<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
THERMOVIEW INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5211 61-1325129
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
1101 HERR LANE, LOUISVILLE, KENTUCKY 40222
(502) 412-5600
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
--------------------------
STEPHEN A. HOFFMANN, CHIEF EXECUTIVE OFFICER
1101 HERR LANE
LOUISVILLE, KENTUCKY 40222
(502) 412-5600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
C. CRAIG BRADLEY, JR., ESQ. THOMAS J. POLETTI, ESQ.
ALEX P. HERRINGTON, JR., ESQ. KATHERINE J. BLAIR, ESQ.
C. LEWIS BORDERS, ESQ. DAVID M. TAMMAN, ESQ.
STITES & HARBISON FRESHMAN, MARANTZ, ORLANSKI, COOPER &
KLEIN
SUITE 1800 EIGHTH FLOOR, EAST TOWER
400 WEST MARKET STREET 9100 WILSHIRE BOULEVARD
LOUISVILLE, KENTUCKY 40202-3352 BEVERLY HILLS, CALIFORNIA 90212
TELEPHONE: (502) 587-3400 TELEPHONE: (310) 273-1870
FACSIMILE: (502) 587-6391 FACSIMILE: (310) 274-8293
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $.001 par value(2)................................ $17,250,000 $4,796
Representative's Warrant........................................ $150 $1
Common Stock, $.001 par value(3)................................ $1,800,000 $500
Total........................................................... $19,050,150 $5,297
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
(2) Includes shares of Common Stock which the Underwriters have an option to
purchase solely to cover over-allotments, if any, equal to fifteen percent
(15%) of the shares being offered.
(3) Issuable upon exercise of the Representative's Warrant.
------------------------------
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 SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 5, 1999
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. WE MAY NOT SELL THESE SECURITIES
UNTIL THE REGISTRATION STATEMENT IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SHARES
[LOGO]
COMMON STOCK
We design, manufacture, sell and install custom vinyl replacement windows
for residential and retail commercial customers. We also sell and install
replacement doors, home textured coatings, vinyl siding, patio decks, patio
enclosures, cabinet refacings and kitchen and bathroom remodeling products. We
finance a portion of our customers' purchases through Key Home Credit, Inc., our
consumer finance subsidiary.
Our common stock currently trades on the OTC Bulletin Board under the symbol
"TVII," and we have applied for quotation of our shares on the Nasdaq National
Market under the same symbol. The last reported sale price for our common stock
on the OTC Bulletin Board on August 4, 1999, was $3.81 per share.
We are offering all of the shares of common stock. We expect the
public offering price to be between $ and $ per share. The public
offering price will not necessarily bear any direct relationship to the trading
prices of our common stock on the OTC Bulletin Board prior to this offering.
Please see "Underwriting" beginning on page 73 for factors to be considered in
determining the public offering price.
YOUR INVESTMENT IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. BEFORE MAKING AN
INVESTMENT DECISION, YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED UNDER
"RISK FACTORS" BEGINNING ON PAGE 6.
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------- ---------
<S> <C> <C>
Public offering price $ $
Underwriting discounts and commissions $ $
Proceeds, before expenses, to us $ $
</TABLE>
We are also offering the underwriters a 60-day option to purchase up to
shares solely to cover any over-allotments on these same terms.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
EBI SECURITIES CORPORATION
PROSPECTUS DATED , 1999
<PAGE>
[INSIDE FRONT COVER]
The images on the inside front cover page consist of pictures from one of our
product brochures and pictures from our installations. The descriptions of the
pictures are clockwise from the top left-hand corner.
1. A picture of a woman showing the tilt-in feature of one of our windows for
ease of cleaning.
2. A picture of a living room with fixed light picture windows, some of which
have brass caning and beveled glass accents.
3. A picture of the exterior of a house showing our windows.
4. A picture of one of our patio doors.
<PAGE>
THERMOVIEW INDUSTRIES PROSPECTUS
ABOUT THERMOVIEW INDUSTRIES
We were incorporated in Nevada in December 1987. We reincorporated in
Delaware in May 1998. We have our principal executive offices at 1101 Herr Lane,
Louisville, Kentucky 40222, and our telephone number is (502) 412-5600. Our
World Wide Web site is www.thermoviewinc.com. This prospectus does not
incorporate by reference any information on our Web site.
INTRODUCTION
Please read this prospectus carefully. It describes our business, our
products and services and our financial condition and results of operations. We
have prepared this prospectus so that you will have the information necessary to
make an informed investment decision.
In this prospectus, the terms "Company," "ThermoView," "we," "us," and "our"
refer to ThermoView Industries, Inc. and all of its subsidiaries. Common stock
refers to the common stock, par value of $0.001 per share, of ThermoView, unless
we describe the common stock in some other manner.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
which this prospectus contains. We are offering to sell shares of common stock
and seeking offers to buy shares of common stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the common stock.
PROSPECTUS DELIVERY OBLIGATIONS
Until , 1999 (25 days after the date of this prospectus), all
dealers that buy, sell or trade in our common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This
delivery requirement is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 1
Risk Factors................................... 6
Forward-Looking Statements..................... 14
The Company.................................... 15
Use of Proceeds................................ 19
Dividend Policy................................ 19
Price Range of Common Stock.................... 20
Capitalization................................. 21
Dilution....................................... 22
Selected Historical and Pro Forma Financial
Data......................................... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 26
Business....................................... 42
Management..................................... 53
Certain Transactions........................... 61
Principal Stockholders......................... 64
Description of Capital Stock................... 66
Shares Eligible for Future Sale................ 70
Underwriting................................... 73
Legal Matters.................................. 75
Experts........................................ 75
Where You Can Find More Information............ 77
Index to Financial Statements.................. F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS AND MAY
NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ
THE ENTIRE PROSPECTUS, INCLUDING THE FINANCIAL STATEMENTS AND RELATED NOTES,
BEFORE MAKING AN INVESTMENT DECISION.
THERMOVIEW INDUSTRIES
OUR COMPANY
We design, manufacture, sell and install custom vinyl replacement windows
for residential and retail commercial customers. We also sell and install
replacement doors, home textured coatings, vinyl siding, patio decks, patio
enclosures, cabinet refacings and kitchen and bathroom remodeling products. We
finance a portion of our customers' purchases through Key Home Credit, Inc., our
consumer finance subsidiary.
In April 1998, we acquired Thermo-Tilt Window Company, which was established
in 1987. Since that time, we have acquired 12 retail and manufacturing
businesses which have been in operation an average of approximately 10 years. At
June 30, 1999, we had over 1,400 employees and had facilities in 13 states,
primarily in the Midwest and southern California. For calendar 1998, we
generated pro forma consolidated revenues of $102.1 million.
THE REPLACEMENT WINDOW INDUSTRY
Sales of replacement windows have experienced substantial growth in recent
years. According to U.S. Census Bureau and industry statistics:
- domestic expenditures in the replacement window industry were $7.9 billion
in 1997, an increase of 27.4% over 1993;
- over 28.4 million replacement windows were sold in 1998, a 38.5% increase
over 1992 levels; and
- of available replacement windows, vinyl replacement windows are the most
popular, comprising 49.6% of total unit sales in 1998.
OUR BUSINESS STRATEGY
Our goal is to become a leader in the replacement window industry by
building through acquisitions and internal growth a fully integrated nationwide
network of sales, installation and manufacturing subsidiaries. We believe that
our continuing national acquisition strategy capitalizes on the fragmented
nature of the replacement window industry.
ThermoView seeks acquisition candidates with the following characteristics:
- experienced, growth-oriented management;
- strong regional market share; and
- financial performance to increase our earnings and cash flow.
Our potential acquisition targets are typically small, regional companies
that require additional capital for expansion and modernization. In addition,
owners/managers of potential acquisition targets are often receptive to our
consolidation strategy due to the lack of liquidity for owners of privately-held
replacement window businesses. Our goal is to target sales, distribution and
installation companies within 400 miles of a manufacturing plant that we already
own or that we will either acquire or build to service these retail companies.
1
<PAGE>
We believe that our acquisition and integration strategy offers the
following competitive advantages.
EFFICIENT PENETRATION OF NEW MARKETS. We believe that we avoid many of the
costs and risks associated with entering new geographic markets by targeting one
or more leading local or regional companies providing vinyl replacement window
and complimentary business services.
OPPORTUNITY TO LEVERAGE OUR EXISTING CUSTOMER BASE. Our strategy is to
enhance internal sales growth by offering existing customers of our acquired
companies a wider range of products.
OPERATING EFFICIENCIES. We believe that our integration strategy affords us
the ability to achieve operating efficiencies and cost savings through volume
discounts on purchases. Also, we seek to provide a centralized accounting and
administrative function that we believe will enhance our profitability and the
operating efficiencies of our subsidiaries.
RELIABLE AND INEXPENSIVE SERVICING. Through the introduction of our own
manufactured vinyl replacement windows, we will be able to provide our retail
subsidiaries with a common product or products to sell in their markets. By
providing a manufacturing operation that is geographically proximate to our
retail operations, we expect to be able to deliver a completed window for
installation more quickly and with a higher level of operating efficiencies.
ABILITY TO LEVERAGE LOCAL BUSINESS REPUTATIONS. We maintain strong customer
relationships by acquiring sales and installation companies that have strong and
long-standing local reputations, and in most cases, by allowing the companies to
continue to operate under their original names.
INCREASED ABILITY TO OFFER CUSTOMER FINANCING. We believe that Key Home
Credit, our consumer finance subsidiary, affords our customers an additional
means of financing purchases of our products.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by our company.......... shares
Common stock to be outstanding after this
offering................................... shares
Use of proceeds.............................. To fund future acquisitions; to repay
indebtedness incurred in connection with a
prior acquisition; and for general corporate
purposes.
Proposed Nasdaq National Market symbol....... TVII
</TABLE>
------------------------
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS:
- REFLECTS A 2-FOR-1 STOCK SPLIT OF THE COMMON STOCK OF THERMO-TILT WINDOW
COMPANY THAT OCCURRED ON SEPTEMBER 29, 1997;
- REFLECTS THE EXCHANGE OF 1.7393 SHARES OF THERMOVIEW COMMON STOCK FOR EACH
SHARE OF THERMO-TILT COMMON STOCK ON APRIL 15, 1998;
- DOES NOT GIVE EFFECT TO 1,200,000 SHARES OF OUR COMMON STOCK ISSUABLE UPON
CONVERSION OF OUR SERIES C PREFERRED STOCK;
- REFLECTS THE AUTOMATIC CONVERSION OF ALL OUTSTANDING SHARES OF OUR SERIES
A AND SERIES B PREFERRED STOCK INTO 3,380,000 SHARES OF OUR COMMON STOCK
AT THE CLOSING OF THIS OFFERING;
- DOES NOT GIVE EFFECT TO THE ISSUANCE OF UP TO 5,056,715 SHARES OF OUR
COMMON STOCK UPON EXERCISE OF OUTSTANDING STOCK OPTIONS AT A WEIGHTED
AVERAGE EXERCISE PRICE OF $2.04 PER SHARE;
- DOES NOT GIVE EFFECT TO THE ISSUANCE OF UP TO 2,991,028 SHARES OF OUR
COMMON STOCK UPON EXERCISE OF OUTSTANDING WARRANTS AT A WEIGHTED AVERAGE
EXERCISE PRICE OF $2.83 PER SHARE;
- EXCLUDES AN ADDITIONAL 1,609,377 SHARES OF OUR COMMON STOCK THAT WE HAVE
RESERVED FOR ISSUANCE AND MAY ISSUE UNDER OUR 1999 STOCK OPTION PLAN;
- DOES NOT GIVE EFFECT TO THE ISSUANCE OF AN INDETERMINATE NUMBER OF SHARES
OF OUR COMMON STOCK ISSUABLE IN CONNECTION WITH OUR EARN-OUT OBLIGATIONS
UNDER ACQUISITION AGREEMENTS; AND
- ASSUMES THAT THE UNDERWRITERS DO NOT EXERCISE THEIR OVER-ALLOTMENT OPTION
OR THAT THE REPRESENTATIVE OF THE UNDERWRITERS DOES NOT EXERCISE THE
WARRANT THAT WE WILL GRANT TO IT TO PURCHASE UP TO SHARES OF OUR
COMMON STOCK AT AN EXERCISE PRICE OF $ PER SHARE.
3
<PAGE>
SUMMARY FINANCIAL DATA(1)
The following tables present summary historical and pro forma financial data
for ThermoView. The unaudited pro forma statement of operations data give effect
to all of our acquisitions as if they had occurred on January 1, 1998. We have
presented this pro forma data for informational purposes only, in order to
provide you with some indication of what our business might have looked like if
we had owned all of the acquired companies since January 1, 1998. These
companies may have performed differently if they had actually been combined with
our operations. You should not rely on the unaudited pro forma information as
necessarily being indicative of the historical results that we would have had or
the results that we will experience in the future. Also, because of the
significant impact of our acquisitions on operations in 1998 and 1999, you
should be aware that period-to-period comparisons of historical results may not
be meaningful.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA PRO FORMA
1996 1997 1998 1998(2) 1998 1999 1999(2)
--------- --------- --------- ----------- --------- ---------- -----------
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 6,641 $ 5,629 $ 37,376 $ 102,115 $ 1,225 $ 21,750 $ 24,252
Cost of revenues earned.................... 3,571 2,889 16,748 48,092 463 9,764 10,497
--------- --------- --------- ----------- --------- ---------- -----------
Gross profit............................... 3,070 2,740 20,628 54,023 762 11,986 13,755
Selling, general and administrative
expenses................................. 2,634 3,293 20,233 49,427 970 11,542 13,094
Stock-based compensation expense........... -- 1 5,509 5,509 -- -- --
Depreciation and amortization.............. 68 69 854 2,258 23 800 857
--------- --------- --------- ----------- --------- ---------- -----------
Income (loss) from operations.............. 368 (623) (5,968) (3,171) (231) (356) (196)
Interest expense........................... (57) (90) (439) (2,393) (15) (412) (497)
Other income (expense)..................... (47) (19) 69 465 -- 62 63
--------- --------- --------- ----------- --------- ---------- -----------
Income (loss) before income taxes.......... 264 (732) (6,338) (5,099) (246) (706) (630)
Income tax expense (benefit)............... -- (266) (1,135) (497) (83) (95) (60)
--------- --------- --------- ----------- --------- ---------- -----------
Net income (loss).......................... $ 264 (466) (5,203) (4,602) (163) (611) (570)
---------
---------
Less amount attributable to sole
proprietor............................... 398 -- -- -- -- --
Less preferred stock dividends:
Cash..................................... -- 585 785 -- 425 425
Additional dividend attributable to
beneficial conversion feature.......... -- 9,540 9,540 -- -- --
--------- --------- ----------- --------- ---------- -----------
Net income (loss) attributable to common
stockholders............................. $ (864) $ (15,328) $ (14,927) $ (163) $ (1,036) $ (995)
--------- --------- ----------- --------- ---------- -----------
--------- --------- ----------- --------- ---------- -----------
Basic and diluted loss per common
share(3)................................. $ (1.29) $ (1.02) $ (0.02) $ (0.07) $ (0.07)
--------- ----------- --------- ---------- -----------
--------- ----------- --------- ---------- -----------
Weighted average shares outstanding........ 11,925,706 14,574,400 9,015,204 14,060,487 14,439,359
--------- ----------- --------- ---------- -----------
--------- ----------- --------- ---------- -----------
OTHER DATA:
EBITDA(4).................................. $ 436 $ (554) $ (5,114) $ (913) $ (208) $ 444 $ 661
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
AS OF
AS OF MARCH 31, 1999
DECEMBER 31, -----------------------------------------
-------------------- PRO FORMA
1997 1998 ACTUAL PRO FORMA(5) AS ADJUSTED(6)
--------- --------- --------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Total assets............................................ $ 1,503 $ 50,194 $ 77,986 $ 80,841
Long-term debt including current maturities............. 527 9,206 28,578 21,959
Total liabilities....................................... 1,326 15,796 38,064 31,445
Mandatorily redeemable convertible preferred stock...... -- -- -- 2,949
Stockholders' equity.................................... 177 34,398 39,922 46,447
</TABLE>
- ------------
(1) On April 15, 1998, ThermoView acquired all of the outstanding stock of
Thermo-Tilt Window Company. Prior to that date, ThermoView was a development
stage corporation and had no business operations since its incorporation.
For accounting and financial statement presentation purposes, Thermo-Tilt is
deemed to be the acquirer. The historical statement of operations data for
the period January 1, 1998 through April 15, 1998 and the historical
financial data as of and for the years ended December 31, 1996 and 1997 and
the three months ended March 31, 1998 reflect the operations of Thermo-Tilt.
(2) We have made certain pro forma adjustments to our historical financial data
in order to present the effects of our acquisitions on prior operating
results. You should refer to our unaudited pro forma financial statements
and the related notes which begin on page F-4 of this prospectus for more
information about these adjustments which we made in deriving the pro forma
information.
(3) We have described the method used to calculate loss per common share in
footnote 2 to our consolidated financial statements for the year ended
December 31, 1998, which appears on page F-21 of this prospectus. The
weighted average shares used in computing pro forma basic and diluted loss
per common share includes the shares issued in connection with acquisitions
as if they were issued on January 1, 1998.
(4) EBITDA represents income (loss) from operations plus depreciation and
amortization. EBITDA should not be considered as an alternative to, or more
meaningful than, net income, as determined in accordance with GAAP, as a
measure of our operating results or cash flows, as determined in accordance
with GAAP, as a measure of our liquidity. The non-cash charge for
stock-based compensation expense has not been added back to income (loss)
from operations to compute EBITDA.
(5) Reflects (A) the issuance on April 23, 1999, of 6,000 shares of Series C
preferred stock for $6.0 million and warrants to purchase 1,200,000 shares
of common stock, (B) the issuance on July 8, 1999, of $10.0 million of
senior subordinated debt and warrants to purchase 1,666,028 shares of common
stock at $0.01 per share, and (C) the application of the estimated net
proceeds therefrom.
(6) Reflects (A) the automatic conversion of all outstanding shares of Series A
and Series B preferred stock into 3,380,000 shares of common stock upon the
closing of this offering, and (B) the sale of shares of common
stock in this offering at an assumed public offering price of $ per
share, after deducting underwriting discounts and commissions and the
estimated offering expenses payable by us, and the application of the
estimated net proceeds therefrom.
5
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, IN ADDITION TO THE
OTHER INFORMATION AND FINANCIAL DATA CONTAINED ELSEWHERE IN THIS PROSPECTUS, IN
EVALUATING AN INVESTMENT IN THE COMMON STOCK. THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE DUE TO ANY OF THESE RISKS, AND YOU COULD LOSE ALL OR PART OF
YOUR INVESTMENT.
THIS PROSPECTUS ALSO CONTAINS FORWARD-LOOKING STATEMENTS. THESE STATEMENTS
RELATE TO FUTURE EVENTS OR FUTURE FINANCIAL PERFORMANCE AND INVOLVE RISKS AND
UNCERTAINTIES. IN EVALUATING THESE STATEMENTS, YOU SHOULD SPECIFICALLY CONSIDER
VARIOUS FACTORS, INCLUDING THE RISKS OUTLINED BELOW. THESE FACTORS COULD CAUSE
OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS. SEE "FORWARD-LOOKING STATEMENTS."
WE HAVE A LIMITED OPERATING HISTORY AS A CONSOLIDATED ENTERPRISE
ThermoView was formed in April 1998. We have a limited operating history as
a consolidated enterprise notwithstanding that all of our subsidiaries were
existing businesses prior to their acquisition. Potential investors in our stock
do not have access to the same type of information in assessing us as a
consolidated enterprise as would be available for a company with a longer
history of operations. We may not be profitable and if we become profitable we
may not remain profitable. If we do not obtain profitability, our stockholders
may not recover all or any of their investment.
WE HAVE A HISTORY OF LOSSES
We incurred a net loss attributable to common stockholders of approximately
$15.3 million for the year ended December 31, 1998, which included stock-based
compensation expense of approximately $4.2 million net of tax and an additional
preferred stock dividend of approximately $9.5 million related to a beneficial
conversion feature. We incurred a net loss attributable to common stockholders
of approximately $1.0 million for the three months ended March 31, 1999. We
expect losses attributable to common stockholders to continue through at least
the fourth quarter of 1999. As of March 31, 1999, we had an accumulated deficit
of approximately $6.7 million. Although our revenues have grown in recent
quarters, primarily from acquisitions, we cannot be certain that we will be able
to sustain these growth rates or that we will obtain sufficient revenues to
achieve profitability. If we do achieve profitability, we cannot be certain that
we can sustain or increase profitability on a quarterly or annual basis in the
future. We also expect to continue to expend substantial financial and other
resources on our acquisition program, on the repayment of debt and on marketing
our products. We expect that all of our costs and expenses will continue to
increase in future periods, which could negatively affect our operating results.
OUR GROWTH STRATEGY IS PRIMARILY BASED UPON A SUCCESSFUL ACQUISITION PROGRAM
Our growth strategy is primarily based upon the acquisition of existing
replacement window companies. Our ability to acquire companies on favorable
terms, to enhance their performance and to integrate them into ThermoView will
affect our growth and financial performance. We may compete for acquisition
candidates with companies that have significantly greater financial and other
resources than we do. We cannot assure you that we will be able to identify
suitable acquisition candidates. Even if we do identify suitable candidates, we
cannot assure you that we will complete acquisitions on commercially acceptable
terms. The past results of operations of companies that we may acquire may not
be indicative of future results.
When we buy companies, we initially rely on their separate accounting and
information systems. For our acquisition strategy to be successful, we must
centralize, integrate and assimilate an acquired company's functions and systems
into our operations. We may experience difficulties in integrating a company's
functions and systems. These difficulties could disrupt our ongoing business,
distract our management and
6
<PAGE>
employees, increase our expenses and adversely affect our results of operations.
WE WILL NEED TO RAISE SUBSTANTIAL FUNDS FOR ACQUISITIONS
We believe that our cash flow from operations and the proceeds of the
offering will allow us to meet our anticipated needs during at least the next 12
months for:
- some of our planned acquisitions under our current business model;
- payment of the interest on our line of credit and subordinated debt;
- payment of dividends due on our Series C preferred stock;
- working capital requirements; and
- planned property and equipment capital expenditures.
We will need additional sources of financing to undertake all of the planned
acquisitions under our current business model during the next 12 months. After
this twelve month period, we will need additional financing to consummate
acquisitions and for working capital, including payment of seller notes and
future earned cash to sellers of acquired companies. We may require financing
sooner if we pursue acquisitions not contemplated in our current business model.
Any required additional financing may not be available on terms favorable to us,
or at all. If adequate funds are not available on acceptable terms, we may be
unable to fund additional acquisitions, successfully promote our products or
develop new or enhanced products, any of which could have a material adverse
effect on our business, results of operations and financial condition. If we
raise additional funds by issuing equity securities, stockholders may experience
dilution of their ownership interest and the newly issued securities may have
rights superior to those of the common stock. If we issue or incur debt to raise
funds, we may be subject to additional limitations on our operations.
WE HAVE A SIGNIFICANT AMOUNT OF GOODWILL, THE IMPAIRMENT OF WHICH IN LATER YEARS
MAY HAVE A SIGNIFICANT ADVERSE EFFECT ON FUTURE EARNINGS
As a result of our recent acquisitions, goodwill accounted for 78.2% of our
total consolidated assets at March 31, 1999. At March 31, 1999, our goodwill was
approximately $60.9 million which exceeded our stockholders' equity of
approximately $39.9 million. Goodwill represents the excess of the aggregate
purchase price paid for the acquisition of companies accounted for as purchases
over the fair value of the net tangible assets of the acquired companies.
Goodwill reduces earnings now and in the future as we amortize it over a 40-year
period on a straight-line basis. In later years, our earnings could be
significantly adversely affected if our management determined then that any of
the remaining balance of goodwill was impaired.
CASH DIVIDENDS AND OTHER NON-CASH CHARGES ON RECENT FINANCINGS WILL ADVERSELY
AFFECT OUR FUTURE OPERATING RESULTS
In April 1999, we sold shares of our Series C preferred stock for $6.0
million and issued a warrant to purchase 1,200,000 shares of our common stock at
$7.00 per share. We will account for the portion of the proceeds equal to an
estimated $2.7 million from this mandatorily redeemable Series C preferred stock
allocable to the warrants as paid-in capital. We will amortize the resulting
discount as additional preferred stock dividends from the issuance date to
October 2000, the earliest redemption date. Since the conversion price of the
Series C preferred stock at the issuance date was less than the market price of
our common stock, preferred dividends will also include approximately $1.2
million in the second quarter of 1999. The stated 9.6% dividend on the Series C
preferred stock comprised of 70% cash and 30% of our common stock amounts to
$576,000 per annum based on the currently outstanding number of shares of our
Series C preferred stock. The stated dividend will adversely affect our earnings
for so long as the Series C preferred stock remains outstanding. The additional
dividends related to the warrants and the accretion of preferred stock issuance
costs together aggregating $2.2 million per
7
<PAGE>
annum will adversely affect our earnings until October 2000. In August 1999 we
amended the exercise price of the warrant to $6.00 per share in exchange for a
commitment of the holders to refrain from selling any of our securities from the
closing of this offering to January 31, 2000. We will account for the estimated
increase in fair value of the warrants as the result of the exercise price
change in an aggregate amount of approximately $180,000 as additional dividends
on the Series C preferred stock from August 1999 through January 2000.
In July 1999, we borrowed $10.0 million under a 12% senior subordinated note
due in July 2002. In connection with the loan, we issued to our subordinated
debt lender a warrant to purchase 1,666,028 shares of common stock at $0.01 per
share until July 2007. We will account for the portion of the proceeds from this
loan equal to approximately $4.4 million allocable to the warrant as paid-in
capital with the resulting discount amortized as additional interest over the
term of the loan. The stated 12% interest on the subordinated note to our
subordinated debt lender amounts to $1.2 million per annum based on the current
note balance. The discount related to the warrants deemed as interest on the
note and the amortization of debt issuance costs together amount to
approximately $1.6 million per annum. These amounts will adversely affect our
earnings until we retire the subordinated note.
SEASONAL FACTORS MAY AFFECT OUR QUARTERLY OPERATING RESULTS
Historically, our results of operations have fluctuated on a seasonal basis.
We have experienced lower levels of sales and profitability during the period
from mid-November to mid-March because we have derived a substantial portion of
our revenues from sales in the upper-Midwest. This seasonality has been caused
by inclement weather in the winter and spring months in the upper-Midwest, which
limits our ability to install exterior home improvement products, and adversely
affects the demand for windows, doors, vinyl siding and related products. We
expect this seasonal fluctuation to continue in the near term.
OUR INDUSTRY IS HIGHLY COMPETITIVE
The market for our products is highly competitive and it is very fragmented
at the manufacturing and retail levels. We expect such competition to continue
to increase because our markets pose no substantial barriers to entry. To the
extent one of our competitors undertakes a consolidation program, our
competition would increase further. We believe that our ability to compete
depends upon many factors both within and beyond our control, including the
following:
- the timing and industry acceptance of new window and window-related
products developed either by us or our competitors;
- customer service efforts;
- sales and marketing efforts; and
- the ease of use, performance, price and reliability of window, door and
other home improvement products developed either by us or our competitors.
We compete for window sales in a number of areas:
- window companies such as Builders Square, Andersen Corporation, Pella
Corporation and Marvin Windows;
- home improvement chain store operations including Builders Square, HQ Home
Quarters Warehouse, Inc., Home Depot, Lowes and Scotty's;
- Champion Windows, Pacesetters and the Sears Group; and
- family-owned window replacement businesses and local lumber yards.
At the manufacturing level, we compete with other window and door
manufacturers including Republic, Great Lakes, Thermal, Inc., Atrium, American
Architectural Products Corporation, Thermal Guard and Winchester Industries.
Our competitors for sales and installation of textured coatings, cabinet
refacings, bathroom and kitchen remodeling, patio decks and patio enclosures are
generally smaller remodelers and contractors in the locations where we engage in
8
<PAGE>
business. We compete with Champion Windows, Pacesetters and the Sears Group for
sales of our vinyl siding product.
Some of our competitors have longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we do. These resources may allow them to
respond more quickly than we can to new or emerging technologies and changes in
customer requirements. It may also allow them to devote greater resources than
we can to the development, promotion and sale of their products. Our competitors
may also engage in more extensive research and development, undertake more
far-reaching marketing campaigns and adopt more aggressive pricing policies. We
cannot assure you that we will be able to compete successfully or that
competitive pressures will not materially and adversely affect our business,
results of operations or financial condition.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY NEGATIVELY IMPACT OUR STOCK
PRICE
Our operating results are unpredictable and may fluctuate on a quarterly
basis. You should not rely on our results of operations during any quarter as an
indication of our results for a full year or any other quarter. Factors that may
affect our quarterly results include:
- the demand for our replacement windows and window-related products;
- our ability to attract new customers at reasonable cost, retain existing
customers, or encourage purchases;
- the condition of the replacement window industry in general;
- the timing and amount of our costs related to the fabrication, marketing
and sale of our windows and window-related products;
- our ability to identify appropriate acquisitions and acquire them on
favorable terms;
- our ability to enhance the performance of our acquired companies and
successfully integrate them into our operations;
- our ability to keep pace with an evolving market;
- our ability to manage anticipated growth;
- our ability to negotiate and maintain cost efficient advertising;
- our ability to retain key employees;
- the amount and timing of operating costs and capital expenditures relating
to expansion of our operations;
- our ability to continually improve our customer service;
- our ability to obtain adequate financing on reasonable terms;
- our ability to effectively and efficiently use the proceeds from this
offering; and
- increased competition.
OUR COMMON STOCK MAY BE DIFFICULT TO RESELL
Our common stock has been thinly-traded on the OTC Bulletin Board since
April 16, 1998. Our market price has fluctuated significantly. After this
offering, we propose to trade the common stock on the Nasdaq National Market and
it is likely that the market price of our common stock will continue to be
highly volatile and subject to wide fluctuations. An active public market for
our common stock may not develop or be sustained after this offering. You may
not be able to resell your shares at or above the initial public offering price.
The market price of our common stock is likely to be highly volatile and could
be subject to wide fluctuations in response to factors such as the following,
some of which are beyond our control:
- actual or anticipated fluctuations in our operating results;
- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- loss of a major supplier;
9
<PAGE>
- announcements by third parties of significant claims or proceedings
against us;
- future sales of our common stock;
- the exercise of warrants or options to purchase our common stock;
- the conversion of preferred stock into common stock;
- the eligibility for sale of our common stock that is not presently freely
tradable because of public offering lock-up agreements or the unregistered
nature of the common stock;
- changes in expectations as to our future financial performance or changes
in financial estimates of securities analysts;
- announcements of technological innovations by our existing or future
competitors;
- additions or departures of key personnel;
- the operating and stock price performance of other comparable companies;
or
- stock market price and volume fluctuations.
IF OUR STOCKHOLDERS SELL SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK IN THE PUBLIC
MARKET, THE MARKET PRICE OF OUR COMMON STOCK COULD FALL
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, including shares issued upon the exercise
of outstanding options and warrants or conversion of our Series C preferred
stock, the market price of our common stock could fall. These sales also might
make it more difficult for us to sell equity or equity-related securities in the
future at a time and price that we deem appropriate. Upon completion of this
offering, we will have outstanding shares of common stock. Including
the shares being offered hereby, there are shares that are freely
tradable. The remaining shares eligible for sale in the public
market are as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES DATE
- -------------- --------------------------------------
<C> <S>
90 days after the date of this
prospectus--all of these shares will
be subject to the volume and manner of
sale limitations of Rule 144
180 days after the date of this
prospectus-- of these shares will
be subject to the volume and manner of
sale limitations of Rule 144
At various times commencing 180 days
after the date of this prospectus--all
of these shares will be subject to the
volume and manner of sale limitations
of Rule 144
</TABLE>
As of July 12, 1999, options to purchase 5,056,715 shares of our common
stock were outstanding and, upon exercise of the options and satisfaction of the
conditions of Rule 144, will become eligible for sale in the public market at
various times. These stock options generally have exercise prices significantly
below the current market price of our common stock. As of July 12, 1999,
warrants to purchase 2,991,028 shares of our common stock were outstanding and,
upon exercise of the warrants and satisfaction of the conditions of Rule 144,
will become eligible for sale in the public market at various times. The
possible sale of a significant number of these shares may cause the price of our
common stock to fall.
