.25% ($100 million x 0.25% =
$50,000); plus (y) the product of $20 million multiplied by 1.75% ($20 million x
1.75% = $150,000).
The following example illustrates the participation fee calculation for the
following month: (i) total Unsecured Credit Card Purchases under the Program as
of April 30 are $40 million; (ii) Unsecured Credit Card Purchases made during
the month of May are $5 million: (iii) the participation payment for the month
of May would be $87,500, which is the product of $5 million multiplied by 1.75%.
The following example illustrates the participation fee calculation for the
first month on the sixteenth month of the Program: (i) total Unsecured Credit
Card Purchases under the Program at the end of the fifteenth month of the
Program are $75 million; (ii) Unsecured Credit Card Purchases made during the
sixteenth month of the Program are $10 million: (iii) the participation payment
for the sixteenth month would be $150,000.00. which is the product of $10
million multiplied by 1.5%.
Section 2.10. Guaranty of Dealer Obligations. Subject to the terms of
--------------------------------------------
Section 4.06, U.S. Remodelers shall be liable to Green Tree in the case of a
payment breach of the Dealer Agreement by any Dealer. Furthermore, U.S.
Remodelers shall pay Green Tree for any and all losses, as defined in Section
5.01, experienced by Green Tree as a result of any breach of any Dealer
Agreement by any Dealer. U.S. Remodelers does not guaranty the debts of any
Accountholder. U.S. Remodelers hereby now and forever waives all defenses
available to any Dealer and/or given to sureties or Guarantors at law or in
equity.
Green Tree shall provide notice to U.S. Remodelers within 5 business days
after Green Tree has determined that a breach of the Dealer Agreement has
occurred. Further, Green Tree shall provide reasonable access to information
and assist U.S. Remodelers in pursuit of claims against any defaulting Dealer.
No compromise or settlement shall be negotiated without the prior written
approval from U.S. Remodelers.
<PAGE>
SECTION 3. ADMINISTRATION OF PROGRAM
------------------------------------
Section 3.01 Preparation of Documents. Green Tree and U.S. Remodelers
-------------------------------------
shall cooperate and assist each other in the preparation of all documents to be
used in connection with the Program. Green Tree shall provide U.S. Remodelers
with the form and content of credit applications, Credit Agreements, Credit
Cards, and other forms used in connection with the Program (hereinafter referred
to as "Program Documents"). All Program Documents shall clearly disclose that
Green Tree is the creditor. U.S. Remodelers shall not use any Program Document
unless Green Tree has expressly approved its form and content. U.S. Remodelers
shall not refer to Green Tree, except in approved Program Documents.
Section 3.02 Credit Decisions. Green Tree, in its sole discretion, shall
-----------------------------
determine the creditworthiness of individual applicants under the Program and
the range of credit limits to be made available to individual Accountholders.
Green Tree shall make commercially reasonable efforts to approve creditworthy
customers. Green Tree may suspend or terminate the credit privileges of any
Accountholder at any time.
Section 3.03 Ownership of Accounts. Green Tree shall be the sole and
----------------------------------
exclusive owner of all Accounts, Credit Cards, Credit Agreements, Accountholder
data (including Accountholder lists), sales slips, credit slips and receipts or
evidences of payment or Purchases by Accountholders and other Program Documents,
and shall be entitled to receive all payments made by Accountholders on
Accounts, and U.S. Remodelers acknowledges and agrees that it has no right,
title or interest in the Accounts, Credit Cards, Credit Agreements,
Accountholder data, sales slips, credit slips, receipts or evidence of payments
or Purchases by Accountholders and other Program Documents and has no right to
any pavements made by Accountholder on Accounts. Green Tree shall be identified
to Accountholders as the creditor for all purposes.
Section 3.04 Periodic Statements. Green Tree shall be responsible for
--------------------------------
mailing monthly periodic statements to Accountholders and collecting all amounts
due on the Accounts. U.S. Remodelers shall not have any responsibilities
regarding billing or collections on Accounts and, except as otherwise provided
herein, shall not be responsible for uncollectible Accounts. U.S. Remodelers
authorizes and empowers Green Tree to sign and endorse U.S. Remodeler's name on
all checks, drafts, money orders, or other forms of payment with regard to the
Accounts.
Section 3.05 Enhancements. Green Tree and its affiliates may from time to
-------------------------
time make other products and services available to Accountholders that enhance
the features of the Program or the Accounts, including without limitation,
credit insurance, a credit card protection plan, legal services, auto clubs and
extended warranties. With respect to credit insurance, U.S. Remodelers, when
instructed by Green Tree, will offer credit insurance as a customer option in
connection with each Account. Optional credit insurance enrollment forms will
be provided by Green Tree.
Section 3.06 Promotions. U.S. Remodelers and Green Tree may from time to
-----------------------
time, upon mutual agreement, develop marketing programs pursuant to which Green
Tree will offer revolving lines of credit to U.S. Remodelers customers. The
mutually agreed upon marketing programs will be reduced to written agreements
which shall be signed by U.S. Remodelers and Green Tree.
<PAGE>
Section 3.07 Marketing. U.S. Remodelers may not, in any advertisement or
----------------------
promotion of its products or services, advertise the availability of financing
through Green Tree without the prior written approval of Green Tree.