Certain stockholders, option holders and warrant holders, representing
approximately 11,314,761 shares of our common stock, excluding unissued earn-out
shares which will also contain registration rights when issued, may have the
right, subject to conditions, to include their shares in certain registration
statements relating to ThermoView's securities. We are filing a concurrent
registration statement on Form S-1 to register 3,600,000 shares of our common
stock to be offered for sale by certain securityholders. The securityholders
have committed to refrain from selling these shares
10
<PAGE>
from the closing of this offering to January 31, 2000. By exercising their
registration rights and causing a large number of shares to be registered and
sold in the public market, these holders may cause the price of the common stock
to fall. In addition, any demand to include these shares in ThermoView
registration statements could have an adverse effect on our ability to raise
needed capital.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION AND FUTURE DILUTION IS
IMMINENT
The initial public offering price per share will significantly exceed the
net tangible book value deficiency per share. Accordingly, investors purchasing
shares in this offering will suffer immediate and substantial dilution of their
investment. Future dilution will occur from conversions of our Series C
preferred stock and option and warrant exercises. To date, we have granted
options to purchase 5,056,715 shares of our common stock and warrants to
purchase 2,991,028 shares of our common stock. Many of these options and
warrants contain an exercise price below the current market price for the common
stock. Additionally, many of these options and warrants contain registration
rights.
OUR LINE OF CREDIT AND SUBORDINATED DEBT DOCUMENTS IMPOSE RESTRICTIONS ON US AND
LIMIT OUR OPERATIONS
Our line of credit with PNC Bank and subordinated debt owed to GE Capital
require us to comply with certain affirmative and negative covenants. We must
maintain various financial ratios and these lenders may restrict us from
incurring certain other debt. We may not pay dividends on our common stock while
the line of credit and the subordinated debt are outstanding. We are also
subject to other restrictions, including restrictions pertaining to significant
corporate transactions and management changes.
If we default under the line of credit, PNC Bank could, among other items,
cease all advances, accelerate all amounts owed to PNC Bank and increase the
interest rate on the line of credit. If we default under the subordinated debt
documents, GE Capital could, among other items, accelerate all amounts owed to
GE Capital, subject to the rights of PNC Bank as our senior lender under the
line of credit. Under either the PNC Bank line of credit or the GE Capital
subordinated debt, an event of default could result in the loss of our
subsidiaries because of the pledge of our ownership in all of our subsidiaries
to PNC Bank and on a subordinated basis to GE Capital.
PNC BANK WAIVED OUR NON-COMPLIANCE WITH CERTAIN LOAN COVENANTS
The PNC Bank loan documents require us to maintain certain financial ratios
and to comply with various other covenants and restrictions under the terms of
our credit facility. We did not meet certain covenants subsequent to December
31, 1998. PNC Bank waived all covenant violations through July 8, 1999, and
reset covenants to accommodate future compliance.
WE MAY LOSE REVENUES AND INCUR SIGNIFICANT COSTS IF OUR SYSTEMS OR MATERIAL
THIRD-PARTY SYSTEMS ARE NOT YEAR 2000 COMPLIANT
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21(st) century dates from
20(th) century dates. Confusion of dates may bring about system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar business activities. As a result, many companies' software and
computer systems need to be upgraded or replaced in order to comply with Year
2000 requirements.
We have established procedures for evaluating and managing the risks and
costs associated with this problem and currently expect that our computer
systems will be Year 2000 compliant by December 31, 1999. However, many of our
third-party suppliers utilize commercially available operating systems which may
be impacted by Year 2000 complications. We are in the early stages of conducting
an assessment of our systems and our third-party
11
<PAGE>
suppliers as to the Year 2000 compliance of their systems. The failure of our
internal computer systems or of third-party equipment or software to operate
without Year 2000 complications could require us to incur significant
unanticipated expenses to remedy any problems and could expose us to claims for
losses incurred by our customers due to Year 2000 complications. The defense of
any of these claims, with or without merit, could require us to incur
substantial costs and would divert management's time and attention, which could
have a material adverse effect on our business, financial condition and
operating results. In addition, we are subject to external forces that might
generally affect industry and commerce, such as utility company Year 2000
compliance failures and related service interruptions.
WE MAY NOT PAY CASH DIVIDENDS ON THE COMMON STOCK IN THE FORESEEABLE FUTURE
Our line of credit and subordinated debt documents preclude us from paying
dividends on our common stock. Additionally, the terms of our Series C preferred
stock prevent us from paying dividends on our common stock as long as the Series
C preferred stock is outstanding. We anticipate using future earnings for
acquisitions and our operations. Accordingly, it is unlikely that we will pay
dividends on the common stock in the foreseeable future. However, we pay a 9.6%
dividend on our Series C preferred stock partially in cash and the remainder in
our common stock. Until this offering, we also paid 10% cash dividends on our
Series A and Series B preferred stock until the holders of this preferred stock
converted their preferred stock into our common stock as required by the terms
of our Series A and Series B preferred stock.
WE DEPEND ON OUR KEY EXECUTIVES
ThermoView is dependent on the services of its executive officers Stephen A.
Hoffmann, Nelson E. Clemmens and Charles L. Smith. Our inability to replace
Messrs. Hoffmann, Clemmens and Smith in the event they leave ThermoView could
affect our operations or financial position. We have $1.0 million of key-man
life insurance policies on Messrs. Hoffmann, Clemmens and Smith.
WE ARE SUBJECT TO VARIOUS GOVERNMENT REGULATIONS
Our business is subject to various federal, state and local laws,
regulations and ordinances relating to:
- in-home sales;
- telemarketing;
- consumer financing;
- retail installment sales;
- warranties;
- advertising;
- OSHA standards;
- building and zoning;
- contractors' licenses;
- building permits;
- consumer protection; and
- environmental protection.
Building codes, licensing requirements and safety laws vary from state to
state and, in certain circumstances, impose additional costs on our compliance
with such laws. Although we believe that we are currently complying with these
laws and regulations, new laws or regulations applicable to our business may
negatively impact our business.
Our consumer finance subsidiary, Key Home Credit, is subject to numerous
federal and state consumer protection laws and regulations which may vary from
jurisdiction to jurisdiction. These laws require us to do certain things,
including:
- obtain and maintain certain licenses and qualifications;
- limit the interest rates, fees and other charges we are allowed to charge;
and
- limit or prescribe certain other terms of our credit applications and
contracts.
12
<PAGE>
Although we believe that Key Home Credit is currently in compliance with
these laws and regulations, a change in existing laws or regulations or the
creation of new laws and regulations applicable to Key Home Credit's business
may negatively impact our business.
OUR CONSUMER FINANCE DIVISION IS SUBJECT TO VARIOUS RISKS
The ability of our consumer finance division, operated through Key Home
Credit, to operate profitably may affect our growth and financial performance.
Financial services industry factors which may affect our consumer finance
division include:
- availability of sources and cost of funds;
- prevailing market conditions;
- success of ThermoView's other operations; and
- laws and regulations in jurisdictions in which the consumer finance
division operates.
The consumer financial services industry is highly fragmented and
competitive. The consumer finance division competes with companies within the
industry such as Ditech Funding Corporation and Bank One, NA, that have greater
resources available for funding of lending activity at rates more favorable than
the consumer finance division can receive. The consumer finance division relies
upon the generation of loan applicants from the operation of ThermoView's retail
business. A decrease in ThermoView's retail sales will decrease the availability
of loan applicants for the consumer finance division. Additionally, consumer
finance businesses operate in a highly regulated environment. These businesses
are subject to laws relating to:
- discrimination in extending credit;
- use of credit reports;
- disclosure of credit terms;
- correction of billing errors; and
- limitation of operations in certain jurisdictions.
Changes in the laws and regulations governing the operation of a consumer
finance business could significantly affect the operations of the consumer
finance division.
ANTI-TAKEOVER PROVISIONS AFFECTING US COULD PREVENT OR DELAY A CHANGE OF CONTROL
Provisions of our restated certificate of incorporation and bylaws and
provisions of applicable Delaware law may discourage, delay or prevent a merger
or other change of control that a stockholder may consider favorable. Our Board
of Directors has the authority to issue up to 50,000,000 shares of its preferred
stock and to determine the price and the terms, including preferences and voting
rights, of those shares without stockholder approval. To date, our Board of
Directors has issued 3,386,000 shares of our preferred stock in three series.
Additionally, we have a classified Board of Directors whereby directors serve
staggered three-year terms. Our Certificate of Incorporation requires a
supermajority vote of the common stockholders to remove or modify this staggered
board. Furthermore, we require advance notice for stockholder proposals and
director nominations. These items could:
- have the effect of delaying, deferring or preventing a change of control
of ThermoView;
- discourage bids for our common stock at a premium over the market price;
or
- adversely affect the market price of, as well as the voting and other
rights of the holders of, our common stock.
We are subject to certain Delaware laws that could delay, deter or prevent a
change of control of ThermoView. One of these laws prohibits us from engaging in
a business combination with any interested stockholder for a period of three
years from the date the person became an interested stockholder, unless certain
conditions are met. In addition, certain provisions of our certificate of
incorporation and bylaws could discourage takeover attempts or make it more
difficult for stockholders to change management.
13
<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors about our Company and its business, including,
among other things:
- the successful implementation of our business plan and growth strategies;
- our ability to identify and acquire attractive acquisition candidates;
- our ability to successfully integrate our past and future acquisitions;
and
- anticipated economic and demographic trends affecting the replacement
window industry generally, and our business in particular.
Specific factors which could cause our actual results to differ materially
from those expressed or implied by such forward-looking statements are discussed
under "Risk Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by words such as
"may," "will," "should," "could," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue" or the negative of such
terms or other comparable language.
Although we believe that the expectations and assumptions reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Moreover, neither we nor any
other person assumes responsibility for the accuracy and completeness of such
statements. We undertake no duty to update any of the forward-looking statements
after the date of this prospectus.
14
<PAGE>
THE COMPANY
GENERAL
ThermoView designs, manufactures, sells and installs custom vinyl
replacement windows for residential and retail commercial customers. We also
sell and install replacement doors, home textured coatings, vinyl siding, patio
decks, patio enclosures, cabinet refacings and kitchen and bathroom remodeling
products. We finance a portion of our customers' purchases through Key Home
Credit, our consumer finance subsidiary.
BUSINESS SEGMENTS
Our business consists of three operating segments: retail, manufacturing and
financial services.
RETAIL. Our retail segment consists of our subsidiaries that design, sell
and install custom vinyl replacement windows, doors and related home improvement
products to commercial and retail customers.
MANUFACTURING. Our manufacturing segment consists of our subsidiaries that
manufacture and sell vinyl replacement windows to our retail segment and to
unaffiliated customers.
FINANCIAL SERVICES. Key Home Credit, our consumer finance subsidiary,
finances credit sales of our retail segment.
You should refer to footnote 14 to our financial statements for the year
ended December 31, 1998, which appears on page F-33 of this prospectus, and to
footnote 7 to our unaudited financial statements for the three months ended
March 31, 1999, which appears on page F-42 of this prospectus, for additional
financial information about each of our business segments.
OUR ACQUISITIONS
In April 1998, we acquired Thermo-Tilt Window Company, which was established
in 1987. Since that time, we have acquired 12 retail and manufacturing
businesses which have been in operation an average of approximately 10 years. At
June 30, 1999, we had over 1,400 employees and had facilities in 13 states,
primarily in the Midwest and southern California. For calendar 1998, we
generated pro forma consolidated revenues of $102.1 million.
15
<PAGE>
We have summarized certain information about our acquired companies below:
<TABLE>
<CAPTION>
NUMBER OF
TOTAL EMPLOYEES
DATE DATE OF ACQUISITION AS OF
ACQUIRED COMPANY FOUNDED ACQUISITION COST (1) JUNE 30, 1999
- ----------------------------------- ------- ------------ -------------- ----------------
<S> <C> <C> <C> <C>
RETAIL SEGMENT:
Thermo-Tilt Window Company......... 1987 April 1998 (2) 84
American Home Developers Co.,
Inc.............................. 1985 April 1998 $ 6,517,731 52
Primax Window Co................... 1981 April 1998 4,288,611 79
The Rolox Companies................ 1973 April 1998 10,024,666 114
American Home Remodeling(3)........ 1992 July 1998 5,728,757 n/a
Five Star Builders, Inc.(4)........ 1992 July 1998 3,766,034 211
NuView Industries, Inc.(5)......... 1995 July 1998 1,202,840 94
Leingang Siding and Window, Inc.... 1991 August 1998 3,276,976 68
Thomas Construction, Inc........... 1981 January 1999 14,556,301(6) 266
The Thermo-Shield Companies(7)..... 1984 March 1999 7,168,913 281
MANUFACTURING SEGMENT:
TD Windows, Inc.................... 1993 May 1998 311,031 29
Thermal Line Windows, L.L.P.(8).... 1996 August 1998 5,314,176 78
Precision Window Mfg., Inc......... 1988 January 1999 3,512,736 62
--------------
$ 65,668,772
--------------
--------------
</TABLE>
- ------------
(1) Total acquisition cost includes, as applicable, cash, common stock,
preferred stock, notes and earned and accrued additional consideration
through March 31, 1999. Additionally, the terms of certain of our
acquisition agreements provide that we will pay additional consideration if
the acquired entities' results of operations exceed certain targeted levels,
generally for a period of three years subsequent to the acquisition dates.
Targeted levels are generally set at the annual earnings of the acquired
entities before interest and taxes, adjusting for the addition of certain
salaries and other costs that we will not incur on a post-acquisition basis.
We pay this additional consideration in cash and common stock. We record
these payments, when earned, as an increase in the purchase price. We also
increase goodwill for any of these additional payments. Subsequent to March
31, 1999, we paid $1.5 million as additional consideration to the former
owners of The Rolox Companies and Primax Window Co.
(2) On April 15, 1998, ThermoView acquired all of the outstanding stock of
Thermo-Tilt Window Company in exchange for 9,360,000 shares of ThermoView's
common stock. We accounted for the stock exchange as a capital transaction
similar to a reverse acquisition except that we did not record any goodwill.
(3) American Home Remodeling merged into Five Star Builders, Inc. effective
December 1998.
(4) Five Star Builders, Inc. has recently changed its name to ThermoView of
California, Inc.
(5) NuView Industries, Inc. has changed its name to ThermoView of Missouri, Inc.
(6) Includes 400,000 shares of Series B preferred stock.
(7) The Thermo-Shield Companies consist of Thermo-Shield Company, Inc., founded
May 1984; Thermo-Shield of America (Wisconsin), Inc., founded February 1992;
Thermo-Shield of America (Michigan), Inc., founded February 1997;
Thermo-Shield of America (Arizona), Inc., founded January 1997; and
Thermo-Rose Manufacturing Co., Inc., founded September 1997.
(8) Thermal Line Windows, L.L.P. is now Thermal Line Windows, Inc.
RETAIL SEGMENT
THERMO-TILT WINDOW COMPANY. Thermo-Tilt, headquartered in Owensboro,
Kentucky, designs, sells and installs vinyl replacement windows in Indiana,
Kentucky, Missouri and Tennessee. Charles L. Smith, our Chief Operating Officer,
manages its operations.
16
<PAGE>
AMERICAN HOME DEVELOPERS CO., INC. American Home Developers Co., Inc.,
headquartered in Los Angeles, sells textured coating and vinyl replacement
windows in California. Alan B. Griefer, a former principal of American Home
Developers for five years, manages its operations under a three-year employment
agreement.
PRIMAX WINDOW CO. Primax Window Co., headquartered in Louisville, Kentucky,
sells and installs vinyl replacement windows and doors in Indiana, Kentucky and
Ohio. Charles L. Smith, our Chief Operating Officer and a former principal of
Primax for 17 years, manages its operations under a three-year employment
agreement.
THE ROLOX COMPANIES. The Rolox Companies, headquartered in Kansas City,
Kansas, sell and install vinyl replacement windows, steel doors and storm siding
in Arkansas, Iowa, Kansas, Missouri, Nebraska and Oklahoma. Robert L. Cox II, a
former principal of Rolox for 17 years, manages its operations under a
three-year employment agreement.
AMERICAN HOME REMODELING. American Home Remodeling sells and installs vinyl
replacement windows, vinyl replacement doors and provides textured coating
services in California. Effective December 31, 1998, American Home Remodeling
merged into Five Star Builders, Inc., another ThermoView subsidiary.
FIVE STAR BUILDERS, INC. Five Star Builders, Inc., headquartered in San
Diego, California, sells and installs vinyl replacement windows, vinyl
replacement doors and textured coatings in California. Michael S. Haines and
Bradley A. Smith, former principals of Five Star for 11 years, manage its
operations under three-year employment agreements. Harinder S. Ahuja and Alan B.
Fishman, former principals of American Home Remodeling, also manage its
operations under three-year employment agreements. Five Star recently changed
its name to ThermoView of California, Inc.
NUVIEW INDUSTRIES, INC. NuView Industries, Inc., headquartered in St.
Louis, Missouri, sells and installs replacement windows, doors and siding in
Illinois and Missouri. Douglas E. Miles, a former principal of NuView for 15
years, manages its operations under a three-year employment agreement. NuView
has changed its name to ThermoView of Missouri, Inc.
LEINGANG SIDING AND WINDOW, INC. Leingang Siding and Window, Inc.,
headquartered in Mandan, North Dakota, sells and installs replacement and new
construction windows and doors, vinyl siding and other home improvement products
in North Dakota and South Dakota. Alvin W. Leingang, a former principal of
Leingang for 24 years, manages its operations under a three-year employment
agreement. Mr. Leingang also manages the operations of Thermal Line Windows,
Inc., another of our subsidiaries.
THOMAS CONSTRUCTION, INC. Thomas Construction, Inc., headquartered in Earth
City, Missouri, designs, sells and installs replacement and new construction
windows, siding, patio enclosures and various other home improvement products in
Illinois and Missouri. Rodney H. Thomas, a former principal of Thomas and
related companies for 29 years, manages its operations under a two-year
employment agreement.
THE THERMO-SHIELD COMPANIES. The Thermo-Shield Companies, comprised of five
corporations and headquartered in Wheeling, Illinois, sell, furnish and install
replacement windows and siding and also conducts cabinet refacing in Arizona,
Illinois, Michigan and Wisconsin. The Thermo-Shield Companies' sales personnel
operate from sales displays located within national retail home improvement
stores such as Sam's Club, Wal-Mart, Lowe's, K-Mart and Builders Square. Joel S.
Kron, a former principal of Thermo-Shield for 15 years, manages its operations
under a three-year employment agreement.
17
<PAGE>
MANUFACTURING SEGMENT
TD WINDOWS, INC. TD Windows, Inc., headquartered in Louisville, Kentucky,
designs, manufactures, sells and installs vinyl replacement windows and doors in
California, Indiana and Kentucky. Larry Parrella, a former principal of TD
Windows for 16 years, manages its operations under a three-year employment
agreement.
THERMAL LINE WINDOWS, L.L.P. Thermal Line Windows, L.L.P., headquartered in
Mandan, North Dakota, manufactures replacement and new construction windows and
doors for residential and commercial use for sale to retailers in Colorado,
Idaho, Iowa, Kansas, Minnesota, Montana, Nebraska, New Mexico, North Dakota,
South Dakota, Wisconsin and Wyoming. Alvin W. Leingang, a former principal of
Thermal Line Windows for 24 years, manages its operations under a two-year
employment agreement. Mr. Leingang also manages the operations of Leingang
Siding and Windows, another of our subsidiaries. Thermal Line Windows, L.L.P. is
now Thermal Line Windows, Inc.
PRECISION WINDOW MFG., INC. Precision Window Mfg., Inc., headquartered in
St. Louis, Missouri, manufactures and distributes vinyl replacement windows for
residential customers in Colorado, Illinois, Kansas, Kentucky, Missouri, Nevada,
Ohio and Tennessee. Charles L. Smith and Larry Ball, former principals of
Precision for 10 years, manage its operations under three-year employment
agreements.
FINANCIAL SERVICES SEGMENT
We formed Key Home Credit in February 1998 to provide a source of financing
for the purchasers of ThermoView products and services through home equity and
installment loans and credit card financing. Key Home Credit, headquartered in
Owensboro, Kentucky, has licenses to lend in California, Illinois, Indiana,
Kentucky, Missouri, North Dakota, Ohio, South Dakota and Tennessee. Leigh Ann
Barney and Larry Clark manage the operations of Key Home Credit.
18
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of shares in this offering
will be approximately $ , or $ if the underwriters
exercise their over-allotment option in full, at an assumed initial public
offering price of $ per share and after deducting estimated underwriting
discounts and commissions and our estimated offering expenses of $ .
We intend to use $1.2 million of the net proceeds from this offering to
repay outstanding indebtedness owed to two former shareholders of Precision
Window Mfg., Inc. This indebtedness, which bears interest at 5% per annum and
matures concurrently with this offering, represents a portion of the deferred
purchase price for Precision. The remaining net proceeds will be used to fund
future acquisitions and for working capital and general corporate purposes.
Although our management has identified a number of potential acquisitions and
frequently holds informal discussions with potential sellers, we currently have
no agreements, commitments or understandings with respect to any potential
acquisitions. Pending the application of the net proceeds as described above, we
intend to invest the proceeds in short-term interest-bearing securities.
DIVIDEND POLICY
ThermoView has not declared or paid any cash dividends on its common stock
and does not expect to pay any cash dividends on our common stock in the
foreseeable future. Our agreements with our senior lender and our subordinated
debtholder prohibit us from paying dividends on our common stock. Any future
change in our dividend policy will be made at the discretion of our Board of
Directors and will depend on a number of factors, including:
- our future earnings;
- capital requirements;
- contractual restrictions;
- financial condition; and
- future prospects.
We have paid all dividends owing on our preferred stock to date. Subsequent
to this offering, we will not owe dividends on the Series A and B preferred
stock as we will convert the Series A and B preferred stock to common stock at
that time. We will continue to pay 70% of the dividends on our 9.6% Series C
preferred stock in cash and the remainder in our common stock after the offering
and until conversion of the Series C preferred stock.
19
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock is currently traded on the OTC Bulletin Board under the
symbol "TVII." The OTC Bulletin Board is a regulated quotation service that
displays real-time quotes, last-sale prices and volume information in
over-the-counter equity securities. We have not previously registered our common
stock under either the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, nor have we currently listed our common stock
on any exchange or had it quoted on The Nasdaq Stock Market. We have applied for
quotation of our common stock on the Nasdaq National Market.
The following table sets forth, for the quarterly periods indicated, the
high and low closing sale prices per share for the common stock as reported on
the OTC Bulletin Board.
<TABLE>
<CAPTION>
PRICE RANGE
--------------------
HIGH LOW
--------- ---------
<S> <C> <C>
CALENDAR YEAR 1998
Second Quarter (from April 16, 1998)(1)..................................... $ 10.75 $ 8.50
Third Quarter............................................................... 9.25 7.75
Fourth Quarter.............................................................. 8.36 5.00
CALENDAR YEAR 1999
First Quarter............................................................... $ 9.50 $ 4.88
Second Quarter.............................................................. 8.25 3.56
Third Quarter (through August 4, 1999)...................................... 4.56 3.63
--------- ---------
</TABLE>
- ---------
(1) Our common stock commenced trading on the OTC Bulletin Board on April 16,
1998. Prior to that time, no active trading market existed for the common
stock.
On August 4, 1999, the last reported sale price of the common stock on the
OTC Bulletin Board was $3.81 per share. The initial public offering price of our
common stock will not necessarily bear any direct relationship to the trading
prices on the OTC Bulletin Board prior to this offering. Please see
"Underwriting" for a discussion of factors to be considered in determining the
initial public offering price.
As of July 12, 1999, there were 298 holders of record of our stock
consisting of 232 common stockholders, 63 Series A preferred stockholders, one
Series B preferred stockholder and two Series C preferred stockholders.
20
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1999, the capitalization of
ThermoView:
- on an actual basis;
- on a pro forma basis to give effect to (A) the issuance of $6.0 million of
Series C preferred stock and warrants on April 23, 1999, (B) the issuance
of $10.0 million of senior subordinated debt and warrant on July 8, 1999,
and (C) the application of the estimated net proceeds therefrom described
in footnote (2) below; and
- on a pro forma as adjusted basis to reflect the automatic conversion of
all outstanding shares of our Series A and Series B preferred stock into
3,380,000 shares of common stock upon the closing of this offering and to
give effect to the sale of shares of common stock in this
offering at an assumed initial public offering price of $ per share,
after deducting underwriting discounts and commissions and the estimated
offering expenses payable by ThermoView, and the application of the
estimated net proceeds therefrom as described under "Use of Proceeds."
This information should be read together with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and ThermoView's
financial statements and the notes relating to those statements appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
----------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED
------------ ------------ ------------
Long-term debt, excluding current portion.............................. $ 27,995,518 $21,376,299 $
Mandatorily redeemable Series C convertible preferred stock, $0.001 par
value; no shares authorized actual, 25,000 shares authorized pro
forma and pro forma as adjusted; no shares issued and outstanding
actual, 6,000 shares issued and outstanding pro forma and pro forma
as adjusted.......................................................... -- 2,948,985
Stockholders' equity:
Preferred stock, 50,000,000 shares authorized:
Series A, $0.001 par value; 2,980,000 shares issued and outstanding
actual and pro forma; no shares outstanding pro forma as
adjusted......................................................... 2,980 2,980
Series B, $0.001 par value; 400,000 shares issued and outstanding
actual and pro forma; no shares outstanding pro forma as
adjusted......................................................... 400 400
Common stock, $0.001 par value; 100,000,000 shares authorized actual,
pro forma and pro forma as adjusted; 14,439,359 shares issued and
outstanding actual and pro forma and shares issued and
outstanding pro forma as adjusted(1)............................... 14,439 14,439
Paid-in capital...................................................... 46,582,372 53,107,665
Accumulated deficit.................................................. (6,678,015) (6,678,015)
------------ ------------ ------------
Total stockholders' equity........................................... 39,922,176 46,447,469
------------ ------------ ------------
Total capitalization............................................... $ 67,917,694 $70,772,753 $
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- ------------
(1) Excludes 9,247,743 shares of common stock which ThermoView may issue after
this offering upon the exercise of outstanding options and warrants and the
conversion of our Series C preferred stock, and 1,609,377 additional shares
of common stock which we have reserved for issuance and may issue under our
1999 stock option plan.
(2) Proceeds of $6.0 million from the sale of Series C preferred stock and $10.0
million from a 12% senior subordinated note were used to repay $6.6 million
of related party debt and approximately $5.7 million of seller debt. Of the
approximate $15.4 million of net proceeds, approximately $6.5 million
related to the value of warrants issued in connection with the financings
was accounted for as paid-in capital.
21
<PAGE>
DILUTION
The pro forma net tangible book value deficiency of ThermoView's common
stock as of March 31, 1999, was $(14,501,691), or $(.82) per share. Pro forma
net tangible book value deficiency per share is equal to the amount of
ThermoView's total assets less intangible assets less total liabilities, divided
by the pro forma number of shares of common stock outstanding as of March 31,
1999. The pro forma number of shares of common stock outstanding as of March 31,
1999 includes 3,380,000 shares of common stock to be issued upon conversion of
the Series A and Series B preferred stock at the closing of this offering.
Assuming that ThermoView sells the shares of common stock in this
offering at an assumed initial public offering price of $ per share, after
deducting the underwriting discounts and commissions and the estimated offering
expenses payable by ThermoView, and after applying the estimated net proceeds as
set forth in "Use of Proceeds," the pro forma net tangible book value per share
at March 31, 1999, would have been $ million, or $ per share. This
represents an immediate increase in pro forma net tangible book value of $
per share to existing stockholders and an immediate dilution of $ per share
to investors purchasing shares in this offering. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $
Pro forma net tangible book value deficiency per share as of
March 31, 1999............................................. $ (.82)
Pro forma increase in net tangible book value per share
attributable to new investors..............................
---------
Pro forma net tangible book value per share after the
offering...................................................
---------
Pro forma dilution per share to new investors(1)............. $
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1999,
differences between existing stockholders and the new investors purchasing
shares in this offering in:
- the total number of shares of common stock purchased from ThermoView;
- the total consideration paid to ThermoView; and
- the average price per share paid by existing stockholders and by new
investors purchasing shares in this offering:
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION
------------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................................... 14,439,359 % $ % $
New investors in this offering..........................
------------ ----- ----- -----
Total................................................. 100.0% $ 100.0%
------------ ----- ----- -----
------------ ----- ----- -----
</TABLE>
- ------------
(1) Dilution represents the difference between the amount per share paid by new
investors in this offering and the pro forma net tangible book value per
share of common stock immediately after the offering.
None of the foregoing tables or calculations assume that any options or
warrants outstanding as of March 31, 1999, or issued between that date and the
date of this prospectus, will be exercised or any shares of Series C preferred
stock will be converted. If all options and warrants outstanding on the date of
this prospectus were exercised and all shares of Series C preferred stock were
converted on the date of the closing of this offering, investors purchasing
shares in this offering would suffer total dilution of $ per share.
22
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables present selected historical and pro forma statement of
operations and balance sheet financial data for ThermoView. On April 15, 1998,
ThermoView acquired all of the outstanding stock of Thermo-Tilt Window Company.
Prior to that date, ThermoView was a development stage corporation and had no
business operations since its incorporation. For accounting and financial
statement presentation purposes, Thermo-Tilt is deemed to be the acquirer. The
historical statement of operations data for the period January 1, 1998 through
April 15, 1998 and the historical financial data as of and for each of the years
ended December 31, 1994 through 1997 and the three months ended March 31, 1998
reflect only the operations of Thermo-Tilt. Since April 15, 1998, we have
acquired 12 retail and manufacturing businesses. These acquisitions have been
accounted for as purchase transactions and, accordingly, the results of
operations of the acquired businesses are included in the historical financial
data since their respective acquisition dates.
The selected historical financial data for ThermoView as of December 31,
1996, 1997 and 1998 and for each of the three years in the period ended December
31, 1998, have been derived from the audited financial statements of ThermoView
included elsewhere in this prospectus. The selected historical financial data as
of March 31, 1999 and for the three months ended March 31, 1998 and 1999 and the
selected historical financial data as of December 31, 1994 and 1995 and for each
of the two years in the period ended December 31, 1995 have been derived from
unaudited financial statements. All unaudited information has been prepared on
the same basis as the audited financial statements and, in the opinion of
ThermoView, reflect all adjustments consisting of normal recurring adjustments,
necessary for a fair presentation of such data. The interim results for the
three-month period ended March 31, 1999 are not necessarily indicative of
results for the entire year.
The following unaudited pro forma statement of operations data and other
data with respect to the year ended December 31, 1998 and the three months ended
March 31, 1999, give effect to each of our acquisitions, as if all transactions
had occurred on January 1, 1998. We have presented this pro forma data for
informational purposes only, in order to provide you with some indication of
what our business might have looked like if we had owned all of the acquired
companies since January 1, 1998. These companies may have performed differently
if they had actually been combined with our operations. You should not rely on
the unaudited pro forma information as necessarily being indicative of the
historical results that we would have had or the results that we will experience
in the future.
The following data should be read in conjunction with:
- the information set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations;"
- our consolidated financial statements and the related notes thereto and
our unaudited pro forma consolidated financial statements and the related
notes thereto included elsewhere in this prospectus; and
- the financial statements of certain of the companies which we have
acquired since April 15, 1998, which are included elsewhere in this
prospectus.
23
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------- ------------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1997 1998 1998(1)(2) 1998 1999 1999(1)(2)
------ ------ ------ ------ ----------- ----------- ---------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................... $4,973 $5,870 $6,641 $5,629 $ 37,376 $ 102,115 $ 1,225 $ 21,750 $ 24,252
Cost of revenues earned..... 1,931 2,126 3,571 2,889 16,748 48,092 463 9,764 10,497
------ ------ ------ ------ ----------- ----------- ---------- ----------- -----------
Gross profit................ 3,042 3,744 3,070 2,740 20,628 54,023 762 11,986 13,755
Selling, general and
administrative expenses... 2,677 3,316 2,634 3,293 20,233 49,427 970 11,542 13,094
Stock-based compensation
expense................... -- -- -- 1 5,509 5,509 -- -- --
Depreciation and
amortization.............. 88 102 68 69 854 2,258 23 800 857
------ ------ ------ ------ ----------- ----------- ---------- ----------- -----------
Income (loss) from
operations................ 277 326 368 (623) (5,968) (3,171) (231) (357) (196)
Interest expense............ (16) (16) (57) (90) (439) (2,393) (15) (412) (497)
Other income (expense)...... -- -- (47) (19) 69 465 -- 62 63
------ ------ ------ ------ ----------- ----------- ---------- ----------- -----------
Income (loss) before income
taxes..................... 261 310 264 (732) (6,338) (5,099) (246) (706) (630)
Income tax expense
(benefit)................. -- -- -- (266) (1,135) (497) (83) (95) (60)
------ ------ ------ ------ ----------- ----------- ---------- ----------- -----------
Net income (loss)........... 261 310 264 (466) (5,203) (4,602) (163) (611) (570)
Less amount attributable to
sole proprietor........... -- -- -- 398 -- -- -- -- --
Less preferred stock
dividends:
Cash...................... -- -- -- -- 585 785 -- 425 425
Additional dividend
attributable to
beneficial conversion
feature................. -- -- -- -- 9,540 9,540 -- -- --
------ ------ ------ ------ ----------- ----------- ---------- ----------- -----------
Net income (loss)
attributable to common
stockholders.............. $ 261 $ 310 $ 264 $ (864) $ (15,328) $ (14,927) $ (163) $ (1,036) $ (995)
------ ------ ------ ------ ----------- ----------- ---------- ----------- -----------
------ ------ ------ ------ ----------- ----------- ---------- ----------- -----------
Basic and diluted loss per
common share.............. $ (1.29) $ (1.02) $ (0.02) $ (0.07) $ (0.07)
----------- ----------- ---------- ----------- -----------
----------- ----------- ---------- ----------- -----------
Weighted average shares
outstanding............... 11,925,706 14,574,400 9,015,204 14,060,487 14,439,359
----------- ----------- ---------- ----------- -----------
----------- ----------- ---------- ----------- -----------
OTHER DATA:
EBITDA(3)................. $ 365 $ 428 $ 436 $ (555) $ (5,114) $ (913) $ (208) $ 444 $ 661
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
AS OF DECEMBER 31, --------------------------------------
------------------------------------- PRO FORMA
1994 1995 1996 1997 1998 ACTUAL PRO FORMA(4) AS ADJUSTED(5)
----- ----- ------ ------ ------- ------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................ $ 618 $ 638 $ 859 $1,503 $50,194 $77,986 $80,841
Long-term debt including
current maturities........ 227 224 322 527 9,206 28,578 21,959
Total liabilities........... 933 895 1,089 1,326 15,796 38,064 31,445
Mandatorily redeemable
convertible preferred
stock..................... -- -- -- -- -- -- 2,949
Stockholders' equity
(deficiency).............. (315) (257) (230) 177 34,398 39,922 46,447
</TABLE>
- ------------
(1) We have made pro forma adjustments to our historical financial data in order
to:
- reflect the impact of attributing profit to sellers as part of the
allocation of purchase price for contracts in process as of January 1,
1998;
- reflect the elimination of revenues between certain of the acquired
businesses prior to their acquisition by us;
- reflect reductions in salaries and benefits to which the former owners of
businesses we acquired have agreed;
- reflect the amortization of goodwill recorded as a result of the
acquisitions over a 40-year estimated life;
- reflect interest expense on debt that is directly related to acquisitions;
- reflect dividends on Series B preferred stock issued in connection with an
acquisition;
- reflect the incremental provision for federal and state income taxes at an
approximate 40% overall tax rate on the above adjustments to the statement
of operations (except for non-deductible goodwill included therein) and on
S corporation and partnership income not provided for in the historical
financial statements; and
- reflect the shares issued in connection with acquisitions as if these
shares were issued on January 1, 1998.
(2) Upon the closing of this offering, our Series A and Series B preferred stock
automatically will be converted into common stock and the preferred
dividends on these shares will be discontinued. Also, subsequent to March
31, 1999, we sold $6.0 million of Series C mandatorily redeemable
convertible preferred stock and borrowed $10.0 million under a senior
subordinated promissory note (see footnote 15 to our consolidated financial
statements, which appears on page F-34 of this prospectus, and "Risk
Factors" on page 7). A portion of the proceeds from these financings was
used to retire $5.7 million of seller notes and $6.6 million of
related-party loans which were outstanding at March 31, 1999. The effects of
the preferred stock conversion and the debt refinancing are not reflected in
the accompanying unaudited pro forma consolidated statements of operations.
(3) EBITDA represents income (loss) from operations plus depreciation and
amortization. EBITDA should not be considered as an alternative to, or more
meaningful than, net income, as determined in accordance with GAAP, as a
measure of our operating results or cash flows, as determined in accordance
with GAAP, as a measure of our liquidity. The non-cash charge for
stock-based compensation expense has not been added back to income (loss)
from operations to compute EBITDA.
(4) Reflects (A) the issuance of our Series C preferred stock and related
warrants, (B) the issuance of $10.0 million of senior subordinated debt and
related warrants, and (C) the application of the estimated net proceeds
therefrom.
(5) Reflects (A) the automatic conversion of all outstanding shares of Series A
and Series B preferred stock into 3,380,000 shares of common stock upon the
closing of this offering, and (B) the sale of shares of common
stock in this offering at an assumed public offering price of $ per
share, after deducting underwriting discounts and commissions and the
estimated offering expenses payable by us, and the application of the
estimated net proceeds therefrom.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
INFORMATION SET FORTH UNDER "SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA"
AND OUR FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES THERETO INCLUDED
ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS, EXPECTATIONS AND PLANS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER "RISK FACTORS."
OVERVIEW
We design, manufacture, sell and install custom vinyl replacement windows
for residential and retail commercial customers. We also sell and install
replacement doors, home textured coatings, vinyl siding, patio decks, patio
enclosures, cabinet refacings and kitchen and bathroom remodeling products. We
finance a portion of our customers' purchases through Key Home Credit, our
consumer finance subsidiary.
On April 15, 1998, we acquired all of the outstanding stock of Thermo-Tilt
Window Company in exchange for 9,360,000 shares of our common stock, which
represented 90% of ThermoView's then outstanding common stock. Thermo-Tilt is
deemed to be the acquirer for accounting purposes.
Our subsidiaries have separate management teams and infrastructures and
operate in three reportable operating segments: retail, manufacturing and
financial services.
RETAIL. Our retail segment consists of our subsidiaries that design, sell
and install custom vinyl replacement windows, doors and related home improvement
products to commercial and retail customers. Our retail segment derives its
revenues from the sale and installation of thermal replacement windows, storm
windows and doors, patio decks, patio enclosures, vinyl siding and other home
improvement products. Our retail segment recognizes revenues on the completed
contract method. A contract is considered complete when the customer accepts the
work. Gross profit in the retail segment represents revenues after deducting
product and installation labor costs.
MANUFACTURING. Our manufacturing segment consists of our subsidiaries that
manufacture and sell vinyl replacement windows to our retail segment and to
unaffiliated customers. Sales from the manufacturing segment to our retail
segment are becoming a larger percentage of our manufacturing revenues, growing
on a pro forma combined historical basis from 35% in 1996 to 46% in 1998. We
expect this trend to continue as we further supply our retail subsidiaries with
windows produced in our manufacturing plants. Our manufacturing segment
recognizes revenues when products are shipped. Gross profit in the manufacturing
segment represents revenues after deducting product costs (primarily glass,
vinyl and hardware), window fabrication labor and other manufacturing expenses.
FINANCIAL SERVICES. Our financial services segment is in a start-up phase
and finances credit sales of our retail segment.
26
<PAGE>
OUR ACQUISITIONS
Since April 15, 1998, we have acquired 12 retail and manufacturing
businesses. The following table presents information regarding the consideration
paid for each acquired company:
<TABLE>
<CAPTION>
COST OF ACQUIRED COMPANY
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
STOCK ISSUED
---------------------
<CAPTION>
DATE OF CASH AND
ACQUIRED COMPANY ACQUISITION PAYABLES SHARES VALUE TOTAL COST
- --------------------------------------------------------- --------------- ----------- ---------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
RETAIL SEGMENT:
American Home Developers Co., Inc........................ April 1998 $ 1,202 777,174 $ 5,316 $ 6,518
Primax Window Co......................................... April 1998 1,133 488,174 3,156 4,289
The Rolox Companies...................................... April 1998 2,770 1,122,174 7,255 10,025
American Home Remodeling................................. July 1998 3,192 367,246 2,537 5,729
Five Star Builders, Inc.................................. July 1998 1,551 350,000 2,216 3,766
NuView Industries, Inc................................... July 1998 1,190 2,174 13 1,203
Leingang Siding and Window, Inc.......................... August 1998 2,900 87,765 377 3,277
Thomas Construction, Inc.(1)............................. January 1999 11,056 701,425 3,500 14,556
The Thermo-Shield Companies.............................. March 1999 4,544 555,017 2,625 7,169
----------- ---------- --------- -----------
Total of retail segment................................ 29,538 4,451,149 26,995 56,532
MANUFACTURING SEGMENT:
TD Windows, Inc.......................................... May 1998 311 -- -- 311
Thermal Line Windows, L.L.P.(2).......................... August 1998 4,670 150,010 644 5,314
Precision Window Mfg., Inc............................... January 1999 3,063 112,053 450 3,513
----------- ---------- --------- -----------
Total of manufacturing segment......................... 8,044 262,063 1,094 9,138
----------- ---------- --------- -----------
Total.................................................. $ 37,582 4,713,212 $ 28,089 $ 65,670
----------- ---------- --------- -----------
----------- ---------- --------- -----------
</TABLE>
- ---------
(1) Thomas Construction, Inc., stock includes 400,000 shares of Series B
preferred stock valued at $2,000,000. All other shares and values represent
common stock.
(2) Includes the acquisition of North Country Thermal Line, Inc. in November
1998 for $277,926 cash and a subsequent earn-out payment of 62,918 shares of
common stock valued at $270,000.
We have accounted for our acquisitions as purchase transactions and,
accordingly, the results of operations of the acquired businesses have been
included in the consolidated historical financial statements since the
respective acquisition dates. As a result of our recent acquisitions, goodwill
accounts for 78.2% of our total consolidated assets at March 31, 1999. At March
31, 1999, our goodwill was approximately $60.9 million. Goodwill represents the
excess of the aggregate purchase price paid for the acquisition of companies
accounted for as purchases over the fair value of the net tangible assets of the
acquired companies. Goodwill reduces earnings now and in the future as we
amortize it over a 40-year period on a straight-line basis.
The terms of certain of our acquisition agreements provide for additional
consideration to be paid if the acquired entities' results of operations exceed
certain targeted levels, generally for a period of three years subsequent to the
acquisition dates. Targeted levels are generally set at the annual earnings of
the acquired entities before interest and taxes, allowing for the add back of
certain salaries and other costs that will not be incurred on a post-acquisition
basis. Such additional consideration is paid in cash and with shares of our
common stock, and is recorded when earned as additional purchase price. Goodwill
is increased for any additional purchase price.
27
<PAGE>
RECENT FINANCINGS
In April 1999, we sold shares of our Series C preferred stock for $6.0
million and issued a warrant to purchase 1,200,000 shares of our common stock at
$7.00 per share. We will account for the portion of the proceeds equal to an
estimated $2.7 million from this mandatorily redeemable Series C preferred stock
allocable to the warrants as paid-in capital. We will amortize the resulting
discount as additional preferred stock dividends from the issuance date to
October 2000, the earliest redemption date. Since the conversion price of the
Series C preferred stock at the issuance date was less than the market price of
our common stock, preferred dividends will also include approximately $1.2
million in the second quarter of 1999. The stated 9.6% dividend on the Series C
preferred stock comprised of 70% cash and 30% of our common stock amounts to
$576,000 per annum based on the currently outstanding number of shares of our
Series C preferred stock. The stated dividend will adversely affect our earnings
for so long as the Series C preferred stock remains outstanding. The additional
dividends related to the warrants and the accretion of preferred stock issuance
costs together aggregating $2.2 million per annum will adversely affect our
earnings until October 2000. In August 1999 we amended the exercise price of the
warrant to $6.00 per share in exchange for a commitment of the holders to
refrain from selling any of our securities from the closing of the offering to
January 31, 2000. We will account for the estimated increase in fair value of
the warrants as the result of the exercise price change in an aggregate amount
of approximately $180,000 as additional dividends on the Series C preferred
stock from August 1999 through January 2000.
In July 1999, we borrowed $10.0 million under a 12% senior subordinated note
due in July 2002. In connection with the loan, we issued to our subordinated
debt lender a warrant to purchase 1,666,028 shares of common stock at $0.01 per
share until July 2007. We will account for the portion of the proceeds from this
loan equal to approximately $4.4 million allocable to the warrant as paid-in
capital with the resulting discount amortized as additional interest over the
term of the loan. The stated 12% interest on the subordinated note to our
subordinated debt lender amounts to $1.2 million per annum based on the current
note balance. The discount related to the warrants deemed as interest on the
note and the amortization of debt issuance costs together amount to
approximately $1.6 million per annum. These amounts will adversely affect our
earnings until we retire the subordinated note.
HISTORICAL RESULTS OF OPERATIONS
The following historical results of operations for the three months ended
March 31, 1998 and for the years ended December 31, 1996 and 1997 represent the
operations of Thermo-Tilt. The financial information for the three months ended
March 31, 1999 and the year ended December 31, 1998 includes Thermo-Tilt plus
the results of operations of the companies acquired by us after April 15, 1998
from their respective dates of acquisition.
Due to the significant impact of the acquisitions on our operations, the
historical results of operations and period-to-period comparisons may not be
meaningful or indicative of future operating results. The addition of revenues,
expenses and other components of operations associated with the
28
<PAGE>
acquisitions are the principal reasons for the significant differences when
comparing results of operations between periods:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- ------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
------- ------- --------- ------- --------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues................................ $ 6,641 $ 5,629 $ 37,376 $ 1,225 $ 21,750
Cost of revenues earned................. 3,571 2,889 16,748 463 9,764
------- ------- --------- ------- --------
Gross profit............................ 3,070 2,740 20,628 762 11,986
Selling, general and administrative
expenses.............................. 2,634 3,293 20,233 970 11,542
Stock-based compensation expense........ -- 1 5,509 -- --
Depreciation and amortization........... 68 69 854 23 800
------- ------- --------- ------- --------
Income (loss) from operations........... 368 (623) (5,968) (231) (356)
Interest expense........................ (57) (90) (439) (15) (412)
Other income (expense).................. (47) (19) 69 -- 62
------- ------- --------- ------- --------
Income (loss) before income taxes....... 264 (732) (6,338) (246) (706)
Income tax benefit...................... -- (266) (1,135) (83) (95)
------- ------- --------- ------- --------
Net income (loss)....................... 264 (466) (5,203) (163) (611)
Less amount attributable to sole
proprietor............................ -- 398 -- -- --
Less preferred stock dividends:
Cash.................................. -- -- 585 -- 425
Additional dividend attributable to
beneficial conversion feature....... -- -- 9,540 -- --
------- ------- --------- ------- --------
Net income (loss) attributable to common
stockholders.......................... $ 264 $ (864) $ (15,328) $ (163) $ (1,036)
------- ------- --------- ------- --------
------- ------- --------- ------- --------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO MARCH 31, 1999
REVENUES. Revenues increased from $1.2 million for the three months ended
March 31, 1998 to $21.7 million for the three months ended March 31, 1999. This
increase represents revenues from acquisitions made subsequent to April 15,
1998.
GROSS PROFIT. Gross profit, which represents revenues less cost of revenues
earned, increased from $763,000 for the three months ended March 31, 1998 to
$12.0 million for the three months ended March 31, 1999 from acquisitions made
subsequent to April 15, 1998. Cost of revenues earned includes the cost of
glass, vinyl, hardware, fabrication labor and manufacturing overhead for the
manufacturing segment. For the retail segment cost of revenues earned includes
the cost of vinyl windows, doors, textured coating, vinyl siding, and other home
improvement products purchased plus installation costs and other indirect
materials and labor.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $1.0 million in the three months ended
March 31, 1998 to $11.5 million in the three months ended March 31, 1999. This
increase results from acquisitions made subsequent to April 15, 1998 and the
commencement of corporate activities. Selling, general and administrative
expenses include sales commissions, advertising expenses, rent expense and other
general and administrative expense. Expenses related to corporate operating
activities which commenced on April 15, 1998 are included primarily in general
and administrative expenses.
29
<PAGE>
DEPRECIATION AND AMORTIZATION. Depreciation and amortization of $800,000
for the three months ended March 31, 1999 represents primarily depreciation and
amortization on acquisitions made after April 15, 1998.
INTEREST EXPENSE. Interest expense of $412,000 for the three months ended
March 31, 1999 represents primarily interest cost on additional borrowings to
finance the acquisitions made after April 15, 1998.
INCOME TAX BENEFIT. The benefit for income taxes for the three months ended
March 31, 1999, differs from the amount computed by applying the statutory U.S.
Federal income tax rate to loss before income taxes primarily as a result of
state taxes and non-deductible goodwill amortization. The tax benefit for the
three months ended March 31, 1998, is closer to the expected tax rate since
there was no non-deductible goodwill for the three months ended March 31, 1998.
As of March 31, 1999, ThermoView had deferred income tax assets of $1.9 million.
We believe it is more likely than not that our future taxable income will enable
us to realize these deferred income tax assets.
CASH DIVIDENDS. The cash dividends of $425,000 for the three months ended
March 31, 1999 relate to dividends on our Series A and B preferred stock.
1997 COMPARED TO 1998
REVENUES. Revenues increased from $5.6 million in 1997 to $37.4 million in
1998 from acquisitions made subsequent to April 15, 1998.
GROSS PROFIT. Gross profit increased from $2.7 million in 1997 to $20.6
million in 1998 from acquisitions made subsequent to April 15, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $3.3 million in 1997 to $20.2 million in
1998. This increase results from acquisitions made subsequent to April 15, 1998,
and the commencement of corporate activities which added $2.1 million to
selling, general and administrative expenses for 1998.
STOCK-BASED COMPENSATION EXPENSE. In 1998, we recorded total stock-based
compensation expense of approximately $5.5 million in connection with
stock-based compensation. We do not expect to record additional compensation
expense for these items in future years.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization of $854,000
for 1998 represent primarily depreciation and amortization on acquisitions made
after April 15, 1998.
INTEREST EXPENSE. Interest expense of $439,000 for 1998 represents
primarily interest cost on additional borrowings to finance the acquisitions
made after April 15, 1998.
INCOME TAX BENEFIT. The loss before income taxes in 1998 includes $2.3
million of non-deductible stock-based compensation expense, $464,000 of
non-deductible goodwill and $272,000 of non-deductible merger and acquisition
costs. Accordingly, the $1.1 million of 1998 income tax benefit is lower than
what would be expected by applying the statutory rate to the $6.3 million of
loss before income taxes.
PREFERRED STOCK DIVIDENDS. The cash dividends of $585,000 in 1998 represent
dividends paid on our Series A preferred stock. We also recorded non-cash
dividends of approximately $9.5 million associated with the issuance of our
Series A preferred stock. Our Series A preferred stock is convertible into
shares of our common stock at a price which we determined to be below the fair
market value of the common stock on the date of issuance.
30
<PAGE>
1996 COMPARED TO 1997
REVENUES. Revenues decreased from $6.6 million in 1996 to $5.6 million in
1997 primarily as a result of Thermo-Tilt's decision to de-emphasize one of its
regional sales operations.
GROSS PROFIT. Gross profit for 1997 was $2.7 million, or 48.7%, compared to
$3.1 million, or 46.2%, for 1996. The improvement in gross profit percentage of
2.5% is primarily due to vendor price reductions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $2.6 million in 1996 to $3.3 million in
1997. This increase is primarily attributed to fees and expenses incurred
relative to Thermo-Tilt's merger with ThermoView.
INCOME TAX BENEFIT. Thermo-Tilt was operated as a sole proprietorship in
1996 and the first half of 1997. In July 1997, Thermo-Tilt was incorporated and
elected to be taxed as a "C" corporation. The sole proprietor's return for
periods prior to July 1, 1997 reflected the taxable income or loss for the
enterprise. From July 1, 1997 through December 31, 1997, the pre-tax loss
related to the "C" corporation was $1.1 million with a related tax benefit of
$266,000. This is lower than expected due to non-deductible merger fees and
expenses in 1997.
AMOUNT ATTRIBUTABLE TO SOLE PROPRIETOR. The $398,000 in 1997 represents
income earned by the sole proprietor of Thermo-Tilt from January 1, 1997 through
June 30, 1997.
PRO FORMA REVENUES AND GROSS PROFIT
We have presented pro forma revenues and gross profit on a combined
historical basis for the quarters ended March 31, 1998 and 1999 and for the
years ended December 31, 1996, 1997 and 1998. We have not presented any pro
forma financial information below the gross profit line, since much of the
pre-acquisition financial data below gross profit is significantly impacted by
compensation packages of the former owners of these companies. We negotiate and,
in many cases, significantly revise compensation packages in connection with our
acquisitions of these businesses.
Our pro forma results for any period are not necessarily indicative of
future results because, among other things, the acquired companies were not
under common control or management prior to their acquisition. The timing and
magnitude of acquisitions, assimilation costs and seasonal nature of the
industry may materially affect operating results.
31
<PAGE>
PRO FORMA REVENUES FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO
MARCH 31, 1999
The following table presents revenues for each of our acquired companies and
total pro forma revenues for the three months ended March 31, 1998 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
ACQUIRED COMPANY 1998 1999
- -------------------------------------------------------------------------------------------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
RETAIL SEGMENT:
Thermo-Tilt Window Company.................................................................. $ 1,225 $ 1,118
American Home Developers Co., Inc........................................................... 785 964
Primax Window Co............................................................................ 1,663 1,626
The Rolox Companies......................................................................... 2,496 2,850
American Home Remodeling.................................................................... 1,331 --(1)
Five Star Builders, Inc.(1)................................................................. 2,214 4,245
NuView Industries, Inc.(2).................................................................. 992 1,375
Leingang Siding and Window, Inc............................................................. 980 716
Thomas Construction, Inc.................................................................... 5,841 5,599
The Thermo-Shield Companies................................................................. 3,009 4,482
--------- ---------
Total pro forma revenues of retail segment................................................ 20,536 22,975
MANUFACTURING SEGMENT:
T. D. Windows, Inc.......................................................................... 227 308
Thermal Line Windows, L.L.P.(3)............................................................. 993 1,126
Precision Window Mfg., Inc.................................................................. 1,455 1,672
--------- ---------
Total pro forma revenues of manufacturing segment......................................... 2,675 3,106
Intersegment eliminations and other......................................................... (1,331) (1,828)
--------- ---------
Total pro forma revenues.................................................................. $ 21,880 $ 24,253
--------- ---------
--------- ---------
</TABLE>
- ---------
(1) American Home Remodeling merged into Five Star Builders, Inc. effective
December 31, 1998. Five Star Builders, Inc. has recently changed its name to
ThermoView of California, Inc.
(2) NuView Industries, Inc. has changed its name to ThermoView of Missouri, Inc.
(3) Thermal Line Windows, L.L.P. is now Thermal Line Windows, Inc.
Total pro forma revenues for the three months ended March 31, 1999 were
$24.3 million compared to $21.9 million for the comparable prior year period.
RETAIL SEGMENT. Pro forma revenues in our retail segment increased $2.4
million, with the following companies reporting the most significant
fluctuations:
- American Home Remodeling and Five Star Builders together accounted for a
$700,000 increase in revenues. This resulted from increases in window
contracts adding to their textured coating business.
- Thermo-Shield's revenue increased $1.5 million due to a contract with a
major home improvement chain to provide sales leads that resulted in
significant growth in window contracts.
MANUFACTURING SEGMENT. Precision Window reported a $217,000 increase in
revenue in 1999, with higher sales to two of our retail operations, Rolox and
NuView Industries.
32
<PAGE>
PRO FORMA GROSS PROFIT FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO
MARCH 31, 1999
The following table presents gross profit for each of our acquired companies
and total pro forma gross profit for the three months ended March 31, 1998 and
1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 1999
---------------------------------- ----------------------------------
<CAPTION>
GROSS PERCENT OF GROSS PERCENT OF
ACQUIRED COMPANY PROFIT REVENUES PROFIT REVENUES
- ----------------------------------------------- ----------- --------------------- ----------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
RETAIL SEGMENT:
Thermo-Tilt Window Company..................... $ 763 62.2% $ 589 52.7%
American Home Developers Co., Inc.............. 395 50.4 490 50.8
Primax Window Co............................... 916 55.1 939 57.8
The Rolox Companies............................ 1,394 55.8 1,673 58.7
American Home Remodeling....................... 766 57.5 (1) (1)
Five Star Builders, Inc. (1)................... 1,624 73.4 2,930 69.0
NuView Industries, Inc. (2).................... 504 50.8 746 54.3
Leingang Siding and Window, Inc................ 293 29.9 217 30.4
Thomas Construction, Inc....................... 2,996 51.3 2,602 46.5
The Thermo-Shield Companies.................... 1,373 45.6 2,362 52.7
----------- --- ----------- ---
Total pro forma gross profit of retail
segment.................................... 11,024 53.7 12,548 54.6
MANUFACTURING SEGMENT:
T. D. Windows, Inc............................. 75 33.2 72 23.3
Thermal Line Windows, L.L.P.(3)................ 326 32.8 340 30.2
Precision Window Mfg., Inc..................... 178 12.2 380 22.7
----------- --- ----------- ---
Total pro forma gross profit of manufacturing
segment.................................... 579 21.7 792 25.5
Intersegment eliminations and other............ -- -- 28 --
----------- --- ----------- ---
Total pro forma gross profit................. $ 11,603 53.0% $ 13,368 55.1%
----------- --- ----------- ---
----------- --- ----------- ---
</TABLE>
- ---------
(1) American Home Remodeling merged into Five Star Builders, Inc. effective
December 31, 1998. Five Star Builders, Inc. has recently changed its name to
ThermoView of California, Inc.
(2) NuView Industries, Inc. has changed its name to ThermoView of Missouri, Inc.
(3) Thermal Line Windows, L.L.P. is now Thermal Line Windows, Inc.
Total pro forma gross profit percentages improved from 53.0% for the three
months ended March 31, 1998 as compared to 55.1% for the three months ended
March 31, 1999.
RETAIL SEGMENT. The more significant gross profit fluctuations in the
retail segment were:
- The Rolox Companies reported a 2.9% improvement in gross profit primarily
from increased sales of replacement windows which have a higher gross
profit than other products it sells.
- Primax Window Co. improved its gross profit by 2.7% due to cost reductions
achieved through the elimination of certain non-value added features of
its windows.
- NuView Industries, Inc. improved its gross profit by 3.5% from reduced
installation labor costs.
- Thomas reported a 4.8% decrease in gross profit as a result of decreased
window sales relative to other product lines.
33
<PAGE>
- Thermo-Shield reported an improvement in gross profit of 7.1% due to a
more favorable product mix, a decrease in costs resulting from higher
discounts on window purchases and price increases.
MANUFACTURING SEGMENT. In the manufacturing segment, Precision negotiated
more favorable product costs of vinyl, glass and hardware, which resulted in an
increased gross profit of 10.5%.
PRO FORMA REVENUES FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
The following table presents revenues for each of our acquired companies and
total pro forma revenues for the years ended December 31, 1996, 1997 and 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
ACQUIRED COMPANY 1996 1997 1998
- -------------------------------------------------------------------------------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
RETAIL SEGMENT:
Thermo-Tilt Window Company...................................................... $ 6,641 $ 5,629 $ 5,124
American Home Developers Co., Inc............................................... 3,648 4,883 4,715
Primax Window Co................................................................ 5,840 7,132 6,527
The Rolox Companies............................................................. 10,652 10,354 11,276
American Home Remodeling........................................................ 3,727 6,326 7,357
Five Star Builders, Inc.(1)..................................................... 6,172 8,279 8,032
NuView Industries, Inc.(2)...................................................... -- 4,690 4,602
Leingang Siding and Window, Inc................................................. 4,204 5,457 6,012
Thomas Construction, Inc........................................................ 24,218 26,493 25,554
The Thermo-Shield Companies..................................................... 8,085 12,395 14,906
--------- --------- ----------
Total pro forma revenues of retail segment.................................... 73,187 91,638 94,105
MANUFACTURING SEGMENT:
T. D. Windows, Inc.............................................................. 1,615 1,312 1,140
Thermal Line Windows, L.L.P.(3)................................................. 6,955 6,088 7,179
Precision Window Mfg., Inc...................................................... 5,696 6,432 6,548
--------- --------- ----------
Total pro forma revenues of manufacturing segment............................. 14,266 13,832 14,867
Intersegment eliminations and other............................................. (5,041) (5,846) (6,855)
--------- --------- ----------
Total pro forma revenues...................................................... $ 82,412 $ 99,624 $ 102,117
--------- --------- ----------
--------- --------- ----------
</TABLE>
- ---------
(1) Five Star Builders, Inc. has recently changed its name to ThermoView of
California, Inc.
(2) NuView Industries, Inc. has changed its name to ThermoView of Missouri, Inc.
NuView Industries, Inc. commenced its window business on February 1, 1997.
(3) Thermal Line Windows, L.L.P. is now Thermal Line Windows, Inc.
1997 PRO FORMA REVENUES COMPARED TO 1998 PRO FORMA REVENUES
Total pro forma revenues increased from $99.6 million in 1997 to $102.1
million in 1998.
RETAIL SEGMENT. Retail segment revenues increased a net $2.5 million, with
the following business units reporting the most significant fluctuations:
- The Rolox Companies' revenue increased $922,000, reflecting an increase in
its vinyl siding revenues.
34
<PAGE>
- American Home Remodeling's revenue increased $1.0 million primarily as a
result of adding a textured coating business.
- The Thermo-Shield Companies' revenue increased $2.5 million related to
growth of its Michigan and Arizona additional branches opened in 1997 and
an Indiana branch opened in 1998.
- Thomas Construction reported a decrease in revenue of $939,000 due to
reduced sales generated through an unaffiliated home improvement chain.
MANUFACTURING SEGMENT. In the manufacturing segment, Thermal Line Windows,
L.L.P experienced revenue growth of $1.9 million as it expanded its sales to
third-party customers in the Colorado market. Inclement weather adversely
affected sales to third-party customers in 1997.
1996 PRO FORMA REVENUES COMPARED TO 1997 PRO FORMA REVENUES
Total pro forma revenues increased from $82.4 million in 1996 to $99.6
million in 1997.
RETAIL SEGMENT. Retail segment revenues increased a net $18.4 million, with
the following business units reporting the most significant fluctuations:
- American Home Remodeling's revenue improved $2.6 million as it shifted its
business from general contracting to replacement windows.
- Five Star Builders, Inc.'s revenue increased $2.1 million resulting from
an approximate 10% price increase and growth in its textured coating and
window product lines.
- NuView Industries, Inc. commenced its retail window business in 1997 and
reported $4.7 million of revenue from window sales.
- Thomas Construction's revenue increased $2.3 million from 1996 to 1997 due
to growth in its product lines.
- Thermo-Shield's revenue increased $4.3 million due to growth in newly
opened branch offices in early 1997 in Michigan and Arizona, and
additional customer contracts generated from leads from an unaffiliated
home improvement chain.
- Thermo-Tilt's revenue decreased $1.0 million as this unit de-emphasized
one of its regional sales operations.
MANUFACTURING SEGMENT. Manufacturing segment revenues decreased from 1996
to 1997, primarily as a result of many of Thermal Line's third-party customers
being adversely affected by inclement weather in 1997.