SECTION 4. OPERATING PROCEDURES
- -------------------------------
Section 4.01 General. Green Tree and U.S. Remodelers shall follow the
--------------------
operating procedures outlined in this Section 4 for Accounts generated under the
Program. Green Tree may amend or supplement such operating procedures from time
to time in its sole discretion to the extent it deems necessary or desirable to
comply with applicable law.
Section 4.02 Solicitation of Accounts. The following procedures shall be
-------------------------------------
followed for the solicitation of Accounts and the processing of credit
applications:
(a) In connection with the sale of Products, U.S. Remodelers and Dealers
may take credit applications on behalf of Green Tree using the credit
application and disclosure forms provided by Green Tree.
(b) U.S. Remodelers or Dealer shall forward promptly to Green Tree, by
mail, telephone, facsimile transmission, or electronically via the Vision 21
System, credit applications completed by customers.
(c) All credit applications will be reviewed by Green Tree for approval and
establishment of the applicable credit limit. Green Tree will communicate
credit approvals and denials to both the customer and U.S. Remodelers or Dealer.
Section 4.03 New Account Fulfillment. Green Tree shall be solely
------------------------------------
responsible for Account fulfillment, including the mailing of Accountholder
welcome letters, Credit Cards, Credit Agreements and convenience checks.
Section 4.04 Procedures for Purchases and Credits.
-------------------------------------------------
(a) U.S. Remodelers or Dealer shall complete a sales slip for each Purchase
and imprint or write the Accountholders name and Account number on the sales
slip.
(b) U.S. Remodelers or Dealer shall obtain the Accountholder's signature on
the sales slip once all of the Purchase information is complete. If the
Accountholder does not have his/her Credit Card, the signature on the sales slip
must be reasonably similar to the signature on one form of identification, one
with a photograph, provided by the Accountholder. A valid drivers license,
military or state identification is required as identification. U.S. Remodelers
warrants the identity of the Accountholder in all cases.
<PAGE>
(c) U.S. Remodelers or Dealer shall obtain prior authorization for all
Purchases and record the authorization code on the sales slip. Authorization
may be obtained electronically through the Vision 21 System or by contacting
Green Tree at a designated telephone number established for the purpose of
issuing authorization under the Program.
Section 4.05 Settlement Procedures.
----------------------------------
(a) All sales data will be transmitted by U.S. Remodelers to Green Tree
through daily reports ("Daily Reports"). Daily Reports shall include the
following: (i) the account number, authorization number, amount and date of each
Purchase, (ii) the account number, amount and date for each credit slip issued
with respect to the Accounts, and (iii) such other information that Green Tree
may request.
(b) The receipt of the following supporting documents shall be a
condition to Green Tree's obligation to fund the Purchases:
(i) customer's original credit application;
(ii) original completed sales slip including:
. notice of right to cancel
. notice of cancellation
(iii) the original home equity line of credit agreement and mortgage/deed
of trust (collectively referred to as "Note"), in the case of Secured
Credit Card Accounts; and
(iv) a copy of a completion certificate signed by the Accountholder.
Funding of the Purchases will also be subject to an independent verification by
Green Tree of the customers satisfaction with the Products. Purchases where
Green Tree has not received the original application or Note are subject to
Chargeback under Section 5.
(c) Green Tree shall pay to U.S. Remodelers the amount of each Purchase for
which all of the proper supporting documentation has been provided less any
applicable discounts. Green Tree reserves the right to conduct customer
satisfaction calls prior to funding all Purchases. Green Tree shall be entitled
to set off against amounts due to U.S. Remodelers for Purchases the amount of
any credit slips issued for Purchases and any Chargebacks pursuant to Section 5
hereof. Funds due to U.S. Remodelers for Purchases hereunder shall be forwarded
to U.S. Remodelers via the Automated Clearing House System no later than the
next business day after all of the conditions to funding described herein have
been met.
(d) Subject to the terms of Section 5.03, Green Tree and U.S. Remodelers
shall cooperate in resolving any disputes regarding amounts set forth in the
Daily Reports or the supporting documentation. Green Tree shall be entitled to
withhold payment for the disputed portion of any Daily Report, or for any
Purchase for which the supporting documentation, in Green Tree's sole opinion,
is incomplete or unsatisfactory.
Section 4.06 Dispute Resolution Procedures. U.S. Remodelers shall
------------------------------------------
cooperate with Green Tree to promptly resolve any Accountholder Product related
dispute. Green Tree will notify U.S. Remodelers via fax upon receipt of the
Accountholder dispute. U.S. Remodelers will have forty calendar days to settle
or resolve the dispute. Failure to resolve or settle the dispute to the total
satisfaction of the Accountholder will result in a Chargeback pursuant to
Section 5 hereof.