35
<PAGE>
PRO FORMA GROSS PROFIT FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
The following table presents gross profit for each of our acquired companies
and total pro forma gross profit for the years ended December 31, 1996, 1997 and
1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1996 1997 1998
------------------------ ------------------------ ------------------------
GROSS PERCENT OF GROSS PERCENT OF GROSS PERCENT OF
ACQUIRED COMPANY PROFIT REVENUES PROFIT REVENUES PROFIT REVENUES
- ------------------------------ --------- ------------ --------- ------------ --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
RETAIL SEGMENT:
Thermo-Tilt Window Company.... $ 3,070 46.2% $ 2,739 48.7% $ 2,726 53.2%
American Home Developers Co.,
Inc......................... 1,657 45.4 2,193 44.9 2,249 47.7
Primax Window Co.............. 3,066 52.5 3,824 53.6 3,717 56.9
The Rolox Companies........... 6,497 61.0 6,268 60.5 6,379 56.6
American Home Remodeling...... 1,707 45.8 3,297 52.1 4,658 63.3
Five Star Builders, Inc.(1)... 4,074 66.0 5,945 71.8 5,730 71.3
NuView Industries, Inc.(2).... -- -- 2,329 49.7 2,577 56.0
Leingang Siding and Window,
Inc......................... 1,263 30.0 1,865 34.2 2,081 34.6
Thomas Construction, Inc...... 11,309 46.7 12,454 47.0 12,277 48.0
The Thermo-Shield Companies... 4,199 51.9 6,686 53.9 8,236 55.3
--------- --- --------- --- --------- ---
Total pro forma gross profit
of retail segment......... 36,842 50.3 47,600 51.9 50,630 53.8
MANUFACTURING SEGMENT:
T. D. Windows, Inc............ 340 21.0 274 20.9 285 25.0
Thermal Line Windows,
L.L.P.(3)................... 2,252 32.4 2,015 33.1 2,337 32.6
Precision Window Mfg., Inc.... 722 12.7 693 10.8 1,048 16.0
--------- --- --------- --- --------- ---
Total pro forma gross profit
of manufacturing
segment................... 3,314 23.2 2,982 20.9 3,670 24.7
Intersegment eliminations and
other....................... -- -- -- -- -- --
--------- --- --------- --- --------- ---
Total pro forma gross
profit.................... $ 40,156 48.7% $ 50,582 50.8% $ 54,300 53.2%
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
</TABLE>
- ---------
(1) Five Star Builders, Inc. has recently changed its name to ThermoView of
California, Inc.
(2) NuView Industries, Inc. has changed its name to ThermoView of Missouri, Inc.
NuView Industries, Inc. commenced its window business on February 1, 1997.
(3) Thermal Line Windows, L.L.P. is now Thermal Line Windows, Inc.
1997 PRO FORMA GROSS PROFIT COMPARED TO 1998 PRO FORMA GROSS PROFIT
Total pro forma gross profit percentages improved from 50.8% in 1997 to
53.2% in 1998.
RETAIL SEGMENT. Gross profit improved in the retail segment as our retail
companies enhanced purchasing power through growth and as competition increased
among supply vendors.
- The Rolox Companies' product mix accounted for the decrease in gross
profit percentage, where it reported higher sales of vinyl siding in 1998
which has a lower gross profit than replacement windows.
- American Home Remodeling's gross profit improved in 1998 as it shifted its
business from general contracting to replacement windows.
36
<PAGE>
MANUFACTURING SEGMENT. In the manufacturing segment, Precision negotiated
cost reductions on vinyl and glass. Additionally, Precision implemented a 2.0%
price increase and TD Windows a 5.0% price increase, effective in 1998, related
to their manufacturing segment sales.
1996 PRO FORMA GROSS PROFIT COMPARED TO 1997 PRO FORMA GROSS PROFIT
Overall, gross profit percentages improved from 48.3% in 1996 to 50.3% in
1997.
RETAIL SEGMENT. Gross profit improved in the retail segment as our retail
companies enhanced purchasing power through growth and as competition increased
among supply vendors.
MANUFACTURING SEGMENT. In 1997, TD Windows and Precision experienced
increases in their costs without corresponding increases in their prices. TD
Windows' increase related to direct materials, and Precision's increase related
to labor costs. Overall, the manufacturing segment had a 2.3% decrease in gross
profit from 1996 to 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, we had cash and cash equivalents of $2.4 million,
working capital of $1.3 million, and $28.0 million of long-term debt, net of
current maturities.
Our operating activities for the three months ended March 31, 1999 provided
$2.2 million of cash. We used $684,000 in our operating activities during the
year ended December 31, 1998.
The use of cash for investing activities relates primarily to acquisition
activity which accounts for the use of $11.9 million for the three months ended
March 31, 1999 and $15.6 million for the year ended December 31, 1998.
The major sources of cash provided by financing activities for the three
months ended March 31, 1999 were borrowings of $8.7 million under our PNC Bank
credit facility and related-party borrowings of $4.0 million. During the year
ended December 31, 1998, we received $14.5 million of net proceeds from our
Series A preferred stock offering, $614,000 of net proceeds from an offering of
common stock, $5.3 million from our PNC Bank credit facility, and $1.5 million
from related-party borrowings. These sources were offset by a use of cash of
$2.1 million to repurchase 273,853 shares of our common stock.
In August 1998, we established a $15.0 million line of credit with PNC Bank.
Borrowings under the line of credit bear interest at a Euro-Rate based variable
rate. Interest on the line of credit is payable quarterly and principal is
payable in full at maturity on August 31, 2000. Pursuant to the terms of the
line of credit, at any one time the aggregate unpaid principal amount of
advances under the line of credit shall not exceed the lesser of $15.0 million
or 3.5 times our earnings before interest, income taxes, depreciation and
amortization, as modified in the loan documents, for the immediately preceding
four fiscal quarters from our most recent financial statements.
The line of credit is secured by substantially all of our personal property
and by a pledge to PNC Bank of all of our ownership interests in our
subsidiaries. Additionally, the line of credit obligates us to pay a quarterly
unused loan fee and certain other fees and expenses. The stated purposes under
the line of credit were to (A) fund future acquisitions, (B) provide us with
working capital and (C) provide the initial funding for our consumer finance
subsidiary, Key Home Credit.
As of the date of this prospectus, we have borrowed the entire amount
available to us under the line of credit.
The line of credit requires that any company acquired by us must become a
borrower under the line of credit. Additionally, we have pledged all of our
ownership in acquired companies to PNC Bank.
37
<PAGE>
Subsequent to December 31, 1998, we had not met certain covenants in our
bank credit agreement. The lender has waived all covenant violations through
July 8, 1999, and has reset covenants to accommodate future compliance.
In July 1999, we received $10.0 million in senior subordinated financing
from GE Capital Equity Investments, Inc. Interest under the note is payable
quarterly in arrears at 12% per annum, subject to substantial increases in
certain circumstances. Principal under the note is payable in full in July 2002
but we may prepay the note at a premium prior to its maturity. Among its
covenants, the note requires us to refrain from entering into certain types of
acquisitions unless GE Capital consents. The note, which is subordinate to our
line of credit with PNC Bank, is secured by a lien on substantially all of our
assets, a guarantee executed by our subsidiaries and a pledge of our ownership
in our current and future subsidiaries. In conjunction with the issuance of the
note, we issued to GE Capital warrants to purchase 1,666,028 shares of our
common stock at $0.01 per share which expire during July 2007. We used the
proceeds from this financing primarily to repay related-party indebtedness and
outstanding acquisition indebtedness and to fund performance earn-out
obligations owed to former shareholders of acquired businesses.
Our line of credit with PNC Bank and subordinated debt owed to GE Capital
require us to comply with certain affirmative and negative covenants. We must
maintain various financial ratios and these lenders may restrict us from
incurring certain other debt. We may not pay dividends on the common stock while
the line of credit and the subordinated debt are outstanding. We are also
subject to other restrictions, including restrictions pertaining to significant
corporate transactions and management changes.
If we default under the line of credit, PNC Bank could, among other items,
cease all advances, accelerate all amounts owed to PNC Bank and increase the
interest rate on the line of credit. If we default under the subordinated debt
documents, GE Capital could, among other items, accelerate all amounts owed to
GE Capital, subject to the rights of PNC Bank as our senior lender under the
line of credit. Under either the PNC Bank line of credit or the GE Capital
subordinated debt, an event of default could result in the loss of our
subsidiaries because of the pledge of our ownership in all of our subsidiaries
to PNC Bank and on a subordinated basis to GE Capital.
In April 1999, we issued an aggregate of 6,000 shares of Series C preferred
stock to two institutional accredited investors, Brown Simpson Growth Fund,
L.P., a New York limited partnership, and Brown Simpson Growth Fund, Ltd., a
Grand Cayman, Cayman Islands limited partnership, at a per share purchase price
of $1,000, for a total investment of $6.0 million. In conjunction with the
issuance of the Series C preferred stock, we issued to the two funds warrants to
purchase up to a total of 1,200,000 shares of common stock at $7.00 per share
(the number of shares and exercise price being subject to adjustment in certain
circumstances) which expire in April 2004. In August 1999 we amended the
exercise price of the warrants to $6.00 per share in exchange for a commitment
of the holders to refrain from selling any of our securities from the closing of
this offering until January 31, 2000. We used the proceeds from this financing
primarily to repay outstanding acquisition indebtedness.
In April 1998, we received a commitment from The Founders Group, a venture
capital firm affiliated with our chief executive officer, Stephen A. Hoffmann,
for a $5.0 million revolving line of credit. Borrowings under the line of credit
bear interest at the prime rate of interest plus 1%. The line of credit expires
in April 2003. As of March 31, 1999, we had not borrowed under this line of
credit.
We believe that our cash flow from operations and the proceeds of the
offering will allow us to meet our anticipated needs during at least the next 12
months for:
- some of our planned acquisitions under our current business model;
- payment of the interest on our line of credit and subordinated debt;
- payment of dividends due on our Series C preferred stock;
- working capital requirements; and
- planned property and equipment capital expenditures.
38
<PAGE>
We will need additional sources of financing to undertake all of the planned
acquisitions under our current business model during the next 12 months. After
this twelve month period, we will need additional financing to consummate
acquisitions and for working capital, including payment of seller notes and
future earned cash to sellers of acquired companies. We may require financing
sooner if we pursue acquisitions not contemplated in our current business model.
Any required additional financing may not be available on terms favorable to us,
or at all. If adequate funds are not available on acceptable terms, we may be
unable to fund additional acquisitions, successfully promote our products or
develop new or enhanced products, any of which could have a material adverse
effect on our business, results of operations and financial condition. If we
raise additional funds by issuing equity securities, stockholders may experience
dilution of their ownership interest and the newly issued securities may have
rights superior to those of the common stock. If we issue or incur debt to raise
funds, we may be subject to limitations on our operations.
We intend to continue our aggressive acquisition program with a combination
of cash, common stock and seller debt used to finance the primary portion of
consideration. We expect the cash needed for these acquisitions to come from an
expanded bank line, this common stock offering, and future common stock
offerings.
Preferred stock cash dividends are currently 10% on $16.9 million of Series
A and B preferred stock. We intend to convert the Series A and B preferred stock
to common stock in connection with this offering and, accordingly, the $1.7
million for annual dividends on Series A and B preferred stock will be
discontinued. We will continue to pay dividends on the Series C preferred stock
until such time as the shares are redeemed or converted.
INTEREST RATE RISK
Changes in interest rates expose us to market risk. As of March 31, 1999,
approximately 68% of our debt portfolio consisted of variable-rate debt and
approximately 32% consisted of fixed-rate debt. With respect to the
variable-rate debt, a hypothetical 100 basis point increase in interest rates
would increase our annual interest expense by approximately $141,000 as of March
31, 1999.
Interest rate changes would result in gains or losses in the market value of
our fixed-rate debt due to the differences between the current market interest
rates and the rates governing these instruments. With respect to our fixed-rate
debt outstanding at March 31, 1999, a 10% change in interest rates would have
resulted in no material change in the fair value of our fixed-rate debt.
YEAR 2000
Computers, software, and other machinery and equipment containing imbedded
microchip technology which use only two digits to identify a year in a date
field may fail, or be unable to accurately process certain date-based
information at or after the year 2000. This is commonly referred to as the "year
2000 issue." With the assistance of an outside consulting firm, we have
developed a program to identify year 2000 issues that could impact us at or
after the year 2000. This program is being implemented in all areas of our
operations, including the computers, software and machinery that we rely upon to
conduct our business, as well as the year 2000 issues which may affect our
relationship with external customers and suppliers.
STATE OF READINESS. The year 2000 issue assessment program will address the
nature and potential impact of the IT (information technology), as well as
non-IT systems which we use to conduct operations. Information technology
systems include computers, office equipment, telecommunication devices and
predictive dialers, which our retail operations use to develop leads for sales
presentations of our products. Non-IT systems consist of machinery which contain
embedded microchips and include manufacturing equipment, alarm systems, heating
and air conditioning units, and other similar equipment.
39
<PAGE>
Our assessment program has three separate phases:
- Phase I Inventory/Audit
- Phase II Correction
- Phase III Testing
Phase I consists of the identification of IT and non-IT systems we use which
the year 2000 issue could impact. Our outside consultant and our personnel have
conducted an inspection of all of our business locations and taken a physical
inventory of all systems currently in use. The operation of each system is
evaluated with currently available knowledge to determine the effect of year
2000 issues. Phase I also includes an inventory of third party suppliers and
customers that we rely upon to conduct business. A detailed questionnaire which
seeks to identify the year 2000 readiness of these third parties is sent to each
of these parties. While we cannot control the year 2000 readiness of these third
parties, these questionnaires will enable us to identify potential effects of
year 2000 on these parties and to develop contingency plans to minimize the
impact to us caused by the third parties' year 2000 issues.
Phase II of the assessment program consists of remedial correction of
systems identified in Phase I as being vulnerable to year 2000 issues. For both
IT and non-IT systems, the remedial actions consist of upgrades to software that
is year 2000 compliant, upgrades of equipment to the extent possible and
replacement of non-compliant equipment that we cannot upgrade.
Phase III of the assessment program requires the testing of all systems,
with particular attention to those systems which required correction during
Phase II. In the event that systems do not pass the testing of this phase, we
will implement the contingency plans developed in Phase I.
We anticipate all phases of the assessment program to be completed by
September 30, 1999. Currently, the assessment program is near the end of Phase
I. We have not identified any significant year 2000 issues from our current
systems. Several of our subsidiaries had addressed the year 2000 issue prior to
acquisition, and if required, are correcting known non-compliant systems.
COST OF REMEDIATION. The costs to us for compliance with year 2000 issues
consist of our fee to our outside consultant for the development and management
of the assessment program, and the costs associated with the purchase of
software upgrades and replacement equipment. To date, we have paid $32,000 to
our outside consultant and $41,000 for the upgrade and replacement of software
and equipment. Our estimated future costs are $68,000 to our outside consultant
and $167,000 for the upgrade and replacement of software and equipment. These
costs do not include wages and benefits paid to our personnel that utilize their
time for the assessment program.
WORST CASE SCENARIO. Since we have not identified any significant internal
year 2000 issues from our assessment program, we believe that the most
reasonably likely worst case scenario to our results of operation, liquidity,
and financial condition lies in the impact of year 2000 issues to our third
party customers and suppliers, and the indirect effect to us of these issues.
The year 2000 issues of these third parties which we consider material
consist of the impact to our raw materials and components suppliers that we use
to fabricate our products in our manufacturing subsidiaries. An interruption in
the supply of raw materials and components could have an adverse impact on our
operations and resulting revenue. This worst case scenario contains uncertainty
to the extent that we do not have control over the readiness of these third
parties. We have contacted all of these material third parties regarding their
year 2000 readiness. However, to date, we have not received all of the responses
to our inquiries.
CONTINGENCY PLAN. We have developed a contingency plan to handle the most
reasonably likely worst cast scenario. We anticipate knowing the readiness of
the identified third party suppliers no later than September 30, 1999. To the
extent that we do not receive assurances as to the year 2000 readiness
40
<PAGE>
from our suppliers, we have the capability to identify alternate sources for the
materials used in our manufacturing facilities. Based upon the responses that we
receive from the third party suppliers regarding the severity of year 2000
issues and the time period needed for the third parties to become compliant, the
purchase of additional materials from existing, and alternative suppliers could
minimize the impact of such issues. In this event, the increase of material
purchases during the fourth quarter of 1999 could adversely impact our financial
condition and results of operations.
INFLATION
Due to relatively low levels of inflation experienced during the years ended
December 31, 1996, 1997 and 1998 and the three months ended March 31, 1999,
inflation did not have a significant effect on our results of operations.
SEASONALITY
Historically, our results of operations have fluctuated on a seasonal basis.
We have experienced lower levels of sales and profitability during the period
from mid-November to mid-March, impacting the first and fourth quarters of each
year. Inclement weather conditions in the winter and spring months in certain of
our markets located in the north central United States, which limit our ability
to install exterior home improvement products, adversely affects demand for
windows, doors, vinyl siding and related products.
Our intention is to expand our southern California markets and to enter
other markets in the Southwest and southern United States to reduce the impact
of seasonality. However, until we expand into those geographic markets, seasonal
factors will continue to adversely affect operations.
41
<PAGE>
BUSINESS
OVERVIEW
ThermoView Industries designs, manufactures, sells and installs custom vinyl
replacement windows for residential and retail commercial customers. We also
sell and install replacement doors, textured coatings, vinyl siding, patio
decks, patio enclosures, cabinet refacings, and bathroom and kitchen remodeling.
We finance a portion of our customers' purchases through Key Home Credit, our
consumer finance subsidiary.
In April 1998, we acquired Thermo-Tilt Window Company, which was established
in 1987. Since that time, we have acquired 12 retail and manufacturing
businesses which have been in operation an average of approximately 10 years. At
June 30, 1999, we had over 1,400 employees and had facilities in 13 states,
primarily in the Midwest and southern California. For calendar 1998, we
generated pro forma consolidated revenues of $102.1 million.
THE REPLACEMENT WINDOW INDUSTRY
Sales of replacement windows have experienced substantial growth in recent
years. According to U.S. Census Bureau and industry statistics:
- domestic expenditures in the replacement window industry were $7.9 billion
in 1997, an increase of 27.4% over 1993;
- over 28.4 million replacement windows were sold in 1998, a 38.5% increase
over 1992 levels; and
- of available replacement windows, vinyl replacement windows are the most
popular, comprising 49.6% of total unit sales in 1998.
Three basic categories of windows comprise the replacement window market:
vinyl, wood and aluminum. We believe that vinyl windows require less maintenance
and are more durable than either wood or aluminum windows and they provide
greater energy efficiency than aluminum windows. Since prices for vinyl windows
have become more competitive with wood window prices and the durability and
energy efficiency of vinyl windows have improved, the demand for vinyl windows
has significantly increased over the last five years. Today, vinyl windows are
the most popular replacement window.
We believe that factors driving demand in the replacement window industry
include:
- the aging existing housing stock;
- job and wage growth;
- consumer confidence levels;
- consumer credit conditions;
- interest rates;
- demographic trends;
- population migration between urban and suburban areas; and
- demand for maintenance free products.
ACQUISITION STRATEGY
Our goal is to become a leader in the replacement window industry by
building through acquisitions and internal growth a fully integrated nationwide
network of sales, installation and manufacturing subsidiaries. We believe that
our continuing national acquisition strategy capitalizes on the fragmented
nature of the replacement window industry.
42
<PAGE>
We seek acquisition candidates with the following characteristics:
- experienced, growth-oriented management;
- strong regional market share; and
- financial performance to increase our earnings and cash flow.
EXPERIENCED MANAGEMENT. Our management and that of our subsidiaries have
substantial experience in the replacement window and related businesses. We
believe this level of experience provides a solid foundation for growth.
We manage our subsidiaries on a decentralized basis with local management
assuming responsibility for the day-to-day operations, profitability and growth
of the business. We believe that while we actively maintain strong operating and
financial controls, as well as foster the sharing of information among our
subsidiaries to enhance our efficiency, our decentralized operating structure
allows us to retain the entrepreneurial spirit of each of our subsidiaries. In
addition, our decentralized operation allows us to capitalize on the local and
regional market knowledge and customer relationships of our retail and
manufacturing subsidiaries.
REGIONAL MARKET SHARE. Our goal is to become the leading vinyl replacement
window business in each region where we acquire a business. We seek acquirees
that have significant business and a recognizable name in the market areas where
those acquirees engage in business.
FINANCIAL PERFORMANCE. We analyze the financial performance of our
acquisition targets in their markets to determine how they will add to our
earnings and cash flow through our acquisition due diligence. Our internal
investigation seeks to target efficiencies and economies to be derived from the
integration of the target entity. We believe that the combined sales experience
of our subsidiary personnel should assist target entities in improving and
diversifying product sales in the region served by the target.
The integration of each new acquiree into ThermoView also provides an
additional market for our consumer finance subsidiary, Key Home Credit. We
believe that Key Home Credit affords our customers an additional means of
financing purchases of our products.
ACQUISITION BENEFITS TO THERMOVIEW
We believe that our acquisition and integration strategy offers a number of
benefits.
EFFICIENT PENETRATION OF NEW MARKETS. We believe we avoid many of the costs
and risks associated with entering new geographic markets by targeting one or
more leading local or regional companies providing vinyl replacement window and
complimentary business services. We focus on acquisition targets that have the
customer base, employees and infrastructure necessary to be a core business that
we can consolidate with our other service operations. We seek businesses that
are located in attractive markets, have experience in the industry, and
management willing to participate in our future growth. Our plan is to enter
markets in predominantly metropolitan areas in the Southeast, Midwest and West
if appropriate opportunities present themselves.
OPERATING EFFICIENCIES. We believe our integration strategy affords us the
ability to achieve operating efficiencies and cost savings through volume
discounts on purchases. With our increasing size, we expect to purchase raw
materials at a significant price advantage over the small, independent
competitors that largely comprise the vinyl replacement window industry. In
addition, the concentration of our sales/installation locations affords us lower
freight costs and the ability to better manage inventory levels between
facilities. Also, we seek to provide centralized accounting software and
administrative functions that we believe should enhance our profitability and
the operating efficiencies of our subsidiaries.
43
<PAGE>
RELIABLE AND INEXPENSIVE SERVICING. Through the introduction of our own
manufactured vinyl replacement window from our manufacturers, we will be able to
provide our retail subsidiaries with a common product or products to sell in
their markets. By providing a manufacturing operation that is geographically
proximate to our retail operations, our manufacturers will be able to quickly
deliver a completed window for installation. In addition, by integrating our
manufacturing and retail operations, our retail subsidiaries can more easily
depend on the sources of their manufacturing.
ABILITY TO LEVERAGE LOCAL BUSINESS REPUTATIONS. We believe that we maintain
a strong relationship with our customer base of middle-income homeowners because
of our commitment to quality in both customer service and product offering. We
also maintain strong customer relationships by acquiring sales and installation
companies that have strong and long-standing local reputations, by generally
allowing the companies to continue to operate under their original names.
Beginning in 2000, we intend to introduce private label programs for our new
acquirees to diversify the products of our acquirees and take advantage of the
local reputation of our acquirees in their markets.
INCREASED ABILITY TO OFFER CUSTOMER FINANCING. We believe that through Key
Home Credit, our consumer finance subsidiary, we can provide our customers with
additional means to finance the purchases of our products. We believe that this
additional source of revenue will be an adjunct to our primary business and
should provide a means of assisting in the sales of our various products. As our
consumer finance subsidiary becomes licensed in more jurisdictions, we
anticipate its increased involvement in financing of the sales of our products.
THERMOVIEW ATTRACTION TO ACQUIREES
We believe that potential acquisition candidates will regard us as an
attractive acquirer because of the following:
- our strategy to become a national and integrated vinyl replacement window
business;
- our decentralized operations;
- our increased visibility and access to financial resources as a result of
being a public company;
- our potential for earnings based on the centralization of administrative
functions and enhanced systems capabilities; and
- our potential for the owners of businesses to participate in our internal
and acquisition growth while realizing liquidity from the sales of their
businesses. As an example, we have instituted an advisory board comprised
of managers of a number of our subsidiaries. These managers communicate
directly with corporate management on the operation of our subsidiaries
and also participate in our long- range planning.
MERCHANDISING
We design, manufacture, sell and install custom vinyl replacement windows
for residential and retail commercial customers. We also sell and install
replacement doors, textured coatings, vinyl siding, patio decks, patio
enclosures, cabinet refacings and bathroom and kitchen remodeling.
REPLACEMENT WINDOWS. We offer three lines of custom-made replacement vinyl
windows. Each of our lines consists of a broad range of window options including
awning, bay, bow, double hung, garden and slider replacement windows. We offer
the Barricade, Thermal-line and ThermoView lines of windows tailored to fit
remodeling and financial needs of our customers.
BARRICADE WINDOW. This line consists of our most expensive window products.
We design this line of replacement windows for energy performance, strength,
security and low maintenance. The windows offer welded vinyl frames reinforced
with aluminum in both their main frame and sash for added
44
<PAGE>
strength, and with one inch triple insulated glass with Low-E coatings and
double steel cam locks for security. The Barricade replacement window generally
sells for $750 to $900 per unit as installed.
THERMAL-LINE WINDOW. We design this line for high performance at affordable
cost. A component of this line of replacement windows is complast, a vinyl
substitute, which increases strength without the cost of aluminum reinforcement.
The use of complast also permits the use of dark colors in extreme heat. This
line of replacement windows contains double insulated glass and Low-E coatings.
The Thermal-line replacement window generally sells for $500 to $700 per unit as
installed.
THERMOVIEW WINDOW. We design this line of replacement windows to provide
customer value with three-quarter double insulated glass, Low-E coatings and
tilt-in sashes for easy cleaning. The ThermoView replacement window generally
sells for $400 to $700 per unit as installed.
Our windows offer the following features:
ENERGY EFFICIENCY. One characteristic of our windows is their insulating
qualities. Double- and triple-pane glass provides the R-values and U-values,
measures of insulation for end-users. With regard to this double- and
triple-pane glass, we incorporate state-of-the-art low-emissivity coatings.
Low-E coatings allow the passage of light but selectively block infrared
radiation. As a result, less heat escapes on cold days, and less heat enters on
warm days. We further increase the insulation value of our windows by
sandwiching a layer of argon, krypton and sulfur hexafluoride gas mixture
between panes of glass.
HIGH QUALITY FRAMES. Our windows incorporate fusion-welded corners, and our
Barricade line includes an internal aluminum support system. This structure
enhances the durability of the windows and prevents warping problems.
CUSTOM DESIGN. We custom manufacture windows in varying dimensions. This
process involves the retro-fitting of existing homes with custom-made, energy
efficient, vinyl-clad windows.
INSTALLATION SERVICE. Some of our subsidiaries only use their employees for
installation of our replacement windows. Others subcontract with crews that work
exclusively for us. Combining our employees and exclusive subcontractor
installers for our windows helps with both the speed and quality consistency of
the installation of our replacement windows. Generally, we complete installation
within the same or the second day of commencing installation.
LOW MAINTENANCE PRODUCT. Our windows do not require external maintenance
due to the vinyl materials used. The tilt-in feature of our windows eases their
cleaning.
COMPETITIVE PRICING. We believe that, with our increased sales volume, we
can reduce manufacturing and materials costs, thereby giving a higher value to
our customers than the small, fragmented remodeler. Through our purchasing and
distribution channels, we further realize cost savings that will benefit the
customer.
REPLACEMENT DOORS. We offer custom-made insulated steel doors with
wood-grain embossed finishes in 36 styles and sliding glass doors in six
variations.
- The steel doors range in price from $750 to $3,000 per door as installed
depending upon the styles, hardware and art-glass options and woodgrain
finishings chosen.
- The sliding glass doors range in price from $1,200 to $2,000 per door as
installed.
ENERGY EFFICIENCY, DESIGN, AND INSTALLATION. Our sliding glass doors and
insulated steel doors that contain glass have the same energy efficiency
characteristics as our vinyl replacement windows. We custom design and install
our sliding glass doors and insulated steel doors in a similar fashion to our
vinyl replacement windows.
45
<PAGE>
PRODUCT GUARANTEE. The manufacturer of our insulated steel doors offers a
25-year guarantee against warping, cracking or swelling of the product.
HOME TEXTURED COATINGS. We offer home textured coatings for residential
use, the cost of which ranges approximately from $2,000 to $15,000 per residence
as installed. Home textured coating is a paint and service that usually takes
seven days to complete. The process involves four coats of primer and two finish
coats, together with a trenching operation to prevent ground moisture
penetration and patching and repairs of the surface to be coated.
INSTALLATION SERVICE. Both employee and exclusive subcontractor painters
provide the home textured coatings to our customers.
PRODUCT GUARANTEE. The manufacturer of the product, Textured Coatings of
America, Inc., provides a limited lifetime warranty to the owner of the home
against chipping, flaking and peeling of its product.
VINYL SIDING. We offer vinyl siding in several colors and styles. Our
customers will generally spend in the range of $2,800 to $10,000 as installed
depending upon the size of the residence on which we install the vinyl siding.
The average time for installation is seven days and generally the vinyl siding
is maintenance free.
CABINET REFACINGS. We offer kitchen cabinet refacings in a number of
designs which range in cost from $3,000 to $10,000 per kitchen as installed and
generally take one day to complete.
KITCHEN AND BATHROOM REMODELING. We offer kitchen and bathroom remodeling
through certain of our subsidiaries. We estimate the cost for kitchen remodeling
to our customers to range from $3,000 to $20,000. Generally, remodeling takes
one week to complete. We charge our customers for bathroom remodeling from
$3,000 to $8,000 per residence as installed.
PATIO DECKS AND PATIO ENCLOSURES. We offer patio decks and patio enclosures
with single- or double-pane glass as a less expensive alternative to room
additions. Most sales involve single-pane glass together with a modular roof.
Generally, installation takes three days, and the cost to our customer ranges
from $8,000 to $18,000 as installed depending on the size and options chosen.
MANUFACTURING
With our acquisitions of Precision, Thermal Line and TD Windows, we have
begun to vertically integrate our replacement window sales, installation and
manufacturing functions. Unlike many of our competitors who must purchase window
products from third-party vendors, we now have the in-house capability to
manufacture many of the window products that our retail subsidiaries sell. Our
manufacturing subsidiaries provide us with a greater degree of process control
and flexibility.
LOW-TECH MANUFACTURING PROCESS. The process of manufacturing custom
replacement windows consists of measuring, cutting and assembling glass and
extruded vinyl "lineal" components to create windows that match customer
specifications. We have invested in sophisticated machinery to create an
assembly line environment designed to further automate the production process.
A summary of the assembly of a vinyl replacement window is as follows:
- we receive orders from the retail subsidiaries and enter the desired
dimensions of the windows into a computer;
- through the use of a proprietary computer program, we map the dimensions
of multiple windows onto a large sheet of glass in the configuration that
will maximize the number of windows to be cut from each sheet, thereby
minimizing waste;
46
<PAGE>
- once the glass is cut, we wash it and coat the edges with an insulating
material that will separate the two or three layers of glass panes and
create the desired air-tight seal around the window;
- while cutting the glass, another procedure measures and cuts vinyl
"lineals" according to the specifications of the window types and
dimensions required by the order;
- the cut and processed lineals then move to a welding area, where we weld
the four sides together and complete any final fabricating and
attachments;
- we then send the completed sash to the glass insertion area, where we
insert the window panes into the proper sash units;
- all of the major components of the window arrive at the final assembly
area concurrently to produce the finished product.
Because we assemble our windows on a made-to-order basis utilizing a
just-in-time inventory system, we do not maintain a large finished goods
inventory at our manufacturing plants. We typically deliver finished products to
one of our retail subsidiaries. Service personnel complete the installation and
servicing of the product at the customer's home. Integration of our sales,
shipping, installation and service operations enables us to provide a complete
window or door installation service for customers. The average time between the
execution of a customer sales contract and completion of installation is
approximately two weeks.
SUPPLIERS. We currently have two major vinyl suppliers, a Mikron
Industries, Inc. subsidiary and Complast, Inc. As of December 31, 1998, vinyl
accounts for 33% of our window material costs and constitutes the largest
portion of our raw materials costs. We primarily purchase glass from AFG
Industries, Inc., Libbey-Owens-Ford Company and Cardinal CG., three window
producers. Glass constitutes 15% of our window content.
Third party vendors manufacture our products except for our replacement
windows. We rely on one or two third party vendors for the manufacture of each
of our products, other than our replacement windows, to provide us with
manufacturing consistency and volume discounts.