<PAGE>
SECTION 5. CHARGEBACK
---------------------
Section 5.01 Chargeback Rights. Except as modified in Section 5.03, Green
------------------------------
Tree shall have the right, at its option, to Chargeback to U.S. Remodelers the
amount of any Purchase plus all accrued and unpaid finance charges and other
amounts owing to Green Tree if:
(a) Any Presentment Warranty made by U.S. Remodelers pursuant to Section
6.01 proves to be false or inaccurate in any material respect, after a
reasonable investigation by Green Tree;
(b) The Accountholder asserts any valid claim or defense against Green Tree
as, a result of any act or omission of U.S. Remodelers or a Dealer that violates
any applicable law, statute, ordinance, rule or regulation, after a reasonable
investigation by Green Tree;
(c) The Accountholder disputes the amount or existence of such Account or
the Accountholder refuses to pay (including by exercise of its right under the
Fair Credit Billing Act or other similar law to require Green Tree to credit its
Account), alleging dissatisfaction with the Products received, a breach of any
warranty or representation in connection with the transaction, or an offset or
counterclaim against Green Tree based on an act or omission of U.S. Remodelers
or a Dealer after a reasonable investigation by Green Tree; or
(d) U.S. Remodelers or a Dealer did not comply with the operating
procedures outlined in Section 4 herein.
Section 5.02 Limitation of Chargeback Rights. In its reasonable discretion
--------------------------------------------
Green Tree may compromise and settle any claim made by any Accountholder if such
claim may give Green Tree a right to Chargeback up to the face amount of any
sales slip. In the event of any such compromise or settlement, Green Tree shall
adjust the Accountholder's Account, and Green Tree's right to Chargeback shall
be limited to the actual amount so compromised.
Section 5.03 Exercise of Chargeback. If U.S. Remodelers does not agree
-----------------------------------
with the Accountholder's allegation regarding dissatisfaction with the Products
received, then Green Tree and U.S. Remodelers shall select an independent third
party to evaluate the Accountholder's dispute regarding the Product. U.S.
Remodelers shall pay for the costs associated with the third party evaluation.
If Green Tree exercises its right of Chargeback, Green Tree shall have the right
to off set the amount of the Chargeback against any amounts due U.S. Remodelers
under this Agreement or, if Chargebacks exceed sums due U.S. Remodelers, Green
Tree may demand immediate payment from U.S. Remodelers for the full amount of
such excess. If any Purchase is charged back, Green Tree shall assign, without
recourse, all right to payment for such Purchase to U.S. Remodelers upon the
request of U.S. Remodelers.
<PAGE>
SECTION 6. WARRANTIES AND COVENANTS
-----------------------------------
Section 6.01 Presentment Warranties. U.S. Remodelers represents and
-----------------------------------
warrants to Green Tree with respect to each Account (the following shall be
deemed restated, renewed and reaffirmed with respect to each Purchase presented
to Green Tree for approval and settlement):
(a) that the sales slip represents a bona fide sale and was actually
executed by the person named therein as Accountholder;
(b) that the signature on the sales slip appears reasonably similar to the
signature of the Accountholder on Credit Card or the signature on other valid
identification examined by U.S. Remodelers;
(c) that the sales slip has not been materially altered;
(d) that the Accountholder is of local age and competent to open an
Account;
(e) that the Products are accurately described on the sales slip and any
Products described therein have been delivered into the possession of the
Accountholder and any Products described therein have been fully performed to
the Accountholder's satisfaction;
(f) that the transaction, including prior authorization, was conducted by
U.S. Remodelers in accordance with the operating procedures set forth in Section
4 above (as same may be revised from time to time);
(g) that the account number, name of Accountholder and authorization
number have been printed on each sales slip;
(h) that U.S. Remodelers has not received, directly or indirectly, and will
refuse to accept, any reimbursement, payment or trade-in for the charges listed
on such sales slip (other than from Green Tree) and has not and will not, either
directly or indirectly, take or grant any right or security interest in any
sales slip or credit slip (other than to Green Tree) which is the subject of the
transaction;
(i) that the transaction was conducted by U.S. Remodelers in accordance
with all applicable laws and regulations that pertain to the sale of Products by
U.S. Remodelers;
(j) there is no fact nor any claim of defense of any Accountholder that
would impair the validity, enforceability, or collectability of the obligation
of the Accountholder evidenced by the sales slip or the Account;
(k) that U.S. Remodelers has full and complete title to the Products
subject only to the rights of the Accountholder which exist by virtue of the
Account;
(1) that there have been no representations or warranties made to the
Accountholder which are not contained in the sales slip other than U.S.
Remodelers' standard warranties; and in the event U.S. Remodelers breaches a
standard warranty, U.S. Remodelers will cure the breach within thirty (30)
calendar days of notice of the breach;
<PAGE>
(m) U.S. Remodelers shall, within three (3) business days of its receipt,
provide Green Tree with a copy of any written complaint from any customer
relating to any sales slip, however, if U.S. Remodelers receives a warranty card
it or a Dealer issued to an Accountholder within 59 days after completion of a
Product installation, then U.S. Remodelers needs to notify Green Tree of the
complaint, within 10 days of its receipt, if the complaint is not resolved to
the Accountholders satisfaction;
(n) U.S. Remodelers shall indemnify Green Tree and hold it harmless from
and against all losses, cost, damage, and expense, including reasonable
attorney's's fees, at any time incurred by Green Tree because of any violation
of state or Federal law or regulation or other illegal or actionable conduct;
(i) resulting from acts or omissions by U.S. Remodelers, its employees, its
agents or Dealers in connection with the sale of any Products, or (ii) resulting
from the documents used in connection with the transaction, including but not
limited to documents given to Accountholder pertaining to warranties, service
agreements, credit disclosures, insurance, and sales, application and contracts
forms, or (iii) resulting from any liability Green Tree incurs by reason of 12
Code of Federal Regulations Section 226.12 (c) of Regulation Z regarding the
right of a cardholder to assert claims and defenses against card issuers.
However, U.S. Remodelers liability for sufficiency of document contents does not
apply to any document provided by Green Tree, but shall apply to any other
failures or omissions by U.S. Remodelers or its agents related to any such
document furnished by Green Tree, including, but not limited to U.S. Remodelers'
failure in completing any such document, or properly delivering copies to
Accountholders;
(o) U.S. Remodelers owns the sales slip free from any claims, liens,
security interest or other encumbrances:
(p) the facts set forth in the sales slip, credit application, any
appraisal submitted to value the real property ("Appraisal") which real property
acts as security for a Secured Credit Account and any title report submitted in
connection with the Account ("Title Report") are true and accurate in all
material respects.
Section 6.02 Program Covenants. U.S. Remodelers covenants to do the
------------------------------
following during the term of this Agreement with respect to the operation of the
Program:
(a) U.S. Remodelers shall cooperate with Green Tree promptly to resolve all
disputes with Accountholders.
(b) U.S. Remodelers shall not seek or obtain any special agreement or
condition from, nor discriminate in any way against, any Accountholder with
respect to the terms of any transaction.
(c) U.S. Remodelers shall pay to Dealer, subject to prior receipt from
Green Tree, the amount of each Purchase for which all of the proper supporting
documentation has been provided less any applicable standard and promotional
discounts and other amounts owed to U.S. Remodelers by Dealer. Funds due to
Dealer for Purchases shall be forwarded from U.S. Remodelers to Dealer no later
than seven (7) business days after Green Tree has forwarded funds to U.S.
Remodelers.
Section 6.03 General Representations and Warranties of U.S. Remodelers.
----------------------------------------------------------------------
U.S. Remodelers makes the following representations and warranties to Green
Tree, each and all of
<PAGE>
which shall survive the execution and delivery of this Agreement, and each and
all of which shall be deemed to be restated and remade on each day on which any
Account is opened, any Purchase is presented for settlement pursuant to Section
4.05, or any action is taken with respect to the Program:
(a) Corporate Existence. U.S. Remodelers (i) is a corporation duly
-------------------
organized, validly existing, and in good standing under the laws of the State of
Delaware; (ii) is duly qualified as a corporation and in good standing under the
laws of each jurisdiction where its ownership or lease of property or the
conduct of its business requires such qualification; (iii) has the requisite
corporate power and authority and the legal right to own, pledge, mortgage, and
operate its .properties, to lease the properties it operates under a lease, and
to conduct its business as now conducted and hereafter contemplated to be
conducted; (iv) has all necessary licenses, permits, consents, or approvals
required for the conduct of its business; and (v) is in compliance with its
certificate of incorporation and bylaws.
(b) Corporate Power. Authorization: Enforceable Obligation. The
-------------------------------------------------------
execution, delivery, and performance of this Agreement and all instruments and
documents to be delivered by U.S. Remodelers hereunder: (i) are within U.S.
Remodelers' corporate power; (ii) have been duly authorized by all necessary or
proper corporate action, including the consent of shareholders where required;
(iii) do not and will not contravene any provisions of U.S. Remodelers'
certificate of incorporation or bylaws; (iv) will not violate any law or
regulation or any order or decree of any court or Governmental instrumentality;
(v) will not conflict with or result in the breach of, or constitute a default
under any indenture, mortgage, deed of trust, lease, agreement, or other
instrument to which U.S. Remodelers is a party or by which U.S. Remodelers or
any of its assets or property are bound; and (vi) do not require any filing or
registration with, or the consent or approval of, any Governmental body, agency,
authority, or any other person which has not been made or obtained previously,
copies of which have been provided to Green Tree. The Agreement has been duly
executed and delivered by U.S. Remodelers and constitutes a legal, valid, and
binding obligation of U.S. Remodelers enforceable against U.S. Remodelers in
accordance with it terms.
Section 6.04 Program Covenants of Green Tree. Green Tree covenants to
--------------------------------------------
provide and maintain the Vision 21 System computer software required for the
Program.
Section 6.05 Representations and Warranties of Green Tree. Green Tree
---------------------------------------------------------
makes the following representations and warranties to U.S. Remodelers, each and
all of which shall be deemed to be made on each day on which Accounts are
opened, Purchase documentation is received for settlement pursuant to Section
4.05, or any action is taken with respect to the Program on or after the Program
commencement date established pursuant to Section 2.01:
(a) Corporate Existence. Green Tree (i) is a corporation duly organized,
-------------------
validly existing and in good standing under the laws of the State of Delaware;
(ii) has the requisite corporate power and authority and the legal right to own,
pledge, mortgage, and operate its properties, to lease the properties it
operates under a lease, and to conduct its business as now conducted and
hereafter contemplated to be conducted; and (iii) is in compliance with its
articles of incorporation and bylaws.