SALES AND MARKETING
Each one of our subsidiaries has its own sales staff that determines its
sales function. We pay members of our sales staff on a commission basis and on
the profitability of the subsidiary for which they work.
Each subsidiary maintains its own advertising staff. We have created an
advertising committee comprised of three subsidiary managers. Our goal is to
have this committee suggest marketing programs and assist in undertaking new
methods of advertising and marketing. On January 1, 1999, we formed ThermoView
Advertising Group, Inc. for future advertising and marketing activities.
We currently market our products through several media, including:
- various customer referral programs;
- telemarketing;
47
<PAGE>
- direct mail solicitation;
- kiosk and discount store promotions;
- television and newspaper advertising;
- public displays; and
- door-to-door solicitation.
Our marketing approach varies from subsidiary to subsidiary and also varies
based upon the target area.
ADVERTISING. For each retail subsidiary, our goal is to allot approximately
8% of the subsidiary's sales budget for advertising expenses. We generally give
the individual subsidiary discretion as to the most effective form of
advertising for its geographic market.
We utilize a number of methods to create opportunities for direct contact
with potential customers, including renting space at local fairs and maintaining
kiosks at regional shopping malls. We employ infomercials as another form of our
advertising. In general, we believe that infomercials generate fewer customer
inquiries than direct solicitation but have a much greater probability of
generating a sale.
In addition to direct solicitation and infomercials, we also use various
other forms of advertising, including television commercials, direct mailings,
newspaper inserts and other printed media. For one subsidiary, we also contract
with a local sports celebrity to endorse our products.
DISCOUNT STORE LOCATIONS. We are in the process of establishing retail
design centers within a number of major discount stores in Arizona, Michigan,
Illinois and Wisconsin. We currently have retail design centers in Sam's Club,
Builders' Square and Lowes located in Arizona, Illinois, Indiana and Michigan.
These retail design centers offer a limited range of vinyl replacement window
services, including the staffing of our trained sales representatives,
installation and product support.
TELEMARKETING. A majority of our retail subsidiaries solicits customers
through an internally managed system. Through the use of a predictive dialing
system--an automated system that calls multiple phone numbers at once and only
directs to the operators those calls that are answered--we have increased the
efficiency while reducing the costs associated with telemarketing.
IN-HOME DEMONSTRATION. When a sales representative receives an expression
of interest from a potential customer, he or she will then generally arrange for
an in-home demonstration at the customer's residence. We have developed a
ten-step procedure for in-home sales presentations. Furthermore, in the training
of our sales staff, we instruct them that they have limited discretion to
negotiate on price. We pay our sales staff solely on a commission basis to
provide for maximum incentives.
CUSTOMER PAYMENT
As of December 31, 1998, in approximately 50% of our sales customers pay in
cash upon completion of installation of our products. For the remaining 50% of
sales customers pay for the products under installment or conditional sales
contracts. In these sales, a customer contracts to pay the retail sales price,
plus a finance charge, in equal installments over a predetermined period of
time. A security interest or chattel mortgage collateralizes the purchased
goods. We currently assign the majority of these contracts to unaffiliated local
financial institutions, in return for the cash sales price of the products
involved, upon execution of a certificate of completion by a customer after
completion of installation. We assign a portion of contracts to our newly-formed
consumer finance division, Key
48
<PAGE>
Home Credit. The annual percentage rate for our installment contracts varies
from a minimum of approximately 9.75% to a maximum rate in excess of 18%
depending upon:
- the amount of the installment contract;
- the length of the repayment period;
- the state in which the contract is executed; and
- the financial institution to which we assign the contract.
Key Home Credit operates our consumer finance division. Key Home Credit
began financing customer sales in August 1998 in Kentucky and Tennessee. It is
Key Home Credit's policy to obtain security interests via fixture filings in the
purchased goods for loans less than or equal to $5,000 and to obtain chattel
mortgages in the purchased goods for loans in excess of $5,000. From inception
to June 30, 1999, Key Home Credit has approved loans in the aggregate in excess
of $2.5 million and funded loans in the aggregate in excess of $1.2 million. Key
Home Credit's revenue for the six months ended June 30, 1999 was $82,000, which
was comprised of $34,000 in fees from the sale of loans and $48,000 from
interest on loans held in its portfolio.
COMPETITION
VINYL REPLACEMENT WINDOWS AND DOORS. The vinyl replacement window and door
industry is highly competitive. The industry is significantly fragmented at both
the manufacturing level and at the retail level.
Most of our competitors are smaller than us and to an extent consist of
local lumber and home improvement dealers. We also compete with larger home
improvement chain store operations such as Builders Square, HQ Home Quarters
Warehouse, Inc., Home Depot, Lowes and Scotty's. These stores, which usually
sell windows with limited warranties and without in-house installation services,
have significantly greater financial and operating resources and greater name
recognition than we have. Additional competitors include Champion Windows,
Pacesetters and the Sears Group.
Brands in the window industry with the highest name recognition include
Andersen Corporation, Pella Corporation and Marvin Windows. These companies
primarily compete in the new construction segment of the window market. While
these companies also produce replacement windows, they currently sell a
relatively small percentage of their products for replacement applications.
Furthermore, these companies generally emphasize wood windows rather than vinyl
and market their products primarily to higher-end homeowners.
We also compete with other window and door manufacturers including Republic,
Great Lakes, Thermal, Inc., Atrium, American Architectural Products Corporation,
Thermal Guard and Winchester Industries.
HOME TEXTURED COATINGS. The competitors for our textured coating products
include small remodelers and painting contractors who use the textured coating
product or other painting products. We are not aware of a significantly large
company that competes with us directly in the installation of textured coating.
VINYL SIDING. We compete in the sale and installation of our vinyl siding
with PaceSetters, Champion Windows and the Sears Group.
CABINET REFACINGS AND KITCHEN AND BATHROOM REMODELING. Our principal
competitors include PaceSetters and the Sears Group. In addition, smaller
remodelers and contractors in each of the regions in which we engage in the
cabinet refacing and kitchen and bathroom remodeling businesses compete with us.
49
<PAGE>
PATIO DECKS AND PATIO ENCLOSURES. Our competition in the installation of
patio decks and patio enclosures includes PaceSetters and a number of smaller
remodelers and contractors in each of the regions in which we install patio
decks and patio enclosures.
GOVERNMENT REGULATIONS
Our business is subject to various federal, state and local laws,
regulations and ordinances relating to, among other things, in-home sales,
telemarketing, consumer financing, retail installment sales, advertising, the
licensing of home improvement independent contractors, OSHA standards, building
and zoning, consumer protection and environmental protection and regulations
relating to the disposal of other solid wastes. Certain jurisdictions require us
to secure a license as a contractor. In addition, certain jurisdictions require
us to obtain a building permit for each installation. We are also subject to
certain federal, state and local laws and regulations, which, among other
things, regulate our advertising, warranties and disclosures to customers.
Although we believe that we are currently in compliance in all material respects
with these laws and regulations, existing or new laws or regulations applicable
to our business in the future may materially adversely affect our results of
operations.
The operations of our consumer finance subsidiary, Key Home Credit, are
subject to supervision by state authorities (typically state banking, consumer
credit or insurance authorities) that generally require Key Home Credit to be
licensed to conduct its business. Many states only issue licenses upon a finding
of public convenience, financial responsibility, character and fitness of the
applicant. Key Home Credit is generally subject to state regulations,
examinations and reporting requirements, and licenses are revocable for cause.
Currently, Key Home Credit is licensed and qualified to provide financing in
seven states.
Various federal statutes governing the consumer finance industry comprise
the Federal Consumer Credit Protection Act. Included within the Consumer
Protection Act are the Truth-in-Lending Act, the Fair Credit Reporting Act, the
Equal Credit Opportunity Act and the Fair Debt Collection Practices Act. The
Truth-in-Lending Act requires a written statement showing the annual percentage
rate of finance charges and requires that other information be presented to
debtors when consumer credit contracts are executed. The Fair Credit Reporting
Act requires certain disclosures to applicants for credit concerning information
that is used as a basis for denial of credit. The Equal Credit Opportunity Act
prohibits discrimination against applicants with respect to any aspect of a
credit transaction on the basis of sex, marital status, race, color, religion,
national origin, age, derivation of income from a public assistance program, or
the good faith exercise of a right under the Consumer Protection Act. In
addition, the Fair Debt Collections Practices Act proscribes various debt
collection practices which it deems unfair, harassing or deceptive.
Key Home Credit is subject to state usury laws. In certain states and under
certain circumstances, federal law has preempted state law, although for a
period of time individual states could have enacted legislation superseding
federal law. To be eligible for the federal preemption, the credit application
must comply with certain consumer protection provisions. A few states have
elected to override federal law, but have established maximum rates that either
fluctuate with changes in prevailing rates or are high enough so that, to date,
no state's maximum interest rate has precluded Key Home Credit from continuing
to offer financing in that state. Although we believe that Key Home Credit is
currently in compliance in all material respects with such laws and regulations,
a change in existing laws or regulations or the creation of new laws and
regulations applicable to Key Home Credit's business may have an adverse effect
on Key Home Credit's ability to provide customer financing or on the
profitability of its activities.
50
<PAGE>
INTELLECTUAL PROPERTY
We do not have any material patents related to our products. Certain of our
subsidiaries have sales and installation processes that they consider trade
secrets. These subsidiaries protect these trade secrets by requiring their
employees to enter into confidentiality agreements. We intend to file for a
trademark with the U.S. Patent and Trademark Office under the name "ThermoView."
EMPLOYEES
As of June 30, 1999, we employed in excess of 1,400 people. With the
exception of employees of Precision Window and Thermal Line Windows, none of our
employees are subject to a collective bargaining agreement. The employees at
Precision Window and Thermal Line are members of the United Steel Workers of
America. The two-year contract with the employees of Precision Window expires on
July 1, 2001. The three-year contract with the employees of Thermal Line Windows
expires on February 1, 2001. We have never experienced a work stoppage, and we
consider our relations with our employees to be satisfactory.
Our employees typically receive an hourly wage or salary and are generally
eligible for certain bonuses, except for our sales staff who we pay on a
commission basis. Our compensation system is directly related to profitability
and accordingly compensation expense increases and decreases as sales and
profits fluctuate. We emphasize incentive compensation, including cash bonus
arrangements and various other incentive programs which offer our personnel an
opportunity for additional earnings and benefits.
PROPERTIES AND EQUIPMENT
The following lists certain of our property locations having in excess of
9,000 square feet and our headquarters. We lease all of our facilities. In many
cases, we lease the property, at market rates, from the former owners of the
subsidiaries which operate on the property. We also lease our headquarters, at
market rates, from an affiliated company of Stephen A. Hoffmann, our Chairman
and Chief Executive Officer.
<TABLE>
<CAPTION>
PROPERTY DESCRIPTION LEASE EXPIRATION
THERMOVIEW OR SUBSIDIARY AS LESSEE PROPERTY ADDRESS AND USE DATE(1)
- ----------------------------------------- ----------------------- ----------------------- --------------------
<S> <C> <C> <C>
ThermoView Industries, Inc............... 1101 Herr Lane(2) 7,671 sq. ft. October 2003
Louisville, KY 40222 Executive offices
RETAIL SUBSIDIARIES:
Thermo-Tilt Window Company............... 2800 Warehouse Road 24,000 sq. ft. December 2002
Owensboro, KY 42301 Warehouse plus 9,000
sq. ft. Office
Primax Window Co......................... 5611 Fern Valley Road 15,000 sq. ft. October 2001
Louisville, KY 40228 Headquarters
Rolox, Inc............................... 4002 Main Street 16,000 sq. ft. April 2002
Grandview, MO 64030 Headquarters /
Warehouse
14405 Ridge Road 10,000 sq. ft. April 2002
Wichita, KS 67209 Office / Warehouse
Thomas Construction, Inc................. 13397 Lake Front Dr. 60,000 sq. ft. December 2013
Earth City, MO 63045 Office / Warehouse
Thermo-Shield Company, LLC............... 661 Glenn Avenue 17,000 sq. ft. October 2007
Wheeling, IL 60090 Office / Warehouse
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
PROPERTY DESCRIPTION LEASE EXPIRATION
THERMOVIEW OR SUBSIDIARY AS LESSEE PROPERTY ADDRESS AND USE DATE(1)
- ----------------------------------------- ----------------------- ----------------------- --------------------
<S> <C> <C> <C>
MANUFACTURING SUBSIDIARIES:
TD Windows, Inc.......................... 1720 Research Drive 16,400 sq. ft. January 2000
Louisville, KY 40299 Headquarters / Office /
Manufacturing
Thermal Line Windows, Inc................ 3601 30(th) Ave, NW 49,500 sq. ft. December 2005
Mandan, ND 58554 Headquarters / Office /
Manufacturing
2605 Twin City Dr. 9,150 sq. ft. October 2003
Mandan, ND 58554 Manufacturing
Precision Window Mfg., Inc............... 7208 Weil Avenue 31,000 sq. ft. On 30 days notice
St. Louis, MO 63119 Headquarters / Office /
Manufacturing
</TABLE>
- ---------
(1) Does not include renewal options.
The leases of our properties provide for monthly rentals ranging from
approximately $500 to $37,500. See footnote 6 to our consolidated financial
statements for the year ended December 31, 1998, which appears on page F-24 of
this prospectus, for more information regarding our leases.
LEGAL PROCEEDINGS
ThermoView is occasionally a party to legal proceedings arising in the
ordinary course of its business. We are not currently a party to any material
legal proceedings, and we are not aware of any material litigation threatened
against us.
52
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth the name, age, and position within ThermoView
of each director and executive officer and certain of the key employees of
ThermoView:
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
Stephen A. Hoffmann.................. 54 Chairman of the Board and Chief Executive Officer
Richard E. Bowlds.................... 53 Vice Chairman of the Board and Executive Vice President--
Acquisitions
Nelson E. Clemmens................... 49 President and Director
Charles L. Smith..................... 45 Chief Operating Officer and Director
John H. Cole......................... 56 Chief Financial Officer
Robin C. Edwardsen................... 50 Vice President--Human Resources
Leigh Ann Barney..................... 31 Treasurer
J. Sherman Henderson, III............ 56 Director
Delores P. Kesler.................... 58 Director
Michael A. Toal...................... 43 Director
</TABLE>
KEY EMPLOYEES
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
Larry Clark.......................... 37 Vice President of Key Home Credit
Michael S. Haines.................... 52 Vice President of Five Star Builders, Inc.(1)
Joel S. Kron......................... 40 Vice President of The Thermo-Shield Companies
Alvin W. Leingang.................... 41 Vice President of Leingang Siding and Window, Inc. and Thermal Line
Windows, L.L.P.(2)
Rodney H. Thomas..................... 46 Vice President of Thomas Construction, Inc.
</TABLE>
- ---------
(1) Five Star Builders, Inc. has recently changed its name to ThermoView of
California, Inc.
(2) Thermal Line Windows, L.L.P. is now Thermal Line Windows, Inc.
STEPHEN A. HOFFMANN. Mr. Hoffmann has served as Chairman of the Board and
Chief Executive Officer of ThermoView since April 1998 and as President from
April 1998 to November 1998. From May 1992 to February 1997, Mr. Hoffmann, a
co-founder of AccuStaff Incorporated, served in various positions with AccuStaff
including Vice Chairman and Vice President--Acquisitions. AccuStaff is now known
as Modis Professional Services, Inc., a New York Stock Exchange listed temporary
staffing company based in Jacksonville, Florida, with annual revenues of
approximately $2.5 billion as of August 1998. The principal growth of AccuStaff
revenues has been through an aggressive consolidation strategy in the temporary
staffing industry. Mr. Hoffmann was also a co-founder of MetroTech, Inc., a
predecessor entity to AccuStaff. Additionally, Mr. Hoffmann has been a member of
The Founders Group LLC, a Louisville, Kentucky based venture capital firm, since
1997. Mr. Hoffmann received a B.S. in Commerce with a minor in Accounting from
the University of Louisville in 1972.
RICHARD E. BOWLDS. Mr. Bowlds has served as Executive Vice
President-Acquisitions of ThermoView since July 1999, as Vice Chairman of the
Board since June 1999, as a director since April 1998 and as Chief Operating
Officer from April 1998 to June 1999. Mr. Bowlds is the founder and is currently
a director of Thermo-Tilt. Prior to founding Thermo-Tilt in 1987, Mr. Bowlds
worked
53
<PAGE>
in the home improvement industry from 1977. Mr. Bowlds is the father-in-law of
Charlton C. Hundley, ThermoView's current Corporate Counsel and Secretary.
NELSON E. CLEMMENS. Mr. Clemmens has served as a director of ThermoView
since April 1998 and as President of ThermoView since November 1998. Mr.
Clemmens formerly served as Vice President-Finance and Administration and
Secretary of ThermoView from April 1998 to November 1998. Mr. Clemmens has been
Managing Director of Pine South Capital, a private investment banking firm,
since its founding in April 1986. Mr. Clemmens has also been active as owner,
principal or investor in seven operating companies during the same period,
including a multi-service home health company consolidation. Since February
1999, Mr. Clemmens has been the majority owner of HCP, Inc., a regional health
care services company. From November 1997 until July 1999, Mr. Clemmens was
Chairman of WBC, Inc., a railroad equipment distribution company. From May 1989
until May 1990, Mr. Clemmens was also a co-owner of Courier Graphics, Inc., a
specialized printer, and from May 1987 until December 1989 President and
co-owner of Transue & Williams Stamping Co., a parts fabrication company. From
August 1983 until April 1986, Mr. Clemmens served as Vice President of
Finance/Administration with Olicon/Raytel, a health care venture. From January
1982 until August 1983, Mr. Clemmens served as Senior Vice President of
Stratford Leasing Company. From June 1977 until January 1982, Mr. Clemmens
served in several corporate finance management positions with General Electric
Capital Corporation. Mr. Clemmens holds a B.A. degree from Stetson University
and an M.B.A. from Western Kentucky University.
CHARLES L. SMITH. Mr. Smith has served as a director of ThermoView since
May 1998 and as its Chief Operating Officer since June 1999. Mr. Smith served as
Vice President--Manufacturing Operations from November 1998 to June 1999. Mr.
Smith founded in 1982 and was the President of Primax Window Co. until its
acquisition by ThermoView, at which time he became Primax's Vice President. Mr.
Smith is also the founder and President of Bee Line Courier Service, a courier
service based in Louisville, Kentucky. Additionally, Mr. Smith has been an
officer of Precision Window Mfg., Inc. since April 1992. Mr. Smith was the
President of Achievers Association, a window association of manufacturers,
dealers and retailers, from 1990 to 1995.
JOHN H. COLE. Mr. Cole has served as the Chief Financial Officer of
ThermoView since July 1999 and as our Senior Vice President--Acquisitions from
November 1998 to July 1999. From September 1998 to November 1998, Mr. Cole was
retired. From November 1966 to September 1998, Mr. Cole was with PriceWaterhouse
Coopers LLP, most recently as a Senior Audit Partner, where he was involved with
publicly reporting entities, SEC filings, mergers and acquisitions, due
diligence procedures and internal control functions. Mr. Cole, a Certified
Public Accountant, was a national coordinator of PriceWaterhouse Cooper's
quality control review program. In 1997 Mr. Cole led an international quality
control team inspecting the China offices of PriceWaterhouseCoopers LLP. Mr.
Cole holds a B.A. in Accountancy from the University of Kentucky and is a
University of Kentucky Fellow.
ROBIN C. EDWARDSEN. Mr. Edwardsen has served as ThermoView's Vice
President--Human Resources since March 1999. From March 1997 through March 1999,
Mr. Edwardsen attended the University of Missouri-Kansas City where he obtained
his M.A. From January 1996 through March 1997, Mr. Edwardsen served as Director
of Human Resources for Humana, Inc., where he designed and implemented several
company-wide strategic human resources initiatives. From August 1981 until
December 1995, Mr. Edwardsen served as Senior Vice President and founding
partner of PSA, a personnel staffing company. Mr. Edwardsen holds a B.A. from
Hanover College.
LEIGH ANN BARNEY. Ms. Barney has served as ThermoView's Treasurer since
July 1998 and as President of Key Home Credit since November 1998. From April
1996 to May 1998, Ms. Barney served as Operations Controller for HomeCare and
Hospital Management, Inc., a diversified home health care and durable medical
equipment and supplies company. From May 1992 through March 1996,
54
<PAGE>
Ms. Barney held various positions with Transitional Health Services including
Senior Financial Analyst and Treasury Manager. Ms. Barney holds B.S. and M.B.A.
degrees from the University of Louisville.
J. SHERMAN HENDERSON, III. Mr. Henderson has served as a director of
ThermoView since August 1998. Mr. Henderson has served as President and Chief
Executive Officer of UniDial Communications, a telecommunications company, since
August 1993. Mr. Henderson is also a founder, President and Chief Executive
Officer of UniDial Direct, which sells commercial telecommunication products.
Mr. Henderson has served as the Chairman of the Telecom Resellers Association, a
national trade organization, since May 1994. Mr. Henderson received a B.S. in
Business Management from Florida State University in 1965.
DELORES P. KESLER. Ms. Kesler has served as a director of ThermoView since
August 1998. Ms. Kesler was a co-founder of AccuStaff and from August 1991 to
September 1998 served as Chairperson and Chief Executive Officer of AccuStaff.
Ms. Kesler has been a member of The Founders Group since 1997. Since 1993, Ms.
Kesler has been a director of PSS/World Medical, Incorporated, a distributor of
medical supply equipment and pharmaceuticals to office-based physicians. Ms.
Kesler also serves as a director of various private and charitable
organizations.
MICHAEL A. TOAL. Mr. Toal has served as a director of ThermoView since
August 1998. Mr. Toal formerly served as the President of CompAir LeROI, a
compressor manufacturing division of Siebe plc, an international conglomerate
holding company, from April 1994 to December 1998. Mr. Toal also served as a
director of LeROI International, Inc., a subsidiary of Siebe, from October 1991
to December 1998. Additionally, Mr. Toal has served as Vice President of T(3)
Management Group, a financial lender and acquisition consultant in the capital
equipment industry, since 1994 and a director of T(3) Management Group since
1998. Mr. Toal received a B.A. in History from Harvard University in 1978.
LARRY CLARK. Mr. Clark has served as Vice President of Key Home Credit
since August 1998. From May 1998 until August 1998, Mr. Clark served in other
capacities with ThermoView. From June 1996 through May 1998, Mr. Clark was a
commercial loan officer with National City Bank of Kentucky. From August 1995 to
May 1998, Mr. Clark served as a branch manager for the consumer finance division
of National City Bank. From June 1990 to August 1995, he served as branch
manager with Commercial Credit Corporation, a consumer finance company. Mr.
Clark holds a B.S. degree from Murray State University.
MICHAEL S. HAINES. Mr. Haines has served as Vice President of Five Star
Builders since its acquisition by ThermoView in July 1998. Mr. Haines co-founded
in 1989 and served as president of Five Star Builders from 1989 until July 1998.
JOEL S. KRON. Mr. Kron has served as Vice President of The Thermo-Shield
Companies since its acquisition by ThermoView in March 1999. Mr. Kron founded in
1984 and served as president of The Thermo-Shield Companies from 1984 until
March 1999.
ALVIN W. LEINGANG. Mr. Leingang has served as Vice President of Leingang
Siding and Window and Thermal Line Windows since their acquisition by ThermoView
in August 1998. Mr. Leingang founded in 1977 Leingang Century Siding and Windows
and served as its president from 1977 until August 1998. Mr. Leingang founded
Thermal Line Windows in 1984 and served as its president from 1984 until August
1998.
RODNEY H. THOMAS. Mr. Thomas has served as Vice President of Thomas
Construction since its acquisition by ThermoView in January 1999. Mr. Thomas
founded in 1982 and served as president of Thomas Construction from 1982 until
January 1999.
55
<PAGE>
BOARD OF DIRECTORS
The Board of Directors manages our business. The number of directors is
currently fixed at seven. Our certificate of incorporation provides that the
Board of Directors shall be divided into three classes. The members of each
class of directors serve for staggered three-year terms. The members of the
Class I Directors are Messrs. Bowlds and Smith; the members of the Class II
Directors are Ms. Kesler and Messrs. Henderson and Toal; and the members of the
Class III Directors are Messrs. Hoffmann and Clemmens. The initial terms of
office of the Class I Directors, Class II Directors and Class III Directors will
expire upon the election and qualification of directors at the annual meetings
of stockholders held following the fiscal years ending December 31, 2000, 2001
and 2002, respectively. At each subsequent annual meeting of stockholders,
stockholders will elect or re-elect directors for a full term of three years to
succeed those directors whose terms are expiring. Any alteration, amendment or
repeal of the staggered board requirement in the certificate of incorporation
would require the affirmative vote of stockholders owning at least 66 2/3% of
the total shares outstanding and entitled to vote generally in the election of
directors, voting together as a single class.
BOARD COMMITTEES
AUDIT COMMITTEE. The Board of Directors established its audit committee in
December 1998. This committee reviews, acts on and reports to the Board of
Directors with respect to various auditing and accounting matters, including the
recommendation of ThermoView's independent auditors, the scope of the annual
audits, fees that ThermoView agrees to pay to the independent auditors, the
performance of ThermoView's independent auditors and the accounting practices of
ThermoView. The members of the audit committee are Messrs. Henderson and Toal
and Ms. Kesler.
COMPENSATION COMMITTEE. The Board of Directors established the compensation
committee in December 1998. This committee determines the salaries and benefits,
including stock option grants for ThermoView's employees, consultants, directors
and other individuals. The compensation committee also administers ThermoView's
compensation plans. The members of the compensation committee are Messrs.
Henderson and Toal and Ms. Kesler.
STRATEGIC OPERATIONS COMMITTEE
We have formed a strategic operations committee comprised of five managers
of our subsidiaries, each of whom has substantial experience in the replacement
window and related product business. The members of the Strategic Operations
Committee are Messrs. Clark, Haines, Kron, Leingang and Thomas. This committee
serves as a formal advisory, problem-solving and communications forum for us.
The committee evaluates and advises our subsidiaries related to:
- our product mix and lines;
- our product design and features;
- our manufacturing facility locations, processes, quality controls and
expansions;
- our delivery and installation services;
- our purchasing programs;
- our marketing, sales and advertising programs; and
- industry trends and issues.
DIRECTOR COMPENSATION
ThermoView currently pays its directors a fee of $10,000 per annum plus
reimbursement for customary and reasonable expenses incurred in connection with
their services performed as directors.
56
<PAGE>
Outside directors also receive $500 per phone conference. In May 1999, the
compensation committee granted to Messrs. Henderson and Toal and Ms. Kesler,
ThermoView's three outside directors, non-qualified stock options to purchase,
in the aggregate, 22,500 shares of common stock under the 1999 stock option plan
as compensation for services rendered as directors. These options are
exercisable in whole or in part and one-third of these options vest in each of
May 2000, 2001 and 2002. These options expire in May 2009.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the compensation committee of the Board of Directors
is an officer or employee of ThermoView. No executive officer of ThermoView
serves as a member of the Board of Directors or compensation committee of any
entity that has one or more executive officers serving on ThermoView's
compensation committee.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to ThermoView's Chief Executive Officer and the four other highest
compensated executive officers whose annual salary and bonus exceeded $100,000
in 1998 for services rendered in all capacities to ThermoView during 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------------- UNDERLYING
OTHER ANNUAL OPTIONS/SARS
NAME AND PRINCIPAL POSITION SALARY COMPENSATION (# SHARES)
- ---------------------------------------- -------- --------------- ------------
<S> <C> <C> <C>
Stephen A. Hoffmann .................... $106,250 $10,100(1)(2) 1,136,990
Chief Executive Officer
Nelson E. Clemmens ..................... 89,583(3) 6,631(1)(4) 330,447
President
Richard E. Bowlds ...................... 167,507(5) 22,409(1)(6) -
Chief Operating Officer
James J. TerBeest(7) ................... 100,000 7,303(8) 125,000
Former Chief Financial Officer
Charles L. Smith ....................... 152,933(9) 23,396(1)(10) -
Vice President--Manufacturing
Operations
</TABLE>
- ---------
(1) Includes $5,000 in director fees.
(2) Includes $5,100 in automobile benefits.
(3) Includes $6,250 in consulting fees received from Thermo-Tilt in April 1998.
(4) Includes $1,631 in insurance benefits.
(5) Represents $58,174 in salary paid by Thermo-Tilt from January 1998 to May
1998 and $109,333 in salary paid by ThermoView from April 1998 to December
1998.
(6) Includes $12,652 in automobile benefits and $4,757 in insurance benefits.
(7) Mr. TerBeest resigned as Chief Financial Officer in July 1999.
(8) Includes $4,000 in automobile benefits and $3,303 in insurance benefits.
57
<PAGE>
(9) Represents $137,308 in salary paid by Primax Window Co. from January 1998 to
November 1998 and $15,625 in salary paid by ThermoView from November 1998 to
December 1998.
(10) Includes $9,598 in automobile benefits and $8,798 in insurance benefits.
STOCK OPTION GRANTS
The following table sets forth information regarding options granted or
assumed by ThermoView to the named executive officers during the year ended
December 31, 1998. Each option represents the right to purchase one share of
common stock. ThermoView has not granted any stock appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------
NUMBER OF POTENTIAL REALIZABLE VALUE
SECURITIES AT ASSUMED ANNUAL RATES OF
UNDERLYING PERCENTAGE PER STOCK PRICE APPRECIATION
OPTIONS OF TOTAL SHARE FOR OPTION TERM
GRANTED OPTIONS EXERCISE EXPIRATION --------------------------
NAME (# SHARES) GRANTED PRICE DATE 5% 10%
- --------------------- ------------- ------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Nelson E. Clemmens... 43,483(1) 1.1% $ 0.29 10/22/02 $ --(3) $ --(3)
86,964 2.3 1.15 1/19/03 --(3) 26,042
200,000 5.2 2.30 11/1/08 1,582,051 2,116,816
Stephen A. Hoffmann.. 21,742(1) 0.6 0.29 10/22/02 --(3) --(3)
315,248 8.3 1.15 1/13/03 --(3) 94,404
800,000 21.1 1.15 --(2) --(3) 239,567
James J. TerBeest.... 125,000 3.3 1.15 4/20/03 1,442,030 1,857,309
</TABLE>
- ---------
(1) Represents options assumed by ThermoView upon its acquisition of Thermo-Tilt
on April 15, 1998.
(2) Options expire six months after the termination of Mr. Hoffmann's employment
period under his employment agreement with ThermoView.
(3) The option exercise price exceeded the per share market value of our common
stock at the grant date and no appreciation in excess of the option exercise
price has occurred with respect to this option at this assumed annual rate
of stock price appreciation.
58
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning the number and value
of unexercised options held by each of the named executive officers at December
31, 1998. There were no option exercises by a named executive officer during
1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL YEAR END IN-THE-MONEY OPTIONS AT
ACQUIRED ON (# SHARES) FISCAL YEAR END(1)
EXERCISE VALUE ---------------------------- ----------------------------
NAME (# SHARES) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ------------ -------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Stephen A. Hoffmann................ 0 $0 1,136,990 0 $ 4,748,577 0
Nelson E. Clemmens................. 0 0 330,447 0 1,182,055 0
James J. TerBeest.................. 0 0 125,000 0 520,000 0
</TABLE>
- ---------
(1) The value of the in-the-money options is based on the $5.31 per share
closing price of our common stock on the OTC Bulletin Board on December 31,
1998.
1998 EMPLOYEE STOCK OPTION PLAN
The 1998 employee stock option plan became effective as of April 15, 1998.
In December 1998, the Board of Directors declared that, effective January 1,
1999, it would not grant any additional options under the 1998 employee stock
option plan due to the implementation of the 1999 stock option plan. The purpose
of the 1998 employee stock option plan was to promote the interests of
ThermoView by attracting key employees, providing its key employees with an
additional incentive to work to increase the value of the common stock and
providing key employees with a stake in the future of ThermoView which
corresponds to the stake of the stockholders. The Board of Directors granted
options to purchase 1,480,000 shares under the 1998 employee stock option plan
at prices ranging from $1.15 to $5.31. On January 1, 1999, the Board of
Directors authorized the transfer of the remaining 20,000 authorized but
unissued shares reserved for the 1998 employee stock option plan to the 1999
stock option plan. The 1998 employee stock option plan provided for the granting
to key employees of either incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended or non-qualified stock
options under the Internal Revenue Code.