(b) Corporate Power. Authorization: Enforceable Obligation. The
-------------------------------------------------------
execution, delivery, and performance of this Agreement and all instruments and
documents to be delivered by Green
<PAGE>
Tree hereunder, (i) are within Green Tree's corporate power, (ii) have been duly
authorized by all necessary or proper corporate action, including the consent of
shareholders where required; (iii) do not and will not contravene any provision
of Green Tree's certificate of incorporation or bylaws; (iv) will not violate
any law or regulation or an order or decree of any court or Governmental
instrumentality; (v) will not conflict with or result in the breach of, or
constitute a default under, any indenture, by which Green Tree or any of its
property is bound; and (vi) do not require any filing or registration with or
the consent or approval of any Governmental body, agency, authority, or any
other person which has not been made or obtained previously. This Agreement has
been duly executed and delivered by Green Tree, and constitutes the legal,
valid, and binding obligation of Green Tree, enforceable against Green Tree in
accordance with its terms.
(c) Program Compliance. Green Tree warrants to U.S. Remodelers that the
------------------
Program shall be administered and serviced in compliance with applicable state
and federal laws.
SECTION 7. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
- -------------------------------------------------
Section 7.01 Events of Default. The occurrence of any one or more of the
------------------------------
following events shall constitute an "Event of Default" hereunder:
(a) Either U.S. Remodelers or Green Tree shall fail to make any payment of
any amount due pursuant to this Agreement when due and payable or declared due
and payable, and the same shall remain unpaid for a period of fifteen (15) days;
(b) Either U.S. Remodelers or Green Tree shall fail or neglect to perform,
keep, or observe any term, provision, condition, commitment or covenant
contained in this Agreement that is required to be performed, kept or observed
by either party, and the same shall remain uncured for a period of thirty (30)
days after the other party shall have given written notice thereof;
(c) Any representation or warranty made or delivered by either U.S.
Remodelers or Green Tree or any of its respective officers, employees, agents,
or representatives shall not be true and correct in any material respect as of
the date when made or reaffirmed;
(d) U.S. Remodelers shall be acquired (whether by merger, consolidation,
change of control, as defined below, or otherwise) by any person not an
affiliate of U.S. Remodelers as of the date of execution of this Agreement,
unless Green Tree consents to the acquisition in writing prior to the
acquisition, which consent shall not be unreasonably withheld. For purposes of
this section of "change of control" shall mean any sale of all or substantially
all of the assets of an entity (whether in one or a series of transactions) or
an entity is merged or consolidated into another corporation or the capital
stock of an entity is transferred;
(e) Either U.S. Remodelers or Green Tree shall (i) file a petition seeking
relief pursuant to the Bankruptcy Code or any other applicable bankruptcy or
other similar law; (ii) consent to the institution of proceedings pursuant
thereto or to the filing of any such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee, or
sequestrate (or similar official) of either party of any substantial part of its
properties; (iii) fail generally to pay its debts as such debts become due; or
(iv) take corporate action in furtherance of any such action;
<PAGE>
(f) A material adverse change shall occur in the operations, financial
condition, business or prospects of U.S. Remodelers which has impaired or is
reasonable likely to impair, the ongoing operation or continued viability of the
Program, in each case, as determined by Green Tree, in its sole discretion.
Section 7.02 Remedies. If any Event of Default shall have occurred and be
---------------------
continuing the non-defaulting party shall have the right to terminate this
Agreement in the manner specified in Section 8 hereof
SECTION 8. TERM/TERMINATION
- ---------------------------
Section 8.01 Term. This Agreement shall continue in full force and effect
-----------------
until the sixty third month of the Program commencement date (established
pursuant to Section 2.01); thereafter, this Agreement shall renew automatically
for successive one year terms unless and until terminated by either U.S.
Remodelers or Green Tree by written notice to the other party at least 180 days
prior to the end of the original or any renewal term.
Section 8.02 Termination for Cause. If an Event of Default under Section
----------------------------------
7.01 shall occur, the non-defaulting party shall have the right immediately to
-----------
terminate this Agreement upon notice.
Section 8.03 Effect of Termination. Upon termination, all of the rights
----------------------------------
and obligation of the respective parties hereto shall cease; provided, however,
that the following shall survive the termination of this Agreement: (i) U.S.
Remodelers' obligation to reimburse Green Tree for amounts due to Green Tree in
connection with the offering of special credit promotions and a grace period on
Purchases pursuant to Section 2.03; (ii) Green Tree's Chargeback rights pursuant
to Section 5; (iii) the obligations of the parties related to indemnification
under Section 9. Upon termination, Green Tree shall cease to honor Purchases and
will terminate all privileges related to the Credit Cards. Furthermore, upon
termination U. S. Remodelers' right to Participation Fees under Section 2.09 (i)
shall cease immediately and Green Tree shall not be required to pay any
Participation Fees upon or any time after termination. Upon termination, U.S.
Remodelers may purchase from Green Tree all Accounts then outstanding for cash
in an amount equal to 102% of their unpaid principal balance plus all accrued
and unpaid finance charges and other amounts owing, to Green Tree. Upon such
payment, Green Tree will assign all such Accounts to U.S. Remodelers, or its
assigns, without recourse or warranty.
SECTION 9. INDEMNIFICATION
- --------------------------
Section 9.01 By Green Tree. Green Tree shall be liable to and shall
--------------------------
indemnify and hold harmless U.S. Remodelers and its officers, directors and
employees from and against any Losses, as defined below, arising out of the
intentional or negligent act or omission of Green Tree in the performance of its
duties and obligations under this Agreement or its failure to comply with the
terms of this Agreement or any applicable laws or regulations applicable to it,
including but not limited to a breach by Green Tree of the warranty contained in
Section 6.05 (c), Green Tree shall indemnify U.S. Remodelers for any Products
offered or sold by Green Tree.
Section 9.02 By U.S. Remodelers. U.S. Remodelers shall be liable to and
-------------------------------
shall indemnify and hold harmless Green Tree and its officers, directors and
employees from and
<PAGE>
against any Losses, as defined below, arising out of the intentional or
negligent act or omission of U.S. Remodelers in the performance of its duties or
obligations under this Agreement or its failure to comply with the terms of this
Agreement or any applicable laws or regulations, including without limitation
Losses resulting from (i) acts or omissions in connection with the sale of any
Products, (ii) the Program Documents and other documents used in connection with
the transactions, including but not limited to documents given to any
Accountholder pertaining to warranties or service agreements, U.S. Remodelers'
liability for the Program Documents and other documents does not apply to any
document provided by Green Tree, but shall apply to any failures or omissions by
U.S. Remodelers or its officers, employees or agents related to any such
document furnished by Green Tree, including, but not limited to, U.S.
Remodelers' failure properly to complete any such document or deliver copies to
Accountholders, (iii) the material inaccuracy or incompleteness of any
information contained in any credit application of any Accountholder, or (iv)
any liability Green Tree incurs by reason of 12 Code of Federal Regulations
Section 226.12 (c) of Regulation Z regarding the right of a cardholder to assert
claims and defenses against card issuers, (v) the failure by U.S. Remodelers to
provide Products to Accountholders in accordance with their terms, and (vi) any
product liability or warranty claims in respect of such Products. U.S.
Remodelers shall not indemnify Green Tree for any Losses that result from any
products or services offered or sold by Green Tree.
Section 9.03 General. U.S. Remodelers and Green Tree shall promptly notify
--------------------
the other of any claim, demand, suit or threat of suit of which it becomes aware
(except with respect to a threat of suit either party might institute against
the other) which may give rise to a right of indemnification pursuant to this
Agreement. The indemnifying party will be entitled to participate in the
settlement or defense thereof and, if the indemnifying party elects, to take
over and control the settlement or defense thereof with counsel satisfactory to
the indemnified party. In any case, the indemnifying party and the indemnified
party shall cooperate (at no cost to the indemnified party) in the settlement or
defense of any such claim, demand, suit or proceeding. For purposes of this
Section 9, the term "Losses" shall mean any losses, damages, costs and expenses,
liabilities, settlements, including, without limitation, any attorneys' fees and
disbursements and court costs reasonably incurred by Green Tree or U.S.
Remodelers, as the case may be.
SECTION 10. MISCELLANEOUS
- -------------------------
Section 10.01 Independent Contractors. In performing their respective
-------------------------------------
responsibilities under this Agreement, Green Tree and U.S. Remodelers are
independent contractors. This Agreement is not intended to create and shall not
be construed to create, a relationship of partner or joint venture or an
association for profit between Green Tree and U.S. Remodelers.
Section 10.02 Financial Statements. At least annually or more often if
----------------------------------
requested by Green Tree, U.S. Remodelers shall provide Green Tree with audited
balance sheets and profit and loss statements and make available to Green Tree's
representatives such other financial information as may be reasonably requested
by Green Tree. U.S. Remodelers understands and agrees that Green Tree may
verify any financial information provided by U.S. Remodelers and may, from time
to time, seek credit and other information concerning U.S. Remodelers from
others.
Section 10.03 Assignment: Delegation of Duties. Without the express
-----------------------------------------------
written consent of the other party, neither U.S. Remodelers nor Green Tree may
assign this Agreement or
<PAGE>
delegate any of its duties hereunder except that (a) either U.S. Remodelers or
Green Tree may delegate such duties to any party which is then a wholly owned
subsidiary of the delegating party or a corporation under common control with
the delegating party, (b) Green Tree may assign this Agreement to a wholly owned
subsidiary, and (c) Green Tree may contract with a bank or other financial
institution in structuring the Program and in connection with such contract may
assign this Agreement or delegate duties to such financial institution to the
extent Green Tree deems necessary or desirable.
Section 10.04 Amendment. Subject to the right of Green Tree to amend and
-----------------------
supplement the operating procedures pursuant to Section 4.01 hereof, this
Agreement may not be amended except by written instrument signed by both Green
Tree and U.S. Remodelers.
Section 10.05 Non-Waiver. No delay by U.S. Remodelers or Green Tree hereto
------------------------
in exercising any of its rights hereunder or partial or single exercise of such
rights, shall operate as a waiver of that or any other right. The exercise of
one or more of U.S. Remodelers' or Green Tree's rights hereunder shall not be a
waiver of, nor preclude the exercise of, any rights or remedies available to
such party under this Agreement or in law or equity.
Section 10.06 Severability. If any provision of this Agreement is held to
--------------------------
be invalid, void or unenforceable, all other provisions shall remain valid and
be enforced and construed as if such invalid provision were never a part of this
Agreement.
Section 10.07 Governing Law. This Agreement and all rights and obligations
---------------------------
hereunder shall be governed by and construed in accordance with the substantive
laws of the State of Minnesota.
Section 10.08 Entire Agreement. This Agreement, including any addenda or
------------------------------
exhibits, constitutes the entire agreement between Green Tree and U.S.