1999 STOCK OPTION PLAN
The 1999 stock option plan became effective as of January 1, 1999. The
purpose of the 1999 stock option plan is to promote the interests of ThermoView
by attracting key employees and directors, providing each of its key employees
and directors with an additional incentive to work to increase the value of the
common stock and providing key employees and directors with a stake in the
future of ThermoView which corresponds to the stake of the stockholders.
ThermoView authorized for issuance a total of 2,500,000 shares of common stock
under the 1999 stock option plan. As of June 30, 1999, the Board of Directors
had granted options to purchase 890,623 shares of common stock at prices ranging
from $3.88 to $8.62.
STOCK OPTIONS. Each stock option granted under the 1999 stock option plan
entitles the holder to purchase the number of shares of common stock specified
in the grant at the purchase price specified.
The 1999 stock option plan authorizes the Compensation Committee to grant:
- incentive stock options within the meaning of Section 422 of the Internal
Revenue Code to key employees, and
- non-qualified stock options under the Internal Revenue Code to key
employees or non-employee directors.
59
<PAGE>
If an option granted under the 1999 employee stock option plan expires, is
cancelled or is exchanged for a new option before a holder exercises the option
in full, the shares reserved for the unexercised portion of the option will
become available again for use under the 1999 stock option plan. Shares
underlying an option that a holder surrenders and shares used to satisfy an
option price or withholding obligation will not become available for use under
the 1999 stock option plan.
401(K) PLAN
In January 1999, our Board of Directors created a 401(k) profit sharing plan
for its employees. Participants may elect to make elective contributions
pursuant to salary withholding not to exceed $10,000 per annum. We intend to
make matching contributions on the first 25% of the first 6% of a participant's
annual compensation that a participant contributes.
EMPLOYMENT AGREEMENTS
Thermo-Tilt and Mr. Hoffmann are parties to an employment agreement, as
amended, governing his employment with Thermo-Tilt. The agreement expires in
January 2000.
ThermoView and Mr. Hoffmann are parties to an employment agreement, as
amended, governing his employment with ThermoView. The agreement expires in
April 2000. The agreement provides that Mr. Hoffmann will receive a base salary
of $150,000 per annum and will be eligible to receive an annual bonus equal to
two percent of ThermoView's pre-tax income.
Thermo-Tilt and Mr. Clemmens are parties to an employment agreement, as
amended, governing his employment with Thermo-Tilt. The agreement expires in
January 2000.
ThermoView and Mr. Clemmens are parties to an employment agreement, as
amended, governing his employment with ThermoView. The agreement expires in
April 2000. The agreement provides that Mr. Clemmens will receive a base salary
of $150,000 per annum.
ThermoView and Mr. Bowlds are parties to an employment agreement governing
his employment with ThermoView. The agreement expires in January 2000. The
agreement provides that Mr. Bowlds will receive a base salary of $145,000 per
annum.
ThermoView and Mr. TerBeest are parties to an employment agreement governing
his employment with ThermoView. The agreement expires in April 2001. The
agreement provides that Mr. TerBeest will receive a base salary of $158,000 per
annum.
ThermoView and Mr. Smith are parties to an employment agreement governing
his employment with Primax Window Co. The agreement expires in April 2001. The
agreement provides that Mr. Smith will receive a base salary of $125,000 per
annum. ThermoView and Mr. Smith are also parties to an employment agreement
governing his employment with Precision Window Mfg., Inc. The agreement expires
in January 2002. The agreement provides that Mr. Smith will receive a base
salary of $60,000 per annum.
ThermoView and Mr. Cole are parties to an employment agreement governing his
employment with ThermoView. The agreement expires in October 2000. The agreement
provides that Mr. Cole will receive a base salary of $150,000 per annum.
Each of the employment agreements summarized above provides that the
executive retains his salary and benefits until the expiration of the employment
agreement if we terminate the executive without cause.
60
<PAGE>
CERTAIN TRANSACTIONS
SALES OF STOCK TO INSIDERS
Since July 1997, we have issued and sold securities to the following persons
or entities who are our executive officers, directors, promoters or principal
stockholders. These figures reflect activity through July 12, 1999.
<TABLE>
<CAPTION>
PER SHARE
PURCHASE OR
TYPE OF NUMBER OF EXERCISE
INVESTOR SECURITY SHARES DATE ISSUED PRICE
- ------------------------------------------ --------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Brown Simpson Strategic
Growth Fund, Ltd. and
Brown Simpson Strategic
Growth Fund, L.P........................ Preferred 6,000 April 1999 $ 1,000
(Series 1,200,000 April 1999 6.00
C)
Warrant
Richard E. Bowlds......................... Common 4,881,856 July 1997 (1)
GE Capital Equity Investments, Inc........ Warrant 1,666,028 July 1999 0.01
Stephen A. Hoffmann....................... Common 8,696 March 1998 1.15
Options 21,742 October 1997 0.29
Options 315,248 January 1998 1.15
Options 800,000 April 1998 1.15
Robert E. Anderson........................ Common 695,720 November 1997 1.03
Common 173,930 March 1998 1.15
LD Capital, Inc........................... Common 105,565 July 1997 0.19
Options 1,478,405 October 1997 0.29
Evangel Christian Life Center............. Common 1,017,070 July 1997 0.19
Charles L. Smith.......................... Common 459,000 April 1998 (2)
Nelson E. Clemmens........................ Options 43,483 October 1997 0.29
Options 86,964 January 1998 1.15
Options 200,000 November 1998 2.30
Delores P. Kesler......................... Common 43,483 March 1998 1.15
Options 7,500 May 1999 3.88
John H. Cole.............................. Options 300,000 April 1998 1.15
Michael A. Toal........................... Preferred 50,000 July 1998 5.00
(Series 7,500 May 1999 3.88
A)
Options
J. Sherman Henderson III.................. Options 7,500 May 1999 3.88
</TABLE>
- ---------
(1) Thermo-Tilt issued these shares to Mr. Bowlds in connection with the
conversion of his sole proprietorship into a corporation. No value was
assigned to these shares for accounting purposes.
(2) Issued in connection with an acquisition.
SERIES C PREFERRED STOCK AND WARRANTS
In April 1999, we issued an aggregate of 6,000 shares of Series C preferred
stock to two institutional accredited investors, Brown Simpson Growth Fund,
L.P., a New York limited partnership,
61
<PAGE>
and Brown Simpson Growth Fund, Ltd., a Grand Cayman, Cayman Islands limited
partnership, at a per share purchase price of $1,000, for a total investment of
$6.0 million. Each share of the Series C preferred stock converts into 200
shares of our common stock, subject to adjustment. In conjunction with the
issuance of the Series C preferred stock, we issued to the two funds warrants to
purchase up to a total of 1,200,000 shares of common stock at $7.00 per share,
subject to adjustment, which expire in April 2004. In August 1999 we amended the
exercise price of the warrants to $6.00 per share in exchange for a commitment
of the two funds to refrain from selling any of our securities from the closing
of this offering to January 31, 2000. We have also granted registration rights
to the two funds and pursuant to those rights we are filing a concurrent
registration statement on Form S-1 to register 3,600,000 shares of our common
stock to be offered for sale by the two funds. The shares being registered
concurrently herewith represent 150% of our common stock issuable upon
conversion of the Series C preferred stock and exercise of the warrants.
SENIOR SUBORDINATED NOTE AND WARRANTS
In July 1999, we received $10.0 million in senior subordinated financing
from GE Capital Equity Investments, Inc. Interest under the note is payable
quarterly in arrears at 12% per annum, subject to substantial increases in
certain circumstances. Principal under the note is payable in full in July 2002.
We may prepay the note at a premium prior to its maturity. The note requires us
to comply with certain affirmative and negative covenants. The note, which is
subordinate to our line of credit with PNC Bank, is secured by a lien on
substantially all of our assets, a guarantee executed by our subsidiaries and a
pledge of our ownership in our current and future subsidiaries. In conjunction
with the issuance of the note, we issued to GE Capital warrants to purchase
1,666,028 shares of our common stock at $0.01 per share which expire during July
2007. We have also granted to GE Capital two demand registration rights and
unlimited piggyback registration rights for the shares of common stock issuable
upon exercise of the warrants.
We have agreed to use our best efforts to cause a designee selected by GE
Capital to be elected to our Board of Directors at our next annual meeting of
stockholders.
RELATED-PARTY LEASES
ThermoView leases its headquarters from Glenn Lyon Lease Development, Inc.,
a corporation controlled by Mr. Hoffmann, for $111,000 annually. Primax leases
its headquarters from Mr. Smith for $82,000 annually. Additionally, on December
20, 1997, Thermo-Tilt entered into a sale-leaseback transaction on its
headquarters with Industrial Leasing of Florida, Inc., a Florida corporation
controlled by Robert E. Anderson, a stockholder of ThermoView. Industrial
Leasing of Florida purchased Thermo-Tilt's headquarters for $620,000 and
Thermo-Tilt deferred the $55,000 gain on the sale, which is being amortized to
income over the term of the lease. Thermo-Tilt leases its headquarters from
Industrial Leasing of Florida for $78,000 annually.
RELATED-PARTY NOTES
During 1998, ThermoView had a $1.5 million note payable to the Founders
Group, LLC, a venture capital firm. Stephen A. Hoffmann and Delores P. Kesler
are two controlling members of the Founders Group. Mr. Hoffmann is ThermoView's
Chairman of the Board and Chief Executive Officer and Ms. Kesler is a director
of ThermoView. The note, which evidenced a loan from the Founders Group to
ThermoView, bore interest at 10% per annum until we repaid it in July 1998.
During 1998 and 1999, ThermoView had a $5.5 million note payable to Stephen
A. Hoffmann, Nelson E. Clemmens, Richard E. Bowlds and Douglas I. Maxwell, III.
Messrs. Hoffmann, Clemmens and Bowlds are officers and directors of ThermoView,
and Mr. Maxwell is an employee of ThermoView. The note, which evidenced a loan
from these individuals to ThermoView, bore interest at
62
<PAGE>
a Euro-Rate based variable rate until we repaid it in July 1999. ThermoView paid
a $250,000 fee to these individuals in connection with the note.
During 1999, ThermoView had a $750,000 note payable to Stephen A. Hoffmann,
ThermoView's Chairman of the Board and Chief Executive Officer. The note, which
evidenced a loan from Mr. Hoffmann to ThermoView, bore interest at 12% per annum
until we repaid it in April 1999.
During 1999, ThermoView had a $150,000 note payable to Richard E. Bowlds,
ThermoView's Vice Chairman of the Board and Executive Vice
President-Acquisitions. The note, which evidenced a loan from Mr. Bowlds to
ThermoView, bore interest at 12% per annum until we repaid it in April 1999.
ThermoView currently has a $600,000 note payable to Charles L. Smith, our
Chief Operating Officer and a director. The note, which was issued as partial
consideration in our acquisition of Precision Window Mfg., Inc., bears interest
at 5.0% per annum. The note matures concurrently with the effectiveness of our
initial public offering.
During 1998 and 1999, Thermo-Tilt had a note receivable from Bluegrass Water
Treatment, Inc., a Kentucky corporation. James A. Bowlds, the son of Richard E.
Bowlds, our Vice Chairman of the Board and Executive Vice
President-Acquisitions, controls Bluegrass Water Treatment, Inc. In January
1999, Mr. James Bowlds repaid the $181,000 note, which had a balance of $232,000
in January 1998. The note bore interest at 8% per annum.
RELATED-PARTY RECEIVABLES
During 1998 and 1999, Thermo-Tilt had receivables due from Richard E.
Bowlds, our Vice Chairman of the Board and Executive Vice
President-Acquisitions, in an amount which never exceeded $201,000. The
receivables represented short-term non-interest bearing loans from Thermo-Tilt
to Mr. Bowlds. Mr. Bowlds repaid the receivables in January 1999.
RELATED-PARTY PURCHASES
During 1998, ThermoView purchased $4.1 million of windows from Precision
Window Mfg., Inc., a corporation which was subsequently acquired by ThermoView
on January 5, 1999. Charles L. Smith, a director of ThermoView since May 1998
and an officer of ThermoView since November 1998, was a stockholder of Precision
Window prior to its acquisition by ThermoView.
Additionally, in 1998 and 1997 ThermoView purchased $780,000 and $1.5
million of windows from Sun Windows, Inc., a Kentucky corporation controlled by
Robert E. Anderson, a stockholder of ThermoView. ThermoView has purchased
$15,000 of windows from Sun Windows through March 31, 1999.
COMPANY POLICY
Our Board of Directors has reviewed the lease transactions summarized above
and believes that those transactions were made on terms no less favorable than
terms we could have obtained from unaffiliated third parties. The Board of
Directors has adopted a policy that any future transactions between ThermoView
and its officers, directors or principal stockholders will be approved by a
majority of the disinterested directors and will be on terms no less favorable
than we could obtain from an unaffiliated third party.
63
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of July 12, 1999, and as adjusted to
reflect the sale of the shares of common stock in this offering, by:
- each person, or group of affiliated persons, who we know beneficially owns
more than 5% of the common stock;
- each director and named executive officer; and
- all directors and executive officers as a group.
In accordance with the SEC's rules, the following table gives effect to the
shares of common stock that could be issued upon (i) the exercise of outstanding
options and warrants and (ii) the conversion of Series C preferred stock, each
within 60 days of July 12, 1999. In addition, the shares beneficially owned
include the common stock issuable upon conversion of the Series A and Series B
preferred stock upon the closing of this offering. Unless otherwise indicated in
the footnotes to the table, the following individuals have sole voting,
conversion and investment control with respect to the shares they beneficially
own.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES ------------------------------
BENEFICIALLY BEFORE
BENEFICIAL OWNER OWNED(1) OFFERING(2) AFTER OFFERING
- ------------------------------------------------------------------- ----------------- ------------- ---------------
<S> <C> <C> <C>
Brown Simpson Strategic Growth
Fund, Ltd. and Brown Simpson
Strategic Growth Fund, L.P.(3)................................... 2,400,000 14.2%
Richard E. Bowlds(4)............................................... 1,910,072 13.2
GE Capital Equity Investments, Inc.(5)............................. 1,666,028 10.3
Stephen A. Hoffmann(6)............................................. 1,572,124 9.8
Robert E. Anderson(7).............................................. 1,370,580 9.4
LD Capital, Inc.(8)................................................ 1,478,405 9.2
Evangel Christian Life Center(9)................................... 1,101,353 7.6
Profutures Bridge Capital Fund LP(10).............................. 900,000 5.9
Charles L. Smith................................................... 461,500 3.2
Nelson E. Clemmens(11)............................................. 430,447 2.9
Delores P. Kesler(12).............................................. 386,965 2.6
James J. TerBeest(13).............................................. 135,000 *
Michael A. Toal(14)................................................ 50,000 *
J. Sherman Henderson III........................................... 25,000 *
All directors and executive officers
as a group (10 persons)(15)...................................... 5,374,091 30.6
</TABLE>
- ---------
* Less than 1% of total.
(1) Information with respect to beneficial ownership has been obtained from
ThermoView's stockholder records and from information provided by the
stockholders.
(2) Based on 14,513,726 shares of common stock outstanding, plus, for each
individual or entity, the number of shares of common stock that each
individual or entity may acquire upon the exercise of stock options or
warrants or conversion of convertible securities within 60 days of July 12,
1999.
(3) Includes 1,200,000 shares issuable upon conversion of shares of Series C
preferred stock and 1,200,000 shares issuable upon exercise of outstanding
warrants. The principal address for Brown Simpson Strategic Growth Fund,
Ltd. and Brown Simpson Strategic Growth Fund, L.P. is 152 West 57th Street,
40th Floor, New York, New York 10019.
64
<PAGE>
(4) Excludes 62,500 shares sold by Mr. Bowlds to Renaissance Capital Growth &
Income Fund III, Inc. and Renaissance US Growth & Income Trust, PLC but
subject to a put option pursuant to a stock purchase agreement, dated as of
December 10, 1998, by and among Mr. Bowlds, Renaissance and Douglas I.
Maxwell, III. Mr. Bowlds disclaims beneficial ownership of these shares.
Includes 20,833 shares deposited in escrow pursuant to an escrow agreement,
dated as of December 17, 1998, by and among Mr. Bowlds, Renaissance, Mr.
Maxwell and Bank One, Texas, NA and subject to delivery to Renaissance
pursuant to the Renaissance stock purchase agreement. Mr. Bowlds' address is
4249 Lake Forest Drive, Owensboro, Kentucky 42303.
(5) Represents shares issuable upon exercise of outstanding warrants. GE Capital
Equity Investments, Inc.'s address is 120 Long Run Road, Stamford,
Connecticut 06927.
(6) Includes 34,786 shares deemed beneficially owned by Mr. Hoffmann as trustee
of two trusts, as to which Mr. Hoffmann disclaims beneficial ownership.
Includes 1,136,990 shares issuable upon exercise of outstanding stock
options granted to Mr. Hoffmann. Includes 300,000 shares issuable upon
conversion of shares of Series A preferred stock owned by The Founders
Group, a limited liability company in which Mr. Hoffmann owns one-third of
the outstanding ownership interest. Includes 100,000 shares issuable upon
conversion of shares of Series A preferred stock deemed beneficially owned
by Mr. Hoffmann as trustee of two trusts, as to which Mr. Hoffmann disclaims
beneficial ownership. Mr. Hoffmann's address is ThermoView Industries, Inc.,
1101 Herr Lane, Louisville, Kentucky 40222.
(7) Includes 20,000 shares beneficially owned by the spouse of Mr. Anderson, as
to which Mr. Anderson disclaims beneficial ownership. Includes 1,345,580
shares owned by the Robert E. Anderson Trust UA DTD 4/15/98 for which Mr.
Anderson is the trustee and beneficiary. Mr. Anderson's address is 2645
Pleasant Valley Road, Owensboro, Kentucky 42303.
(8) Represents shares issuable upon exercise of outstanding stock options
granted to LD Capital, Inc. Substantially all of the outstanding stock of LD
Capital, Inc. is held by the spouse of Mr. Maxwell, a promoter of ThermoView
and our Corporate Development Manager, as custodian for their minor
children. Mr. Clemmens is also a minority shareholder and the President,
Secretary, Treasurer and sole director of LD Capital, Inc. The address for
LD Capital, Inc. is 133 South Third Street, Suite 402, Louisville, Kentucky
40202.
(9) The address for Evangel Christian Life Center is 5400 Minors Lane,
Louisville, Kentucky 40219.
(10) Includes 650,000 shares issuable upon conversion of shares of Series A
preferred stock. The address for Profutures Bridge Capital Fund LP is 5350
S. Roselyn Street, Suite 350, Englewood, Colorado 80111.
(11) Includes 330,447 shares issuable upon exercise of outstanding stock options
granted to Mr. Clemmens.
(12) Includes 300,000 shares issuable upon conversion of shares of Series A
preferred stock owned by The Founders Group, a limited liability company in
which Ms. Kesler owns one-third of the outstanding ownership interest.
(13) Includes 125,000 shares issuable upon exercise of outstanding stock options
granted to Mr. TerBeest. Includes 10,000 shares issuable upon conversion of
shares of Series A preferred stock owned jointly by Mr. TerBeest and his
wife.
(14) Represents 50,000 shares issuable upon conversion of shares of Series A
preferred stock owned by the Michael A. Toal Revocable Living Trust DTD
6/14/96 for which Mr. Toal is the trustee and beneficiary.
(15) Includes 3,043,437 shares issuable upon (A) exercise of outstanding stock
options and warrants owned by all directors and officers as a group which
vest within sixty days of July 12, 1999 and (B) shares issuable upon
conversion of shares of preferred stock owned by the group.
65
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of ThermoView consists of 100,000,000 shares of
common stock, par value $0.001 per share, and 50,000,000 shares of preferred
stock, par value $0.001 per share. As of July 12, 1999, there are 14,513,726
shares of common stock outstanding. There will be shares of common
stock outstanding upon the closing of this offering. As of July 12, 1999, there
are 3,386,000 shares of convertible preferred stock outstanding. 3,380,000
shares of convertible preferred stock (2,980,000 shares of Series A preferred
stock and 400,000 shares of Series B preferred stock) will be converted into an
equal number of shares of common stock upon the closing of this offering. After
the closing, 6,000 shares of Series C preferred stock will be outstanding.
We refer you to our certificate of incorporation, which is an exhibit to the
registration statement of which this prospectus is a part and which qualifies
the following summary in its entirety by this reference.
COMMON STOCK
Holders of common stock are entitled to one vote for each share on all
matters submitted to a vote of stockholders. Holders of a majority of the shares
of common stock entitled to vote in any election of directors may elect all of
the directors standing for election, subject to any rights of preferred
stockholders to elect a certain number of directors in certain circumstances.
Holders of common stock are entitled to receive dividends, if, as, and when
declared by the Board of Directors out of funds legally available for such
purposes, subject to (A) any dividend preferences of any outstanding preferred
stock and (B) lender preclusions of dividend payments. Upon our liquidation,
dissolution or winding-up, the holders of common stock are entitled to share
ratably in our assets available for distribution, subject to the preferential
rights of any outstanding preferred stock. Holders of the common stock have no
preemptive, subscription, redemption or conversion rights. The rights of the
holders of the Series C preferred stock and shares of any series of preferred
stock that we may designate and issue in the future may adversely affect the
rights, preferences and privileges of holders of common stock. All outstanding
shares of common stock are fully paid and non-assessable.
PREFERRED STOCK
The Series C preferred stock has a liquidation preference of $1,000 per
share (plus accumulated and unpaid dividends) and has a perpetual term unless
converted or redeemed. Dividends on the Series C preferred stock are cumulative
at the annual rate of 9.6%, 70% of which are payable quarterly in cash and the
remainder in our common stock.
The Series C preferred stock is convertible at any time, in whole or in
part, at the option of the holders into shares of common stock, at a conversion
price, subject to adjustment in certain circumstances, of $5.00 per share of
common stock (initially equivalent to a conversion rate of 200 shares of common
stock per one share of Series C preferred stock). Additionally, the Series C
preferred stock is redeemable or convertible at the option of the holders (A) on
October 23, 2000, (B) on April 23, 2002 and (C) immediately upon the occurrence
of certain events of redemption as specified in the Series C certificate of
designation. The Series C certificate of designation does not require us to
repurchase or redeem the Series C preferred stock if the redemption would result
in the occurrence of a default or event of default under our loan documents with
PNC Bank or any successor senior lender, or GE Capital Equity Investments, Inc.
An adjustment to the warrant exercise price based on the market value results
from this failure to purchase or redeem. We have no right to require redemption
or conversion of the Series C preferred stock. We have also granted registration
rights to the holders and pursuant to those rights we are filing a concurrent
registration statement on Form S-1 to register 3,600,000 shares of our common
stock to be offered for sale by the holders. The holders have committed to
refrain from selling these shares from the closing of this offering to January
31,
66
<PAGE>
2000. The shares being registered concurrently herewith represent 150% of our
common stock issuable upon conversion of the Series C preferred stock and
exercise of the warrants.
Upon the closing of this offering and without further stockholder approval,
our Board of Directors may authorize for issuance from time to time up to an
aggregate of 49,994,000 shares of preferred stock in one or more series. Our
Board of Directors may fix or alter the designations, preferences, rights and
any qualifications, limitations or restrictions of the shares of each of these
series, including the dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption price or prices, liquidation preferences
and the number of shares constituting any series or designations of these
series.
WARRANTS
As of the date of this prospectus, we have outstanding warrants to purchase
a total of 2,991,028 shares of common stock, at a weighted average exercise
price of $2.83 per share. Holders of warrants to purchase 1,200,000 shares have
entered into lockup agreements which expire on January 31, 2000. All of the
warrants contain (A) anti-dilution provisions providing for adjustments of the
exercise price and the number of shares of common stock underlying the warrants
upon the occurrence of certain events and (B) registration rights.
REGISTRATION RIGHTS
The holders of options to purchase 2,686,092 shares of our common stock have
the right to request from us a best-efforts registration on Form S-8 for these
shares when we are eligible to use Form S-8. In addition, the holders of
4,437,641 shares of our common stock are entitled to certain piggy-back
registration rights with respect to the registration of such shares under the
Securities Act. Piggy-back and demand registration rights will also exist for an
indeterminate number of shares of common stock issuable in connection with our
future earn-out obligations under acquisition agreements. In the event a
securityholder exercises a registration right, we must use our reasonable best
efforts to register the shares. These registration rights are subject to certain
conditions and limitations, among them the right of underwriters to limit the
number of shares to be included in the registration statement. Additionally, in
the event of an underwritten public offering, registered securities may not be
sold until 90 days after effectiveness of the registration statement.
EBI Securities Corporation is entitled to registration rights with respect
to 125,000 shares of our common stock underlying a warrant. EBI has piggyback
registration rights and one demand registration right exercisable in the three
year period beginning on November 1, 2000. These registration rights are subject
to certain conditions and limitations, among them the right of the underwriters
to limit the number of shares to be included in a registration.
Brown Simpson Growth Fund, L.P. and Brown Simpson Growth Fund, Ltd. are
entitled to piggy-back and demand registration rights with respect to 150% of
the shares of our common stock issuable upon conversion of the Series C
preferred stock and exercise of the warrants. Pursuant to those rights we are
filing a concurrent registration statement on Form S-1 to register 3,600,000
shares of our common stock to be offered for sale by the two funds. The two
funds have committed to refrain from selling these shares from the closing of
this offering to January 31, 2000. Additionally, GE Capital Equity Investments,
Inc. is entitled to piggy-back and demand registration rights with respect to
1,666,028 shares of our common stock subject to warrants.
ThermoView generally bears the expenses of registrations resulting from
registration rights, except underwriting discounts and selling commissions.
Registration of any of the shares of common stock held by security holders would
result in the shares becoming freely tradable without restriction under the
Securities Act immediately upon effectiveness of such registration, subject to
the 90 day holdback.
67
<PAGE>
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW
ThermoView is subject to the provisions of Section 203 of the Delaware
General Corporation Law. Section 203 of the Delaware General Corporation Law
generally 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 interested stockholder attained that status with the
approval of the board of directors or 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 exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three years
did own, 15% or more of a corporation's voting stock. This statute could
prohibit or delay the accomplishment of mergers or other attempts to acquire us.
In addition, certain provisions of our certificate of incorporation and
bylaws which are described in the following paragraphs may be deemed to have an
anti-takeover effect and may delay, defer or prevent a tender offer or takeover
attempt that a stockholder might consider in its best interest, including those
attempts that might result in a premium over the market price for the shares
held by stockholders.
CLASSIFIED BOARD OF DIRECTORS. The certificate imposes a classified board
of directors whereby three classes of directors serve staggered terms.
Additionally, the certificate requires a supermajority vote of stockholders to
remove this certificate provision. These provisions could prevent a change of
control by limiting the number of directors stockholders elect each year.
SPECIAL MEETING OF STOCKHOLDERS. The bylaws provide that only our
President, a majority of our board of directors or stockholders holding a
majority of our capital stock which is issued, outstanding and entitled to vote
may call special meetings of our stockholders.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual meeting of stockholders, must deliver a written notice
to our principal executive offices within a prescribed time period. This
provision may preclude stockholders from bringing matters before an annual
meeting of stockholders or from making nominations for directors at an annual
meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to limitations imposed by the Nasdaq National
Market. We may use these additional shares for a variety of corporate purposes,
including future public offerings to raise additional capital, acquisitions and
employee benefit plans. The existence of authorized but unissued and unreserved
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Delaware law authorizes corporations to limit or eliminate the personal
liability of officers and directors to corporations and their stockholders for
monetary damages for breach of officers' and directors' fiduciary duty of care.
The duty of care requires that, when acting on behalf of the corporation,
officers and directors must exercise an informed business judgment based on all
material information reasonably available to them. Absent the limitations
authorized by Delaware law, officers and directors are accountable to
corporations and their stockholders for monetary damages for conduct
constituting gross negligence in the exercise of their duty of care. Delaware
law enables corporations to limit available relief to equitable remedies such as
injunction or rescission. Article 7 of ThermoView's certificate of incorporation
requires ThermoView to indemnify its directors and officers to the fullest
68
<PAGE>
extent authorized or permitted by Delaware law. Delaware law provides that
officers and directors of ThermoView will not be personally liable for monetary
damages for breach of an officer's or director's fiduciary duty in such
capacity, except for liability (i) for any breach of the officer's or director's
duty of loyalty to ThermoView or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) for unlawful payments of dividends or unlawful stock repurchases
or redemptions as provided in Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the officer and director derived an
improper personal benefit.
The Board of Directors has approved a form of indemnification agreement into
which ThermoView has entered with each of its present directors (including those
directors who are also officers of ThermoView) and into which ThermoView intends
to enter with its future directors. The indemnification agreement gives
directors a specific contractual right to indemnification by ThermoView.
Although the directors of ThermoView presently have certain rights to
indemnification under ThermoView's certificate of incorporation and bylaws and
may have protection from certain liabilities under the terms of a directors and
officers liability insurance policy which ThermoView has obtained, the Board of
Directors believes that the additional assurance provided by the broader
contractual rights contained in the indemnification agreement enables ThermoView
to attract and retain qualified directors.
The inclusion of these provisions in the certificate of incorporation and
bylaws may reduce the likelihood of derivative litigation against officers and
directors, and may discourage or deter stockholders or management from bringing
a lawsuit against officers and directors for breach of their duty of care, even
though a lawsuit, if successful, might otherwise have benefited ThermoView and
its stockholders. ThermoView's certificate of incorporation, bylaws and the
indemnification agreements provide indemnification to ThermoView's officers and
directors and certain other persons with respect to certain matters to the
maximum extent allowed by Delaware law as it exists now or may hereafter be
amended. These provisions and the indemnification agreements do not alter the
liability of officers and directors under federal securities laws and do not
affect the right to sue (nor to recover monetary damages) under federal
securities laws for violations thereof.
TRANSFER AGENT AND REGISTRAR
American Securities Transfer & Trust, Inc., Denver, Colorado, presently acts
as transfer agent and registrar for the common stock, the Series A preferred
stock, the Series B preferred stock and the Series C preferred stock.
69
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, our common stock has been thinly traded on the OTC
Bulletin Board, and no prediction can be made as to the effect, if any, that
future market sales of shares of common stock or the availability of shares of
common stock for sale will have on the market price of the common stock
prevailing from time to time. Nevertheless, sales of substantial amounts of
common stock in the public market, or the perception that such sales could
occur, could adversely affect the market price of the common stock and could
impair our future ability to raise capital through the sale of our equity
securities.
SHARES OUTSTANDING AND FREELY TRADEABLE IMMEDIATELY FOLLOWING THIS OFFERING
After this offering, we will have an aggregate of shares of
common stock outstanding, assuming conversion of all outstanding shares of
Series A and Series B preferred stock into common stock on the closing of this
offering, no exercise of the underwriters' over-allotment option and no exercise
or conversion of outstanding options, warrants or Series C preferred stock. Of
the shares outstanding immediately after the offering,
shares, including the shares sold in this offering, will be freely
tradeable without restriction or further registration under the Securities Act,
except that any shares purchased by our "affiliates" (as that term is defined in
Rule 144 under the Securities Act) in this offering or in the public market may
only be sold in compliance with the volume and manner of sale limitations of
Rule 144 described below.
SHARES SUBJECT TO RULE 144
The remaining shares of common stock held by existing stockholders
will be deemed "restricted securities" as that term is defined in Rule 144.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act. These rules are summarized below.
Subject to the lock-up agreements described below and the provisions of
Rules 144, 144(k) and 701, additional shares will be eligible for sale in the
public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ------------------------ ---------------------------------------------------------------------------------------
<S> <C>
90 days after the date of this prospectus (all of these shares will be subject to the
volume and manner of sale limitations of Rule 144)
180 days after the date of this prospectus ( of these shares will be subject to
the volume and manner of sale limitations of Rule 144)
At various times commencing 180 days after the date of this prospectus (all of these
shares will be subject to the volume and manner of sale limitations of Rule 144)
</TABLE>
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least one year is entitled to sell, within any three-month period
commencing 90 days after the date of this prospectus, a number of shares that
does not exceed the greater of:
- one percent of the then outstanding shares of common stock (approximately
shares immediately after this offering); or
- the average weekly trading volume in the common stock during the four
calendar weeks preceding the date on which notice of that sale is filed
with the Securities and Exchange Commission, subject to restrictions.