Remodelers with respect to the Program and any matters relating thereto and all
prior agreements, negotiations and communications on such subject are hereby
superseded.
Section 10.09 Captions. Cautions used in this Agreement are for convenient
----------------------
reference only and shall not be construed as limiting or defining the
substantial content of this Agreement.
Section 10.10 Use of U.S. Remodelers Name and Mark. U.S. Remodelers hereby
--------------------------------------------------
expressly gives Green Tree permission to use its name, logo, registered
trademarks and service marks (if any) in connection with the operation of the
Program.
Section 10.11 Notices. Except as otherwise provided in this Agreement, all
---------------------
notices, demands and other communications hereunder shall be in writing and
shall be delivered personally or sent by facsimile, other electronic means or
nationally recognized overnight courier service addressed to the party to whom
such notice or other communication is to be given or made at such party's
address as set forth below, or to such other address as such party may designate
in writing to the other party from time to time in accordance with the
provisions hereof, and shall be deemed given when personally delivered, when
sent electronically or one (1) business day after being sent by overnight
courier.
<PAGE>
To Green Tree:
Green Tree Financial Corporation
332 Minnesota Street, Suite 600
St. Paul, Minnesota 55101
Attention: Bruce Crittenden
Facsimile: 612.292.2470
with copies to:
Green Tree Financial Corporation
1100 Landmark Towers
345 Saint Peter Street
St. Paul, Minnesota 55102
Attention: Joel Gottesman, Esq.
Facsimile: 612.293.5746
Green Tree Financial Corporation
332 Minnesota Street, Suite 600
St. Paul, Minnesota 55101
Attention: Don McConnell, Esq.
Facsimile: 612.292.2470
To U.S. Remodelers:
U.S. Remodelers Incorporated
1341 West Mockingbird Lane Suite 900E
Dallas, Texas 75247-6913
Attention: Murray H. Gross
Facsimile: 214.267.2014
Section 10.12 Multiple Counterparts. This Agreement may be executed in any
-----------------------------------
number of multiple counterparts, all of which shall constitute but one and the
same original.
IN WITNESS WHEREOF, Green Tree and U.S. Remodelers have hereunto set their
hands as of the date first written above.
GREEN TREE FINANCIAL U.S. REMODELERS INC.
CORPORATION
By:_______________________ By: /s/ Murray H. Gross
-------------------
Its_______________________ Its: President
---------
<PAGE>
EXHIBIT 10.11
ASSUMPTION AGREEMENT
--------------------
This ASSUMPTION AGREEMENT (this "Agreement") is made and entered into as of
---------
May ___, 1997, among Industrial Development Authority of Charles City County
("Lender"), and U.S. Remodelers, Inc., a Delaware corporation ("Borrower").
- -------- --------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, on February 12, 1995, Facelifters Home Systems, Inc. ("Original
--------
Borrower") executed that certain Promissory Note (the "Note") in the original
- -------- ----
principal amount of $400,000, payable to the order of Lender, evidencing a loan
(the "Loan") from Lender to Original Borrower;
----
WHEREAS, the Note is secured by, among other collateral, (i) that certain
Security Agreement between Original Borrower and Lender dated April 7, 1995 (the
"Security Agreement") covering certain property described therein (the
------------------
"Property");
--------
WHEREAS, by Bill of Sale of even date herewith, Original Owner has conveyed
the Property to Borrower, and in partial consideration for such conveyance,
Borrower has agreed to assume the Note and to pay the Note in accordance with
its terms, and to perform all obligations of Original Borrower under the Note,
the Security Agreement, and any other documents evidencing and securing the Loan
(the "Loan Documents");
--------------
WHEREAS, Original Borrower and Borrower have requested that Lender consent
to the transfer of the Property to Borrower and the assumption by Borrower of
all obligations of Original Borrower under the Note, the Security Agreement and
any other of the Loan Documents;
WHEREAS, Lender is willing to consent to such transfer upon certain terms
and conditions as set forth herein; and
WHEREAS, the parties hereto desire to evidence in writing the assumption by
Borrower of the obligation to pay the Note and perform all obligations
thereunder and under the Security Agreement and the other Loan Documents in
accordance with their respective terms.
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that, for and in
consideration of the sum of Ten and No/100 Dollars ($10.00), the premises hereof
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ASSUMPTION AGREEMENT--Page 1
- ----------------------------
<PAGE>
1. Borrower does hereby, (i) assume the Note, (ii) promise to pay to
Lender or any other holder of the Note all principal payable under the Note in
accordance with its terms, (iii) promise to pay to Lender or any other holder of
the Note all interest and other sums due and payable under the Note arising from
and after the date of this Agreement, and (iv) promise to perform all
obligations of Original Borrower under the Security Agreement and the other Loan
Documents in accordance with the terms thereof, and any other documents executed
by Borrowers in connection with this Agreement (the "Loan Assumption
---------------
Documents").
- ---------
2. The unpaid principal balance of the Note as of April 29, 1997 is
$258,567.50.
3. Any notices or instructions to be given in connection with this
Agreement or the Note, the Security Agreement, any other of the Loan Documents,
or the Loan Assumption Documents shall be in writing to be effective and shall
be personally served, or sent by certified or registered mail or the express
mail service of the United States Postal Service, Federal Express or other
equivalent overnight or expedited delivery service. Any such notice shall be
deemed to have been given and received on the earlier of (a) if given by
personal service, upon receipt, (b) if sent by registered or certified mail,
upon the earlier of (i) actual receipt, or (ii) two (2) business days after
deposit in a depositary of the United States Postal Service, postage prepaid,
return receipt requested, or (c) if sent by Federal Express or other equivalent
overnight or expedited delivery service, upon the earlier of (i) actual receipt
or (ii) two (2) business days after delivery to such overnight or expedited
delivery service, delivery charges prepaid, and in each such instance addressed
to the party to be notified at the following address (or at such other address
as may have been designated by written notice in conformity herewith):
LENDER: Industrial Development Authority of the County of Charles City,
Virginia
4420 Charles City Road
Charles City, Virginia
BORROWER: U.S. Remodelers, Inc.
13740 Midway Road
Dallas, Texas 75244
4. This Agreement may be amended or supplemented only by a written
agreement executed and, if necessary, acknowledged by the party against whom
enforcement of such amendment or supplement is sought.
5. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS ASSUMED HEREIN SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF VIRGINIA,
AND APPLICABLE FEDERAL LAWS.
ASSUMPTION AGREEMENT--Page 2
- ----------------------------
<PAGE>
6. Nothing in the provisions of this Agreement and no transaction related
hereto shall operate or be construed to require Borrower to make any payment or
do anything contrary to any applicable law. No determination by any court or
governmental authority that any provision in this Agreement is invalid, illegal
or unenforceable in any instance shall affect the validity, legality or
enforceability of (a) any other provision hereof, or (b) such provision in any
circumstance not controlled by such determination. Each such provision shall be
valid and enforceable to the fullest extent allowed by, and shall be construed
wherever possible as being consistent with, applicable law. Furthermore, in lieu
of such illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid and enforceable.
7. This Agreement, and all amendments hereto, may be executed in any
number of identical original counterparts, each of which when so executed and
delivered shall be an original, and all of which counterparts together shall
constitute one and the same instrument, it being understood and agreed that the
signature pages may be detached from one or more counterparts and combined with
signature pages from any other counterpart in order that one or more fully
executed counterparts may be assembled.
8. The terms, provisions, covenants and conditions hereof shall be
binding upon Borrower, and the legal representatives, successors and assigns of
Borrower, and shall inure to the benefit of Lender, and its successors and
assigns.
9. THE WRITTEN LOAN DOCUMENTS, THIS AGREEMENT AND THE OTHER LOAN
ASSUMPTION 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.
ASSUMPTION AGREEMENT--Page 3
- ----------------------------
<PAGE>
EXECUTED the day and year first above written.
BORROWER:
--------
U.S. Remodelers, Inc.
a Delaware corporation
By: /s/ Murray Gross
------------------------------------
Murray Gross, President
LENDER:
------
Industrial Development Authority of
Charles City County
By: /s/ ARTHUR B. GLENN
------------------------------------
Name: Arthur B. Glenn
----------------------------------
Title: Chairman
---------------------------------
ASSUMPTION AGREEMENT--Page 4
- ----------------------------
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
Facelifters, Inc., a District of Columbia corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 20, 1998 (except Note 16, as to which the date is
June 11, 1998) with respect to the financial statements of U.S. Remodelers, Inc.
for the period ended December 31, 1997 and the combined statement of Net Assets
Acquired and Liabilities Assumed of Reunion Home Services, Inc. and Kitchen
Masters, Inc. (Reunion) at November 23, 1997 and the combined statement of
operations related to the net assets acquired and liabilities assumed for the
period ended November 23, 1997 in the Registration Statement (Form SB-2 No.
333-_____) and related Prospectus of U.S. Remodelers, Inc. for the registration
of 1,610,000 shares of its common stock.
Ernst & Young LLP
Dallas, Texas
September 30, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-23-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<CASH> 257,850 556,832
<SECURITIES> 0 0
<RECEIVABLES> 598,308 910,911
<ALLOWANCES> 79,715 99,325
<INVENTORY> 885,160 1,093,726
<CURRENT-ASSETS> 1,981,750 3,044,668
<PP&E> 2,812,822 3,066,806
<DEPRECIATION> 184,448 378,708
<TOTAL-ASSETS> 4,708,424 5,824,083
<CURRENT-LIABILITIES> 2,190,501 3,553,603
<BONDS> 2,106,593 2,696,051
689,967 724,169
0 0
<COMMON> 24,765 25,000
<OTHER-SE> (303,402) (1,174,740)
<TOTAL-LIABILITY-AND-EQUITY> 4,708,424 5,824,083
<SALES> 16,158,745 12,896,070
<TOTAL-REVENUES> 16,158,745 12,896,070
<CGS> 6,453,597 5,362,563
<TOTAL-COSTS> 6,453,597 5,362,563
<OTHER-EXPENSES> 10,919,937 8,076,922
<LOSS-PROVISION> 79,715 69,000
<INTEREST-EXPENSE> 147,871 142,251
<INCOME-PRETAX> (1,442,375) (813,228)
<INCOME-TAX> 5,000 0
<INCOME-CONTINUING> (1,447,375) (813,228)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,447,375) (813,228)
<EPS-PRIMARY> (.76) (.36)
<EPS-DILUTED> (.76) (.36)
</TABLE>