In addition, a person who is not deemed to have been an affiliate of ThermoView
at any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years is entitled to sell those
shares under Rule 144(k) without regard to the requirements described above. To
the extent that shares are acquired from an affiliate of ThermoView, the
acquiring
70
<PAGE>
person's holding period for the purpose of effecting a sale under Rule 144
commences on the date of transfer from the affiliate.
RESALE OF SHARES UNDERLYING STOCK OPTIONS AND WARRANTS
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain limitations of Rule 144. In general, any of our
employees, officers or directors and certain of our consultants and advisors who
purchased his or her shares from us pursuant to a written compensatory plan or
contract (including shares issuable upon exercise of options and warrants
granted prior to the date of this prospectus) are entitled to rely on the resale
provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701
shares under Rule 144 without complying with the holding period requirements of
Rule 144. Rule 701 further provides that non-affiliates may sell such shares in
reliance on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
prospectus before selling such shares.
As of July 12, 1999, options to purchase a total of 5,056,715 shares of
common stock are outstanding, of which options to purchase 3,816,092 shares are
currently exercisable. The outstanding options have a weighted average exercise
price of $2.04 per share. Subject to applicable vesting requirements and the
lock-up agreements described below, the holders of options to purchase
of these shares may rely on the resale provisions of Rule 701.
Additionally, within 90 days following the closing of this offering, we intend
to file a registration statement to register for resale shares
underlying certain of such options and an additional shares reserved
for issuance under the 1999 stock option plan. That registration statement will
automatically become effective upon filing. Accordingly, these shares will be
eligible for resale in the public market from time to time, subject to vesting
restrictions, and in the case of some of the options the expiration of the
lock-up agreements referred to below.
Upon the closing of the offering, 1,200,000 shares, subject to adjustment,
will be issuable upon conversion of the shares of Series C preferred stock, and
2,991,028 shares will be issuable upon the exercise of outstanding warrants.
LOCK-UP AGREEMENTS
The holders of 6,943,349 shares of our common stock, 560,000 shares of our
preferred stock and 2,212,437 shares covered by outstanding options and warrants
have agreed that they will not, without the prior written consent of EBI
Securities Corporation, sell, transfer, pledge, hypothecate, otherwise dispose
of or agree to do any of the foregoing with respect to any of our securities for
a period commencing on May 13, 1999 and continuing to a date 180 days after the
date of this prospectus. EBI Securities Corporation, on behalf of the
underwriters, may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to these lock-up
agreements. Additionally, the holders of 1,200,000 shares of our preferred stock
and 1,200,000 shares covered by warrants have committed that they will not sell,
transfer, pledge, hypothecate, otherwise dispose of or agree to do any of the
foregoing with respect to any of our securities for a period commencing on the
closing of this offering and ending on January 31, 2000. We have also agreed
that, for a period of 180 days after the date of this prospectus, we will not,
without the consent of EBI Securities Corporation, make any offering, purchase,
sale, or other disposition of any shares of common stock or other securities
convertible into or exchangeable or exercisable for shares of common stock,
except in connection with acquisitions, the grant of options under the 1999
stock option plan, the exercise of options and warrants outstanding as of the
date of this prospectus and the conversion of shares of Series C preferred stock
into common stock.
71
<PAGE>
REGISTRATION RIGHTS
Following this offering, the holders of 11,314,761 shares of common stock
outstanding or issuable upon exercise of outstanding options and warrants or
conversion of the Series C preferred stock will have certain rights to have
their shares of common stock registered for resale under the Securities Act.
Pursuant to certain of these registration rights we are filing a concurrent
registration statement on Form S-1 to register 3,600,000 shares of our common
stock to be offered for sale by certain securityholders. These securityholders
have committed to refrain from selling these shares from the closing of this
offering to January 31, 2000. If the holders of registration rights, by
exercising their rights, cause a large number of shares to be registered and
sold in the public market, the sales could have a material adverse effect on the
market price of our common stock. Please see "Description of Capital
Stock--Registration Rights."
72
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement,
the underwriters named below, for which EBI Securities Corporation is acting as
representative, have severally agreed to purchase from our company the
respective number of shares of common stock set forth opposite each
underwriter's name.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------------------------------------------------------------------------- -----------------
<S> <C>
EBI Securities Corporation...................................................
-------
Total....................................................................
-------
-------
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in ThermoView's business and the receipt of
certain certificates, opinions and letters from ThermoView, its counsel and
independent auditors. The nature of the underwriters' obligations is that they
are obligated to purchase and pay for all the shares of common stock offered
hereby, if any shares are purchased.
The underwriters propose initially to offer the shares of common stock
directly to the public at the public offering price set forth on the cover page
of this prospectus and to certain dealers at such price less a concession not in
excess of $ per share. After the initial public offering of the shares, the
offering price and other selling terms may be changed by the representative of
the underwriters. The representative has advised ThermoView that the
underwriters do not expect sales to accounts for which any of the underwriters
will exercise discretion as to such sale to exceed five percent of the total
number of shares offered hereby.
The holders of 6,943,349 shares of our common stock, 560,000 shares of our
preferred stock and 2,212,437 shares covered by outstanding options and warrants
have agreed that they will not, without the prior written consent of EBI
Securities Corporation, sell, transfer, pledge, hypothecate, otherwise dispose
of or agree to do any of the foregoing with respect to any of our securities for
a period commencing on May 13, 1999 and continuing to a date 180 days after the
date of this prospectus. EBI Securities Corporation, on behalf of the
underwriters, may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to these lock-up
agreements. Additionally, the holders of 1,200,000 shares of our preferred stock
and 1,200,000 shares covered by warrants have committed that they will not sell,
transfer, pledge, hypothecate, otherwise dispose of or agree to do any of the
foregoing with respect to any of our securities for a period commencing on the
closing of this offering and ending on January 31, 2000. EBI Securities
Corporation has no discretion to release any of these securities prior to the
expiration of this lock-up agreement. We have also agreed that, for a period of
180 days after the date of this prospectus, we will not, without the consent of
EBI Securities Corporation, make any offering, purchase, sale, or other
disposition of any shares of common stock or other securities convertible into
or exchangeable or exercisable for shares of common stock, except in connection
with acquisitions, the grant of options under the 1999 stock option plan, the
exercise of options and warrants outstanding as of the date of this prospectus
and the conversion of shares of Series C preferred stock into common stock.
ThermoView has granted to the representative an option, expiring at the
close of business on the 60th day after the date of this prospectus, to purchase
up to additional shares at the initial public offering price, less the
underwriting discounts, all as set forth on the cover page of this prospectus.
The representative may exercise such option only to cover over-allotments made
in connection with the sale of common stock in this offering.
The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
73
<PAGE>
Upon completion of this offering, ThermoView will sell to the representative
for $ a warrant to purchase shares of common stock. The
representative's warrant will become exercisable one year after the effective
date of this offering at a per share exercise price of $ and will expire
five years from the effective date of this offering. The representative's
warrant and underlying shares of common stock will be restricted from sale,
transfer, assignment or hypothecation for a period of one year from the date of
this prospectus, except to the representative, underwriters, selling group
members and their officers or partners. During the exercise period, holders of
the representative's warrants are entitled to certain demand and incidental
rights with respect to the shares of common stock issuable upon exercise of the
representative's warrant. The common stock issuable on exercise of the
representative's warrant is subject to adjustment in certain events to prevent
dilution.
ThermoView will pay the representative a nonaccountable expense allowance of
3% of the gross proceeds of the offering, which will include proceeds from the
over-allotment option, if exercised. The representative's expenses in excess of
the nonaccountable expense allowance will be borne by the representative.
ThermoView has paid $40,000 to the representative as an advance for expenses.
ThermoView has agreed to indemnify the underwriters against certain
liabilities, including civil liabilities under the Securities Act, and to
contribute to payments which the underwriters may be required to make regarding
these liabilities.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchase of the securities in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the representative to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
Neither ThermoView nor the underwriters can predict the effect that the
transactions described above may have on the price of the common stock. In
addition, neither ThermoView nor the underwriters represent that the
underwriters will engage in such transactions. If commenced, such transactions
may be discontinued at any time without notice. It is anticipated that certain
of the underwriters will make a market in the common stock on completion of this
offering, as permitted by applicable law. The underwriters are not obligated to
make a market in the common stock and if they do so may discontinue making a
market at any time. There is no assurance an active trading market will ever
develop for the common stock.
The initial public offering price will be determined by negotiations between
ThermoView and the representative. The principal factors to be considered in
determining the initial public offering price include:
- the information set forth in this prospectus and otherwise available;
- the history and the prospects for the industry in which ThermoView will
compete;
- the ability of ThermoView's management;
- the prospects for future earnings of ThermoView;
- the present state of ThermoView's development and its current financial
condition;
74
<PAGE>
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded stock of
generally comparable companies.
The estimated initial public offering price per share range set forth on the
cover of this preliminary prospectus is subject to change as a result of the
above and other factors.
We have had prior financial and investment transactions with EBI Securities
Corporation. In June 1998, EBI Securities Corporation acted as a financial
consultant and we paid a fee of $350,000 and in November 1998 we issued them a
five year warrant to purchase 125,000 shares of common stock at a per share
exercise price of $10.00. In April 1999, EBI Securities Corporation acted as
placement agent for the Series C preferred stock, and we paid them a sales
commission of $550,000. An employee of EBI Securities Corporation owns 25,000
shares of our common stock which we issued to him for consulting services
rendered prior to his employment with EBI Securities Corporation. From time to
time, EBI Securities Corporation has acted as a market maker in our common
stock.
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for us by Stites & Harbison, Louisville, Kentucky. Certain legal
matters will be passed upon for the underwriters by Freshman, Marantz, Orlanski,
Cooper & Klein, a law corporation, Beverly Hills, California. As of the date of
this prospectus, certain attorneys with Stites & Harbison who have participated
in the preparation of this offering beneficially owned, directly or indirectly,
49,701 shares of our common stock and 4,600 shares of our Series A preferred
stock.
EXPERTS
The following financial statements included in this prospectus and
registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing:
- the consolidated financial statements of ThermoView Industries, Inc. as of
and for the year ended December 31, 1998;
- the financial statements of NuView Industries, Inc. as of July 21, 1998
and for the period from January 1, 1998 through July 21, 1998;
- the combined financial statements of Thomas Construction, Inc. as of
December 31, 1997 and 1998 and for each of the three years in the period
ended December 31, 1998;
- the financial statements of Precision Window Mfg., Inc. as of December 31,
1996, 1997 and 1998 and for each of the three years in the period ended
December 31, 1998; and
- the combined financial statements of The Thermo-Shield Companies as of
December 31, 1996, 1997 and 1998 and for each of the three years in the
period ended December 31, 1998.
The following financial statements included in this prospectus and
registration statement have been audited by Singer, Lewak, Greenbaum &
Goldstein, LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing:
- the financial statements of ThermoView Industries, Inc. (formerly
Thermo-Tilt Window Company) as of December 31, 1997 and for each of the
two years in the period ended December 31, 1997;
75
<PAGE>
- the financial statements of American Home Developers Co., Inc. as of
December 31, 1996 and 1997 and April 25, 1998, and for each of the two
years in the period ended December 31, 1997 and the period from January 1,
1998 through April 25, 1998;
- the financial statements of Primax Window Co. as of December 31, 1996 and
1997 and April 30, 1998, and for each of the two years in the period ended
December 31, 1997 and the period from January 1, 1998 through Apri1 30,
1998;
- the combined financial statements of The Rolox Companies as of December
31, 1996 and 1997 and April 30, 1998, and for each of the two years in the
period ended December 31, 1997 and the period from January 1, 1998 through
April 30, 1998;
- the financial statements of American Home Remodeling as of December 31,
1997 and July 9, 1998, and for the year ended December 31, 1997 and the
period from January 1, 1998 through July 9, 1998; and
- the financial statements of Five Star Builders, Inc. as of December 31,
1996 and 1997 and July 13, 1998, and for each of the two years in the
period ended December 31, 1997 and the period from January 1, 1998 through
July 13, 1998.
The following financial statements included in this prospectus and
registration statement have been audited by Rodney W. Melby, certified public
accountant, as set forth in his reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such
individual as an expert in accounting and auditing:
- the financial statements of Leingang Siding and Window, Inc. as of
December 31, 1996 and 1997 and August 14, 1998, and for each of the two
years in the period ended December 31, 1997 and the period January 1, 1998
to August 14, 1998; and
- the financial statements of Thermal Line Windows, L.L.P. as of December
31, 1996 and 1997 and August 14, 1998, and for each of the two years in
the period ended December 31, 1997 and the period January 1, 1998 to
August 14, 1998.
In November 1998, our Board of Directors engaged Ernst & Young LLP, and
dismissed Singer, Lewak, Greenbaum & Goldstein, LLP, as our independent auditors
in preparation for this offering. During the year ended December 31, 1997, and
the subsequent interim period preceding the dismissal of Singer, Lewak,
Greenbaum & Goldstein, LLP in November 1998, there were no disagreements between
them and us on any matters of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, and no reportable events
relating to the relationship between Singer, Lewak, Greenbaum & Goldstein and
us.
76
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
ThermoView has filed with the SEC a registration statement on Form S-1 under
the Securities Act with respect to the shares of common stock to be sold in this
offering. This prospectus does not contain all of the information set forth in
the registration statement, and the exhibits and schedules filed as a part of
the registration statement. For further information with respect to ThermoView
and the shares of common stock to be sold in this offering, we refer you to the
registration statement, and the exhibits and schedules filed as a part of the
registration statement. Statements contained in this prospectus regarding the
contents of any contract, agreement or other document referred to are not
necessarily complete. If a contract, agreement or other document has been filed
as an exhibit to the registration statement, we refer you to that exhibit. Each
statement in this prospectus relating to a contract, agreement or other document
filed as an exhibit to the registration statement is qualified by the filed
exhibit.
As a result of this offering, ThermoView will become subject to the
information and reporting requirements of the Securities Exchange Act, and, in
accordance with those requirements, will file periodic reports, proxy statements
and other information with the SEC. You may read and copy all or any portion of
the registration statement or any other information ThermoView files at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. You can request copies of these documents, upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference rooms.
ThermoView's SEC filings, including the registration statement, are also
available to you on the SEC's web site (http://www.sec.gov).
We intend to furnish our stockholders with annual reports containing audited
financial statements and quarterly reports containing unaudited financial
information for the first three quarters of each year.
77
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THERMOVIEW INDUSTRIES, INC...................... F-4
Unaudited Pro Forma Consolidated Statement of Operations for the three months ended March 31, 1999..... F-5
Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 1998.......... F-6
Notes to Unaudited Pro Forma Consolidated Statements of Operations..................................... F-8
THERMOVIEW INDUSTRIES, INC.
Reports of Independent Auditors........................................................................ F-13
Consolidated Balance Sheets as of December 31, 1997 and 1998........................................... F-15
Consolidated Statements of Operations for the years ended December 31, 1996, 1997 and 1998............. F-16
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1997 and
1998................................................................................................. F-17
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998............. F-18
Notes to Consolidated Financial Statements............................................................. F-19
Condensed Consolidated Balance Sheets as of December 31, 1998 and March 31, 1999 (Unaudited)........... F-37
Condensed Consolidated Statements of Operations for the three months ended March 31, 1998 and 1999
(Unaudited).......................................................................................... F-38
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1999
(Unaudited).......................................................................................... F-39
Notes to Condensed Consolidated Financial Statements (Unaudited)....................................... F-40
AMERICAN HOME DEVELOPERS CO., INC.
Report of Independent Certified Public Accountants..................................................... F-46
Balance Sheets as of December 31, 1996, December 31, 1997 and April 25, 1998........................... F-47
Statements of Operations for the years ended December 31, 1996 and December 31, 1997 and for the period
from January 1, 1998 through April 25, 1998.......................................................... F-48
Statements of Shareholders' Equity for the years ended December 31, 1996 and December 31, 1997 and for
the period from January 1, 1998 through April 25, 1998............................................... F-49
Statements of Cash Flows for the years ended December 31, 1996 and December 31, 1997 and for the period
from January 1, 1998 through April 25, 1998.......................................................... F-50
Notes to Financial Statements.......................................................................... F-51
PRIMAX WINDOW CO.
Report of Independent Certified Public Accountants..................................................... F-56
Balance Sheets as of December 31, 1996, December 31, 1997 and April 30, 1998........................... F-57
Statements of Operations for the years ended December 31, 1996 and December 31, 1997 and for the four
months ended April 30, 1998.......................................................................... F-58
Statements of Shareholders' Equity for the years ended December 31, 1996 and December 31, 1997 and for
the four months ended April 30, 1998................................................................. F-59
Statements of Cash Flows for the years ended December 31, 1996 and December 31, 1997 and for the four
months ended April 30, 1998.......................................................................... F-60
Notes to Financial Statements.......................................................................... F-61
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
THE ROLOX COMPANIES
Report of Independent Certified Public Accountants..................................................... F-70
Combined Balance Sheets as of December 31, 1996, December 31, 1997 and April 30, 1998.................. F-71
Combined Statements of Operations for the years ended December 31, 1996 and December 31, 1997 and for
the four months ended April 30, 1998................................................................. F-72
Combined Statements of Shareholders' Deficit for the years ended December 31, 1996 and December 31,
1997 and for the four months ended April 30, 1998.................................................... F-73
Combined Statements of Cash Flows for the years ended December 31, 1996 and December 31, 1997 and for
the four months ended April 30, 1998................................................................. F-74
Notes to Combined Financial Statements................................................................. F-75
AMERICAN HOME REMODELING
Report of Independent Certified Public Accountants..................................................... F-81
Balance Sheets as of December 31, 1997 and July 9, 1998................................................ F-82
Statements of Operations for the year ended December 31, 1997 and for the period from January 1, 1998
through July 9, 1998................................................................................. F-83
Statements of Shareholders' Equity for the year ended December 31, 1997 and for the period from January
1, 1998 through July 9, 1998......................................................................... F-84
Statements of Cash Flows for the year ended December 31, 1997 and for the period from January 1, 1998
through July 9, 1998................................................................................. F-85
Notes to Financial Statements.......................................................................... F-86
FIVE STAR BUILDERS, INC.
Report of Independent Certified Public Accountants..................................................... F-90
Balance Sheets as of December 31, 1996, December 31, 1997 and July 13, 1998............................ F-91
Statements of Operations for the years ended December 31, 1996 and December 31, 1997 and for the period
from January 1, 1998 through July 13, 1998........................................................... F-92
Statements of Shareholders' Equity for the years ended December 31, 1996 and December 31, 1997 and for
the period from January 1, 1998 through July 13, 1998................................................ F-93
Statements of Cash Flows for the years ended December 31, 1996 and December 31, 1997 and for the period
from January 1, 1998 through July 13, 1998........................................................... F-94
Notes to Financial Statements.......................................................................... F-95
NUVIEW INDUSTRIES, INC.
Report of Independent Auditors......................................................................... F-101
Balance Sheet as of July 21, 1998...................................................................... F-102
Statement of Operations and Accumulated Deficit for the period from January 1, 1998 through July 21,
1998................................................................................................. F-103
Statement of Cash Flows for the period from January 1, 1998 through July 21, 1998...................... F-104
Notes to Financial Statements.......................................................................... F-105
LEINGANG SIDING AND WINDOW, INC.
Independent Auditor's Report........................................................................... F-109
Balance Sheets as of December 31, 1996 and 1997 and August 14, 1998.................................... F-110
Statements of Income for the years ended December 31, 1996 and 1997 and for the period January 1, 1998
to August 14, 1998................................................................................... F-111
Statements of Changes in Retained Earnings for the years ended December 31, 1996 and 1997 and for the
period January 1, 1998 to August 14, 1998............................................................ F-112
Statements of Cash Flows for the years ended December 31, 1996 and 1997 and for the period January 1,
1998 to August 14, 1998.............................................................................. F-113
Notes to Financial Statements.......................................................................... F-114
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
THERMAL LINE WINDOWS, L.L.P.
Independent Auditor's Report........................................................................... F-119
Balance Sheets as of December 31, 1996 and 1997 and August 14, 1998.................................... F-120
Statements of Income for the years ended December 31, 1996 and 1997 and for the period January 1, 1998
to August 14, 1998................................................................................... F-122
Statements of Partnership Equity for the years ended December 31, 1996 and 1997 and for the period
January 1, 1998 to August 14, 1998................................................................... F-123
Statements of Cash Flows for the years ended December 31, 1996 and 1997 and for the period January 1,
1998 to August 14, 1998.............................................................................. F-124
Notes to Financial Statements.......................................................................... F-126
THOMAS CONSTRUCTION, INC.
Report of Independent Auditors......................................................................... F-132
Combined Balance Sheets as of December 31, 1997 and 1998............................................... F-133
Combined Statements of Income and Retained Earnings for the years ended December 31, 1996, 1997 and
1998................................................................................................. F-134
Combined Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998................. F-135
Notes to Financial Statements.......................................................................... F-136
PRECISION WINDOW MFG., INC.
Report of Independent Auditors......................................................................... F-141
Balance Sheets as of December 31, 1996, 1997 and 1998.................................................. F-142
Statements of Operations and Retained Earnings for the years ended December 31, 1996, 1997 and 1998.... F-143
Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998.......................... F-144
Notes to Financial Statements.......................................................................... F-145
THE THERMO-SHIELD COMPANIES
Report of Independent Auditors......................................................................... F-149
Combined Balance Sheets as of December 31, 1996, 1997 and 1998......................................... F-150
Combined Statements of Operations and Retained Earnings for the years ended December 31, 1996, 1997 and
1998................................................................................................. F-152
Combined Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998................. F-153
Notes to Financial Statements.......................................................................... F-154
</TABLE>
F-3
<PAGE>
THERMOVIEW INDUSTRIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
BASIS OF PRESENTATION
The following unaudited pro forma consolidated statements of operations give
effect to the acquisitions by ThermoView discussed in Note 2 on page F-9 as if
the acquisitions were made as of January 1, 1998. During the twelve month period
ended March 31, 1999, ThermoView acquired twelve businesses which have been
accounted for using the purchase method of accounting.
ThermoView has analyzed the savings that it expects to realize from
reductions in salaries, bonuses, and certain benefits to the former owners of
the acquired businesses. To the extent the former owners have contractually
agreed to prospective reductions in salaries, bonuses, and benefits, these
reductions have been reflected in the unaudited pro forma consolidated
statements of operations. The unaudited pro forma consolidated results of
operations do not reflect any corporate expenses prior to April 15, 1998, since
corporate activities did not commence until then.
The pro forma adjustments are based on available information that Company
management deems appropriate and may be revised as additional information
becomes available. The pro forma financial data do not purport to represent what
ThermoView's results of operations would actually have been if all acquisitions
had occurred on January 1, 1998, and are not necessarily representative of
ThermoView's results of operations for any future period.
Since the acquired companies were not under common control or management
during the entire period covered by the pro forma statements of operations,
historical consolidated results may not be comparable to, or indicative of,
future performance. The unaudited pro forma consolidated statements of
operations should be read in conjunction with the other financial statements and
notes thereto included elsewhere in this prospectus. See also "Risk Factors"
included elsewhere herein.
F-4
<PAGE>
THERMOVIEW INDUSTRIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
PREACQUISITION
THERMO- THERMOVIEW PRO FORMA PRO FORMA
SHIELD INDUSTRIES, ADJUSTMENTS CONSOLIDATED
COMPANIES INC. (NOTE 3) TOTAL
------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues............................................. $ 2,501,817 $ 21,749,817 $ -- $ 24,251,634
Cost of revenues earned.............................. 1,118,997 9,764,255 (386,500) 10,496,752
------------- -------------- ----------- -------------
Gross profit......................................... 1,382,820 11,985,562 386,500 13,754,882
Selling, general and administrative expenses......... 1,604,203 11,542,197 (52,576) 13,093,824
Depreciation and amortization........................ 27,699 800,104 29,214 857,017
------------- -------------- ----------- -------------
Income (loss) from operations........................ (249,082) (356,739) 409,862 (195,959)
Interest expense..................................... -- (411,623) (85,037) (496,660)
Interest income...................................... 314 62,329 -- 62,643
------------- -------------- ----------- -------------
Income (loss) before income taxes.................... (248,768) (706,033) 324,825 (629,976)
Income tax expense (benefit)......................... (108,000) (95,000) 142,968 (60,032)
------------- -------------- ----------- -------------
Net income (loss).................................... (140,768) (611,033) 181,857 (569,944)
Less preferred stock dividends--cash................. -- 424,730 -- 424,730
------------- -------------- ----------- -------------
Net income (loss) attributable to common
stockholders....................................... $ (140,768) $ (1,035,763) $ 181,857 $ (994,674)
------------- -------------- ----------- -------------
------------- -------------- ----------- -------------
Basic and diluted loss per common share.............. $ (0.07)
-------------
-------------
Weighted average shares used in computing pro forma
basic and diluted loss per common share............ 14,439,359
-------------
-------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
THERMOVIEW INDUSTRIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PREACQUISITION PREACQUISITION
AMERICAN HOME PREACQUISITION PREACQUISITION PREACQUISITION PREACQUISITION FIVE STAR
DEVELOPERS PRIMAX ROLOX TD WINDOWS, AMERICAN HOME BUILDERS,
CO., INC. WINDOW CO. COMPANIES INC. REMODELING INC.
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $ 1,143,760 $ 2,150,747 $ 3,786,513 $ 375,987 $ 3,343,847 $ 3,349,814
Cost of revenues earned..... 580,555 964,759 1,645,687 277,841 1,262,510 992,461
------------- ------------- ------------- ------------- ------------- -------------
Gross profit................ 563,205 1,185,988 2,140,826 98,146 2,081,337 2,357,353
Selling, general and
administrative expenses... 1,006,643 1,095,260 2,199,545 97,923 2,071,428 2,782,440
Stock-based compensation
expense................... -- -- -- -- -- --
Depreciation and
amortization.............. 14,894 30,999 3,865 -- 1,799 45,682
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from
operations................ (458,332) 59,729 (62,584) 223 8,110 (470,769)
Interest expense............ (1,500) (1,205) (535) (10,004) (4,587) (8,700)
Other income................ 4,268 18,024 -- -- 542 8,038
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before income
taxes..................... (455,564) 76,548 (63,119) (9,781) 4,065 (471,431)
Income tax expense
(benefit)................. (181,027) -- -- -- -- (192,557)
------------- ------------- ------------- ------------- ------------- -------------
Net income (loss)........... (274,537) 76,548 (63,119) (9,781) 4,065 (278,874)
Less preferred stock
dividends:
Cash........................ -- -- -- -- -- --
Additional dividend
attributable to beneficial
conversion feature........ -- -- -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Net income (loss)
attributable to common
stockholders.............. $ (274,537) $ 76,548 $ (63,119) $ (9,781) $ 4,065 $ (278,874)
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
<CAPTION>
PREACQUISITION
NUVIEW
INDUSTRIES,
INC.
-------------
<S> <C>
Revenues.................... $ 2,478,656
Cost of revenues earned..... 964,341
-------------
Gross profit................ 1,514,315
Selling, general and
administrative expenses... 1,529,889
Stock-based compensation
expense................... --
Depreciation and
amortization.............. 6,957
-------------
Income (loss) from
operations................ (22,531)
Interest expense............ --
Other income................ 1,610
-------------
Income (loss) before income
taxes..................... (20,921)
Income tax expense
(benefit)................. --
-------------
Net income (loss)........... (20,921)
Less preferred stock
dividends:
Cash........................ --
Additional dividend
attributable to beneficial
conversion feature........ --
-------------
Net income (loss)
attributable to common
stockholders.............. $ (20,921)
-------------
-------------
</TABLE>
F-6
<PAGE>
THERMOVIEW INDUSTRIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PREACQUISITION PREACQUISITION PREACQUISITION
LEINGANG SIDING THERMAL LINE PREACQUISITION PRECISION PREACQUISITION THERMOVIEW PRO FORMA
AND WINDOW, WINDOWS, THOMAS WINDOW THERMO- SHIELD INDUSTRIES, ADJUSTMENTS
INC. L.L.P. CONSTRUCTION MFG., INC. COMPANIES INC. (NOTE 3)
--------------- -------------- ------------- ------------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........... $ 3,379,359 $3,668,394 $25,553,981 $ 6,547,964 $14,905,796 $ 37,376,355 ($5,945,828)
Cost of revenues
earned........... 2,340,476 2,538,731 13,277,004 5,499,617 6,669,722 16,747,734 (5,668,828)
--------------- -------------- ------------- ------------- ------------- -------------- -----------
Gross profit....... 1,038,883 1,129,663 12,276,977 1,048,347 8,236,074 20,628,621 (277,000)
Selling, general
and
administrative
expenses......... 899,983 838,334 9,823,912 642,543 8,004,875 20,233,163 (1,798,479)
Stock-based
compensation
expense.......... -- -- -- -- -- 5,508,700 --
Depreciation and
amortization..... 33,688 50,286 89,489 48,915 41,252 854,170 1,036,073
--------------- -------------- ------------- ------------- ------------- -------------- -----------
Income (loss) from
operations....... 105,212 241,043 2,363,576 356,889 189,947 (5,967,412) 485,406
Interest expense... (12,902) (20,132) -- (27,196) -- (439,131) (1,867,688)
Other income....... 9,935 31,228 272,187 2,413 47,248 69,057 --
--------------- -------------- ------------- ------------- ------------- -------------- -----------
Income (loss)
before income
taxes............ 102,245 252,139 2,635,763 332,106 237,195 (6,337,486) (1,382,282)
Income tax expense
(benefit)........ -- -- 13,833 126,743 (63,000) (1,135,000) 934,011
--------------- -------------- ------------- ------------- ------------- -------------- -----------
Net income
(loss)........... 102,245 252,139 2,621,930 205,363 300,195 (5,202,486) (2,316,293)
Less preferred
stock dividends:
Cash............... -- -- -- -- -- 585,105 200,000
Additional dividend
attributable to
beneficial
conversion
feature.......... -- -- -- -- -- 9,539,678 --
--------------- -------------- ------------- ------------- ------------- -------------- -----------
Net income (loss)
attributable to
common
stockholders..... $ 102,245 $ 252,139 $ 2,621,930 $ 205,363 $ 300,195 $(15,327,269) ($2,516,293)
--------------- -------------- ------------- ------------- ------------- -------------- -----------
--------------- -------------- ------------- ------------- ------------- -------------- -----------
Basic and diluted
loss per common
share............
Weighted average
shares used in
computing pro
forma basic and
diluted loss per
common share.....
<CAPTION>
PRO FORMA
CONSOLIDATED
TOTAL
------------
<S> <C>
Revenues........... 1$02,115,345
Cost of revenues
earned........... 48,092,610
------------
Gross profit....... 54,022,735
Selling, general
and
administrative
expenses......... 49,427,459
Stock-based
compensation
expense.......... 5,508,700
Depreciation and
amortization..... 2,258,069
------------
Income (loss) from
operations....... (3,171,493)
Interest expense... (2,393,580)
Other income....... 464,550
------------
Income (loss)
before income
taxes............ (5,100,523)
Income tax expense
(benefit)........ (496,997)
------------
Net income
(loss)........... (4,603,526)
Less preferred
stock dividends:
Cash............... 785,105
Additional dividend
attributable to
beneficial
conversion
feature.......... 9,539,678
------------
Net income (loss)
attributable to
common
stockholders..... ($14,928,309)
------------
------------
Basic and diluted
loss per common
share............ $ (1.02)
------------
------------
Weighted average
shares used in
computing pro
forma basic and
diluted loss per
common share..... 14,574,400
------------
------------
</TABLE>
See accompanying notes.
F-7
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND THE YEAR ENDED DECEMBER 31, 1998
1. GENERAL
On April 15, 1998, ThermoView Industries, Inc. ("ThermoView" or "the
Company") acquired all of the outstanding stock of Thermo-Tilt Window Company
("Thermo-Tilt"), a Delaware corporation, in exchange for 9,360,000 shares of
ThermoView's authorized, but unissued, common stock which represented 90% of
ThermoView's then outstanding common stock. Such shares were issued to the
former stockholders of Thermo-Tilt. The stock exchange between Thermo-Tilt and
ThermoView was accounted for as a capital transaction similar to a reverse
acquisition except that no goodwill was recorded. As a result, Thermo-Tilt is
deemed to be the acquirer for accounting purposes and is the accounting survivor
and reporting successor.
The historical results of operations of the acquired companies included in
the accompanying unaudited pro forma consolidated statements of operations
reflect the results of operations of these companies from January 1, 1998 to
their dates of acquisition. The audited historical financial statements for the
acquired companies included elsewhere herein have been included in accordance
with Securities and Exchange Commission Staff Accounting Bulletin No. 80.
The weighted average shares used in computing pro forma basic and diluted
loss per common share includes the shares issued in connection with business
combinations (see Note 2) as if they were issued on January 1, 1998.
F-8
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND THE YEAR ENDED DECEMBER 31, 1998
2. BUSINESS COMBINATIONS
<TABLE>
<CAPTION>
COST OF ACQUIRED COMPANY
-----------------------------------------------
STOCK ISSUED
(COMMON STOCK EXCEPT AS
NOTED IN (B) BELOW)
DATE OF CASH AND -----------------------
ACQUIRED COMPANY ACQUISITION PAYABLES SHARES VALUE TOTAL COST
- -------------------------------------- ----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
American Home Developers Co., Inc..... 04/25/98 $1,201,861 777,174 $5,315,870 $6,517,731
Primax Window Co...................... 04/30/98 1,132,566 488,174 3,156,045 4,288,611
Rolox Companies....................... 04/30/98 2,769,812 1,122,174 7,254,854 10,024,666
TD Windows, Inc....................... 05/15/98 311,031 -- -- 311,031
American Home Remodeling.............. 07/10/98 3,192,005 367,246 2,536,752 5,728,757
Five Star Builders, Inc............... 07/12/98 1,550,534 350,000 2,215,500 3,766,034
NuView Industries, Inc................ 07/21/98 1,189,734 2,174 13,106 1,202,840
Leingang Siding and Window, Inc....... 08/14/98 2,900,353 87,765 376,623 3,276,976
Thermal Line Windows, LLP (a)......... 08/14/98 4,670,442 150,010 643,734 5,314,176
Thomas Construction (b)............... 01/04/99 11,056,301 701,425 3,500,000 14,556,301
Precision Window Mfg., Inc............ 01/05/99 3,062,736 112,053 450,000 3,512,736
Thermo-Shield Companies............... 03/01/99 4,543,960 555,017 2,624,953 7,168,913
---------- ----------- ---------- ----------
$37,581,335 4,713,212 $28,087,437 $65,668,772
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
</TABLE>
- ------------------------
(a) Includes the acquisition of North Country Thermal Line, Inc., on November 1,
1998 for $277,926 cash and a subsequent earn-out payment of 62,918 shares of
common stock valued at $270,000.
(b) Thomas Construction stock includes 400,000 shares of Series B preferred
stock valued at $2,000,000. All other shares and values represent common
stock.
The above acquisitions have been accounted for as purchase transactions.
These companies are engaged primarily in the business of manufacturing
replacement windows or selling and installing them in the residential retail
market.
F-9
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND THE YEAR ENDED DECEMBER 31, 1998
3. UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS ADJUSTMENTS
The following table summarizes unaudited pro forma consolidated statements
of operations adjustments for the three months ended March 31, 1999.
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
ADJUSTMENTS
------------------------------------------------------- PRO FORMA
(A) (B) (C) (D) (E) ADJUSTMENTS
---------- --------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................................ $ -- $ -- $ -- $ -- $ -- $ --
Cost of revenues earned............................. (386,500) -- -- -- -- (386,500)
---------- --------- --------- --------- ---------- -----------
Gross profit........................................ 386,500 -- -- -- -- 386,500
Selling, general and administrative expenses........ -- (52,576) -- -- -- (52,576)
Depreciation and amortization....................... -- -- 29,214 -- -- 29,214
---------- --------- --------- --------- ---------- -----------
Income (loss) from operations....................... 386,500 52,576 (29,214) -- -- 409,862
Interest expense.................................... -- -- -- (85,037) -- (85,037)
Interest income..................................... -- -- -- -- -- --
---------- --------- --------- --------- ---------- -----------
Income (loss) before income taxes................... 386,500 52,576 (29,214) (85,037) -- 324,825
Income tax expense (benefit)........................ -- -- -- -- 142,968 142,968
---------- --------- --------- --------- ---------- -----------
Net income (loss)................................... 386,500 52,576 (29,214) (85,037) (142,968) 181,857
Less preferred stock dividends:
Cash.............................................. -- -- -- -- -- --
Additional dividend attributable to beneficial
conversion feature.............................. -- -- -- -- -- --
---------- --------- --------- --------- ---------- -----------
Net income (loss) attributable to common
stockholders...................................... $ 386,500 $ 52,576 $ (29,214) $ (85,037) $ (142,968) $ 181,857
---------- --------- --------- --------- ---------- -----------
---------- --------- --------- --------- ---------- -----------
</TABLE>
- ------------------------
(a) Reflects the impact of eliminating the effect of sellers' profit on
contracts in process at the acquisition dates charged to cost of revenues
earned during the three months ended March 31, 1999, since the assumption is
being made that all acquisitions are made as of January 1, 1998.
(b) Reflects reduction in salaries and benefits to the former owners of business
acquired. This reduction in salaries and benefits reflect the terms of an
employment agreement entered into with one of the former owners. This
employment agreement is for three years and contains restrictions related to
competition.
(c) Reflects the amortization of goodwill recorded as a result of the March 1,
1999 acquisition over a 40-year estimated life.
(d) Reflects interest expense on debt that is directly related to the March 1,
1999 acquisition.
(e) Reflects the incremental provision for federal and state income taxes at an
approximate 40% overall tax rate on the above adjustments to the statements
of operations (except for non-deductible goodwill included therein) and for
S corporation income not provided for in the historical financial
statements.
F-10
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND THE YEAR ENDED DECEMBER 31, 1998
3. UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS ADJUSTMENTS
(CONTINUED)
The following table summarizes unaudited pro forma consolidated statements
of operations adjustments for the year ended December 31, 1998.
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ADJUSTMENTS
------------------------------------------------------------------------------- PRO FORMA
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
--------- ---------- ---------- ---------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ -- $(5,945,828) $ -- $ -- $ -- $ -- $ -- ($5,945,828)
Cost of revenues
earned................ 277,000 (5,945,828) -- -- -- -- -- (5,668,828)
--------- ---------- ---------- ---------- ---------- --------- --------- -----------
Gross profit............ (277,000) -- -- -- -- -- -- (277,000)
Selling, general and
administrative
expenses.............. -- -- (1,798,479) -- -- -- -- (1,798,479)
Depreciation and
amortization.......... -- -- -- 1,036,073 -- -- -- 1,036,073
--------- ---------- ---------- ---------- ---------- --------- --------- -----------
Income (loss) from
operations............ (277,000) -- 1,798,479 (1,036,073) -- -- -- 485,406
Interest expense........ -- -- -- -- (1,867,688) -- -- (1,867,688)
Other income............ -- -- -- -- -- -- -- --
--------- ---------- ---------- ---------- ---------- --------- --------- -----------
Income (loss) before
income taxes.......... (277,000) -- 1,798,479 (1,036,073) (1,867,688) -- -- (1,382,282)
Income tax expense
(benefit)............. -- -- -- -- -- 934,011 -- 934,011
--------- ---------- ---------- ---------- ---------- --------- --------- -----------
Net income (loss)....... (277,000) -- 1,798,479 (1,036,073) (1,867,688) (934,011) -- (2,316,293)
Less preferred stock
dividends:
Cash.................. -- -- -- -- -- -- 200,000 200,000
Additional dividend
attributable to
beneficial
conversion
feature............. -- -- -- -- -- -- -- --
--------- ---------- ---------- ---------- ---------- --------- --------- -----------
Net income (loss)
attributable to common
stockholders.......... $(277,000) $ -- $1,798,479 $(1,036,073) $(1,867,688) $(934,011) $(200,000) ($2,516,293)
--------- ---------- ---------- ---------- ---------- --------- --------- -----------
--------- ---------- ---------- ---------- ---------- --------- --------- -----------
</TABLE>
- ------------------------
(a) Reflects the impact of attributing profit to sellers for contracts in
process as of January 1, 1998.
(b) Reflects the elimination of revenues between certain of the acquired
businesses prior to their acquisition by ThermoView.
(c) Reflects reduction in salaries and benefits to the former owners of
businesses acquired. These reductions in salaries and benefits have been
agreed to prospectively in accordance with the terms of employment
agreements. Such employment agreements are primarily for three years and
contain restrictions related to competition.
(d) Reflects the amortization of goodwill recorded as a result of the
acquisitions over a 40-year estimated life.
F-11
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND THE YEAR ENDED DECEMBER 31, 1998
3. UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS ADJUSTMENTS
(CONTINUED)
(e) Reflects interest expense on debt that is directly related to acquisitions.
(f) Reflects the incremental provision for federal and state income taxes at an
approximate 40% overall tax rate on the above adjustments to the statements
of operations (except for non-deductible goodwill included therein) and on S
corporation and partnership income not provided for in the historical
financial statements.
(g) Reflects dividends on Series B preferred stock. The preferred stock was
issued in connection with an acquisition.
* * * * *
In connection with this common stock offering, the Company's Series A and
Series B preferred stock will be converted into common stock and the
preferred dividends on these shares will be discontinued. Also subsequent to
March 31, 1999, the Company sold 6,000 shares of mandatorily redeemable
Series C convertible preferred stock at $1,000 per share and borrowed
$10,000,000 under a senior subordinated promissory note (see footnote 15 of
the consolidated financial statements, which appears on page F-34 and "Risk
Factors" on page 6 of this prospectus). A portion of the proceeds from these
financings were used to retire $5,650,000 of seller notes and $6,600,000 of
related-party loans which were outstanding at March 31, 1999. The effects of
the preferred stock conversion and the debt refinancing are not reflected in
the accompanying unaudited pro forma consolidated statements of operations.
F-12
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
ThermoView Industries, Inc.
We have audited the consolidated balance sheet of ThermoView Industries,
Inc. (see Note 1) as of December 31, 1998 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our 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 ThermoView
Industries, Inc. at December 31, 1998, and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Louisville, Kentucky
July 8, 1999
F-13
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
ThermoView Industries, Inc.
We have audited the accompanying balance sheet of ThermoView Industries,
Inc. (formerly Thermo-Tilt Window Company as discussed in Note 1) as of December
31, 1997 and the related statements of operations, stockholders' equity, and
cash flows for the years ended December 31, 1996 and 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 audits.
We conducted our audits in accordance with generally accepted audited
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ThermoView Industries, Inc.,
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1996 and 1997 in conformity with generally
accepted accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
July 8, 1998
F-14
<PAGE>
THERMOVIEW INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1997 1998
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................................................... $ 69,057 $ 1,302,797
Receivables:
Trade, net of allowance for doubtful accounts of $15,000 in 1997 and $237,000 in
1998........................................................................... 23,248 2,969,462
Finance, net of unearned interest of $346,701.................................... -- 763,616
Related party.................................................................... -- 410,720
Other............................................................................ 33,933 326,079
Costs in excess of billings on uncompleted contracts............................... 28,165 604,550
Inventories........................................................................ 16,000 1,313,318
Prepaid expenses and other current assets.......................................... 12,137 169,584
Deferred income taxes.............................................................. 18,000 533,000
------------ -------------
Total current assets................................................................. 200,540 8,393,126
Property and equipment, net.......................................................... 482,180 2,680,895
Other assets:
Goodwill, net of accumulated amortization of $521,115.............................. -- 37,040,101
Deferred income taxes.............................................................. 248,000 1,242,000
Related party notes receivable..................................................... 370,427 --
Other assets....................................................................... 202,217 837,624
------------ -------------
820,644 39,119,725
------------ -------------
Total assets......................................................................... $ 1,503,364 $ 50,193,746
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable (including related party vendor payables of $341,894 in 1998)..... $ 211,281 $ 2,052,937
Due to sellers of acquired businesses.............................................. -- 1,000,481
Accrued expenses................................................................... 533,513 2,775,439
Billings in excess of costs on uncompleted contracts............................... -- 566,702
Income taxes payable............................................................... -- 150,837
Current portion of long-term debt.................................................. 295,872 595,754
------------ -------------
Total current liabilities............................................................ 1,040,666 7,142,150
Long-term debt (including related party note payable of $1,500,000 in 1998).......... 231,062 8,610,069
Other long-term liabilities.......................................................... 54,550 43,545
Stockholders' equity:
Preferred stock, 50,000,000 shares authorized:
Series A, $.001 par value; 2,980,000 shares issued and outstanding............... -- 2,980
Series B, $.001 par value; none issued........................................... -- --
Common stock, $.001 par value; 100,000,000 shares authorized; 8,815,585 shares
issued and outstanding in 1997 and 13,470,864 shares issued and outstanding in
1998............................................................................. 8,816 13,471
Paid-in capital.................................................................... 1,032,767 40,448,514
Accumulated deficit................................................................ (864,497) (6,066,983)
------------ -------------
Total stockholders' equity........................................................... 177,086 34,397,982
------------ -------------
Total liabilities and stockholders' equity........................................... $ 1,503,364 $ 50,193,746
------------ -------------
------------ -------------
</TABLE>
See accompanying notes.
F-15
<PAGE>
THERMOVIEW INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1996 1997 1998
------------ ------------ --------------
<S> <C> <C> <C>
Revenues.............................................................. $ 6,641,397 $ 5,628,726 $ 37,376,355
Cost of revenues earned............................................... 3,571,473 2,889,444 16,747,734
------------ ------------ --------------
Gross profit.......................................................... 3,069,924 2,739,282 20,628,621
Selling, general and administrative expenses.......................... 2,634,018 3,292,548 20,233,163
Stock-based compensation expense...................................... -- 1,050 5,508,700
Depreciation and amortization......................................... 67,538 69,274 854,170
------------ ------------ --------------
Income (loss) from operations......................................... 368,368 (623,590) (5,967,412)
Interest expense...................................................... (56,603) (90,031) (439,131)
Other income (expense)................................................ (47,394) (18,607) 69,057
------------ ------------ --------------
Income (loss) before income taxes..................................... 264,371 (732,228) (6,337,486)
Income tax benefit.................................................... -- (266,000) (1,135,000)
------------ ------------ --------------
Net income (loss)..................................................... $ 264,371 (466,228) (5,202,486)
------------
------------
Less amount attributable to sole proprietor........................... 398,269 --
Less preferred stock dividends:
Cash................................................................ -- 585,105
Additional dividend attributable to beneficial conversion feature... -- 9,539,678
------------ --------------
-- 10,124,783
------------ --------------
Net loss attributable to common stockholders.......................... $ (864,497) $ (15,327,269)
------------ --------------
------------ --------------
Basic and diluted loss per common share............................... $ (1.29)
--------------
--------------
Weighted average shares outstanding................................... 11,925,706
--------------
--------------
</TABLE>
See accompanying notes.
F-16
<PAGE>
THERMOVIEW INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PROPRIETOR'S
PREFERRED PREFERRED COMMON COMMON DEFICIT/
STOCK STOCK STOCK STOCK PAID-IN ACCUMULATED
SHARES PAR VALUE SHARES PAR VALUE CAPITAL DEFICIT TOTAL
----------- ----------- ---------- ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1996........... -- $ -- -- $ -- $ -- $ (341,899) $ (341,899)
Owner's draw.......................... -- -- -- -- -- (152,849) (152,849)
Net income............................ -- -- -- -- -- 264,371 264,371
----------- ----------- ---------- ----------- ---------- ------------ ----------
Balances at December 31, 1996......... -- -- -- -- -- (230,377) (230,377)
Owner's draw and closing of
proprietorship...................... -- -- -- -- -- (167,892) (167,892)
Net income for the six months ended
June 30, 1997....................... -- -- -- -- -- 398,269 398,269
----------- ----------- ---------- ----------- ---------- ------------ ----------
Balances at June 30, 1997............. -- -- -- -- -- -- --
Initial capitalization of
corporation......................... -- -- 3,932,950 3,933 139,325 -- 143,258
Two for one stock split............... -- -- 3,932,950 3,933 (3,933) -- --
Issuance of common stock in private
placements.......................... -- -- 949,685 950 896,325 -- 897,275
Stock-based compensation expense...... -- -- -- -- 1,050 -- 1,050
Net loss for the six months ended
December 31, 1997................... -- -- -- -- -- (864,497) (864,497)
----------- ----------- ---------- ----------- ---------- ------------ ----------
Balances at December 31, 1997......... -- -- 8,815,585 8,816 1,032,767 (864,497) 177,086
Acquisition of the Company-issuance of
common stock in reverse merger...... -- -- 1,040,000 1,040 (1,040) -- --
Common stock issued for cash.......... -- -- 544,415 544 613,106 -- 613,650
Common stock issued for
acquisitions........................ -- -- 3,344,717 3,345 21,509,139 -- 21,512,484
Preferred stock issued for cash....... 2,980,000 2,980 -- -- 14,510,603 -- 14,513,583
Purchase and retirement of common
stock............................... -- -- (273,853) (274) (2,139,656) -- (2,139,930)
Portion of proceeds from issuance of
Series A preferred stock
attributable to beneficial
conversion feature at date of
issue............................... -- -- -- -- 9,539,678 -- 9,539,678
Additional dividend on Series A
preferred stock attributable to
beneficial conversion feature at
date of issue....................... -- -- -- -- (9,539,678) -- (9,539,678)
Preferred stock dividend payments..... -- -- -- -- (585,105) -- (585,105)
Stock-based compensation expense...... -- -- -- -- 5,508,700 -- 5,508,700
Net loss.............................. -- -- -- -- -- (5,202,486) (5,202,486)
----------- ----------- ---------- ----------- ---------- ------------ ----------
Balances at December 31, 1998......... 2,980,000 $ 2,980 13,470,864 $ 13,471 $40,448,514 $(6,066,983) $34,397,982
----------- ----------- ---------- ----------- ---------- ------------ ----------
----------- ----------- ---------- ----------- ---------- ------------ ----------
</TABLE>
See accompanying notes.
F-17
<PAGE>
THERMOVIEW INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1996 1997 1998
----------- ----------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)...................................................... $ 264,371 $ (466,228) $ (5,202,486)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operations:
Depreciation and amortization........................................ 67,538 69,274 854,170
Deferred income taxes................................................ -- (266,000) (1,282,000)
Stock-based compensation............................................. -- 1,050 5,508,700
Other................................................................ 47,393 27,342 (22,400)
Changes in operating assets and liabilities:
Trade receivables.................................................. 32,411 (12,970) (1,199,734)
Finance, related party and other receivables....................... 4,093 (20,375) (558,457)
Costs in excess of billings on uncompleted contracts............... -- (28,165) 115,906
Inventories........................................................ -- 12,000 109,757
Prepaid expenses and other current assets.......................... -- (7,637) (18,944)
Accounts payable................................................... 10,584 (394,096) (67,369)
Accrued expenses................................................... 53,480 371,735 896,640
Billings in excess of costs on uncompleted contracts............... -- -- 51,239
Income taxes payable............................................... -- -- 131,305
----------- ----------- --------------
Net cash provided by (used in) operating activities.................... 479,870 (714,070) (683,673)
INVESTING ACTIVITIES
Acquisitions of businesses, net of cash acquired....................... -- -- (15,613,913)
Payments for purchase of property and equipment........................ (142,067) (315,819) (860,897)
Proceeds from sale of property and equipment........................... 85,870 526,305 195,000
Other.................................................................. (324,348) 112,820 (602,667)
----------- ----------- --------------
Net cash provided by (used in) investing activities.................... (380,545) 323,306 (16,882,477)
FINANCING ACTIVITIES
Increase in long-term debt............................................. 122,973 -- 16,915,876
Payments of long-term debt............................................. (71,392) (305,709) (10,518,184)
Distributions to proprietor............................................ (152,849) (167,892) --
Preferred stock dividend payments...................................... -- -- (585,105)
Proceeds from issuance of common stock................................. -- 897,275 613,650
Cash received on initial capitalization of corporation................. -- 34,253 --
Purchase and retirement of common stock................................ -- -- (2,139,930)
Proceeds from issuance of preferred stock.............................. -- -- 14,513,583
----------- ----------- --------------
Net cash provided by (used in) financing activities.................... (101,268) 457,927 18,799,890
----------- ----------- --------------
Net increase (decrease) in cash and equivalents........................ (1,943) 67,163 1,233,740
Cash and equivalents at beginning of year.............................. 3,837 1,894 69,057
----------- ----------- --------------
Cash and equivalents at end of year.................................... $ 1,894 $ 69,057 $ 1,302,797
----------- ----------- --------------
----------- ----------- --------------
</TABLE>
See accompanying notes.
F-18
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION AND NATURE OF OPERATIONS
ThermoView Industries, Inc. ("ThermoView") was incorporated in Nevada on
December 1, 1987, under the name of Jackal, Inc. On May 10, 1994, the name was
changed from Jackal to Oak Hill, Inc., and on February 24, 1998, the name was
again changed from Oak Hill, Inc., to ThermoView Industries, Inc. ThermoView has
been eligible to be traded on the OTC Bulletin Board pursuant to Rule
15c2-11(a)(5) under the Securities Exchange Act of 1934, as amended, and is now
a Delaware corporation. Trading in ThermoView common stock commenced on April
16, 1998. Prior to April 15, 1998, ThermoView was a development stage
corporation, and had no business operations since its incorporation. From
inception through April 15, 1998, ThermoView had been seeking possible
acquisition or merger candidates.
On April 15, 1998, ThermoView acquired all of the outstanding stock of
Thermo-Tilt Window Company ("Thermo-Tilt"), a Delaware corporation, in exchange
for 9,360,000 shares of ThermoView's authorized, but unissued, common stock
which represented 90% of ThermoView's then outstanding common stock. Such shares
were issued to the former stockholders of Thermo-Tilt. The stock exchange
between Thermo-Tilt and ThermoView was accounted for as a capital transaction
similar to a reverse acquisition except that no goodwill was recorded. As a
result, Thermo-Tilt is deemed to be the acquirer for accounting purposes and is
the accounting survivor and reporting successor. Also, there was a change in
control of ThermoView, whereby all of ThermoView's officers and directors
resigned, and new officers and directors selected by Thermo-Tilt were elected.
The historical results of operations for the years ended December 31, 1996 and
1997 and for the period January 1, 1998 through April 15, 1998 reflect the
activities of Thermo-Tilt, using Thermo-Tilt's historical cost basis. Because of
the nature of this merger, "Company" as used in subsequent footnotes refers
interchangeably to ThermoView or Thermo-Tilt. All share and per share data
related to Thermo-Tilt has been retroactively restated in the accompanying
consolidated financial statements and notes thereto to reflect the number of
shares received from ThermoView. Pro forma information is not presented since
the transaction is not a business combination. Following the merger, ThermoView
has continued to be traded on the OTC Bulletin Board.
Thermo-Tilt commenced operations in 1987 as a Kentucky sole proprietorship
engaged in the business of designing, installing, and selling state of the art
vinyl replacement thermal paned windows for the existing home market. On May 9,
1997, Thermo-Tilt was incorporated with the initial issuance of Thermo-Tilt
common stock for the assets of the sole proprietorship occurring on July 1,
1997.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
CASH AND EQUIVALENTS
The Company considers all short-term, highly liquid investments with
original maturities of three months or less to be cash equivalents.
TRADE RECEIVABLES
Trade receivables consist of amounts due from customers. These are
uncollateralized, short-term receivables. The Company reviews its trade
receivables and provides allowances as deemed necessary.
F-19
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain of the Company's financial instruments including cash,
receivables, accounts payable, and other accrued liabilities, the carrying
amounts approximate fair value due to their short maturities. The Company also
estimates the fair value of long-term debt to be approximately the same as the
recorded value at each balance sheet date.
INVENTORIES
Inventories are recorded at the lower of cost (first-in, first-out basis) or
market. Inventories consist principally of components for the manufacturing of
windows such as glass, vinyl and other composites.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for major renewals
and improvements which increase the useful lives of assets are capitalized.
Maintenance, repairs and minor renewals are expensed as incurred. Assets are
depreciated on a straight-line or accelerated method over their estimated useful
lives which generally range from 3 to 7 years.
GOODWILL
Goodwill represents the excess of the aggregate purchase price paid by the
Company in acquisitions accounted for as purchases over the fair value of the
net tangible assets acquired. Goodwill is amortized on a straight-line basis
over 40 years.
The Company periodically evaluates the recoverability of the remaining
balance of goodwill recorded from business acquisitions. The Company uses an
estimate of future cash flows to evaluate recoverability of these assets.
WARRANTIES
The Company provides its customers with various warranty programs on its
products and services. The Company provides an accrual for future warranty costs
based upon the relationship of prior years' revenues to actual warranty costs.
It is the Company's practice to classify the entire warranty accrual as a
current liability.
REVENUE AND COST RECOGNITION
The Company recognizes revenues on the completed contract method. A contract
is considered complete when the customer accepts the work.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor and
supplies. General and administrative costs are charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined.
F-20
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Costs in excess of amounts billed are classified under current assets as
costs in excess of billings on uncompleted contracts. Billings in excess of
costs are classified under current liabilities as billings in excess of costs on
uncompleted contracts.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense was
$58,648 in 1996, $64,421 in 1997 and $1,578,685 in 1998.
INCOME TAXES
Prior to July 1, 1997, the Company was taxed as a sole proprietorship
whereby taxable income or loss was passed on to the proprietor. At July 1, 1997,
under the provisions of the Internal Revenue Code, the Company was incorporated
and elected to be taxed as a "C" corporation. The Company filed a consolidated
return for federal income tax purposes for its first tax year-end as of May 31,
1998. The Company intends to change its tax reporting year-end to a calendar
year basis effective December 31, 1998. Income taxes are provided for under the
liability method, which takes into account differences between financial
statement treatment and tax treatment of certain transactions.
LOSS PER COMMON SHARE
Loss per common share is calculated in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "EARNINGS PER SHARE." The
Company calculates basic earnings per common share using the weighted average
number of shares outstanding for the period. Diluted earnings per common share
include both the weighted average number of shares and any common share
equivalents such as options or warrants in the calculation. As the Company
recorded a loss in 1998, common share equivalents outstanding would be
anti-dilutive, and as such, have not been included in weighted average shares
outstanding. Basic and diluted loss per common share for the year ended December
31, 1997, is not presented as this information is not meaningful since the
Company operated as a sole proprietorship until July 1, 1997.
STOCK OPTIONS
These financial statements include the disclosure requirements of SFAS No.
123, "ACCOUNTING FOR STOCK-BASED COMPENSATION." With respect to accounting for
stock options, as permitted under SFAS No. 123, the Company has retained the
intrinsic value method prescribed by Accounting Principles Board Opinion No. 25
(APB 25), "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES," and related
interpretations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
F-21
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
3. BUSINESS COMBINATIONS
During 1998, the Company acquired nine companies. Information about these
transactions is summarized as follows:
<TABLE>
<CAPTION>
COST OF ACQUIRED COMPANY
-------------------------------------------------------
COMMON STOCK ISSUED
DATE OF CASH AND -------------------------
ACQUIRED COMPANY ACQUISITION PAYABLES SHARES VALUE TOTAL COST
- ------------------------------------------------ ----------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
American Home Developers Co., Inc............... 04/25/98 $ 1,201,861 777,174 $ 5,315,870 $ 6,517,731
Primax Window Co................................ 04/30/98 1,132,566 488,174 3,156,045 4,288,611
The Rolox Companies............................. 04/30/98 2,769,812 1,122,174 7,254,854 10,024,666
TD Windows, Inc................................. 05/15/98 311,031 -- -- 311,031
American Home Remodeling........................ 07/10/98 3,192,005 367,246 2,536,752 5,728,757
Five Star Builders, Inc......................... 07/12/98 1,550,534 350,000 2,215,500 3,766,034
NuView Industries, Inc.......................... 07/21/98 1,189,734 2,174 13,106 1,202,840
Leingang Siding and Window, Inc................. 08/14/98 2,895,722 87,765 376,623 3,272,345
Thermal Line Windows, LLP....................... 08/14/98 4,670,006 150,010 643,734 5,313,740
------------- ---------- ------------- -------------
$ 18,913,271 3,344,717 $ 21,512,484 $ 40,425,755
------------- ---------- ------------- -------------
------------- ---------- ------------- -------------
</TABLE>
The above acquisitions have been accounted for as purchase transactions and,
accordingly, the results of operations of the acquired businesses have been
included in the consolidated financial statements since the respective
acquisition dates. These companies are engaged primarily in the businesses of
manufacturing replacement windows or selling and installing them in the
residential retail market. The accompanying consolidated balance sheet as of
December 31, 1998 includes allocations of the respective purchase prices to the
assets acquired and liabilities assumed based on estimates of fair value with
the excess of cost over the fair value of net assets acquired recorded as
goodwill.
The terms of certain of the Company's acquisition agreements provide for
additional consideration to be paid if the acquired entities' results of
operations exceed certain targeted levels, generally for a period of three years
subsequent to the acquisition dates. Targeted levels are generally set at the
annual earnings of the acquired entities before interest and taxes, allowing for
the add back of certain salaries and other costs that will not be incurred on a
post-acquisition basis. Such additional consideration is paid in cash and with
shares of the Company's common stock, and is recorded when earned as additional
purchase price. Goodwill is increased for any additional purchase price. During
1998, additional consideration was paid in cash totaling $150,000. Also,
$1,000,481 has been recorded as a liability as of December 31, 1998 for a future
cash payment, and 237,775 additional common shares (valued at $1,020,357) are
reported as issued and outstanding to satisfy an obligation for additional
earned consideration. The table above reflects additional consideration recorded
through December 31, 1998, as well as the $1,500,000 note payable discussed in
Note 8.
F-22
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
3. BUSINESS COMBINATIONS (CONTINUED)
The following unaudited pro forma consolidated results of operations are
presented as if the acquisitions of the nine purchased companies had occurred on
January 1, 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
(UNAUDITED) 1997 1998
------------- --------------
<S> <C> <C>
Net revenues................................................... $ 59,114,861 $ 60,199,313
Net income (loss).............................................. 743,806 (5,288,847)
Net income (loss) applicable to common stockholders............ 743,806 (15,413,630)
Basic and diluted loss per common share........................ (1.13)
</TABLE>
The pro forma consolidated results of operations include adjustments to give
effect to amortization of goodwill, interest expense, and certain other
adjustments, together with related income tax effects. The pro forma
consolidated results of operations do not reflect any corporate expenses prior
to April 15, 1998, since corporate activities did not commence until then. The
unaudited pro forma information is not necessarily indicative of the results of
operations that would have occurred had the acquisitions occurred on January 1,
1997 or of the future results of the combined operations.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consists of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ------------
<S> <C> <C>
Building and improvements........................................... $ 186,554 $ 469,107
Manufacturing equipment............................................. -- 705,632
Furniture, fixtures and equipment................................... 20,150 368,311
Computer equipment and software..................................... 156,173 649,722
Autos and trucks.................................................... 148,840 804,003
---------- ------------
511,717 2,996,775
Less accumulated depreciation....................................... (29,537) (315,880)
---------- ------------
$ 482,180 $ 2,680,895
---------- ------------
---------- ------------
</TABLE>
5. UNCOMPLETED CONTRACTS
Costs and billings on uncompleted contracts at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts................................ $ 28,165 $ 846,051
Billings to date....................................................... -- 808,203
--------- ----------
$ 28,165 $ 37,848
--------- ----------
--------- ----------
</TABLE>
F-23
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
5. UNCOMPLETED CONTRACTS (CONTINUED)
These amounts are included in the accompanying consolidated balance sheets
under the following captions:
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Costs in excess of billings on uncompleted contracts.................. $ 28,165 $ 604,550
Billings in excess of costs on uncompleted contracts.................. -- (566,702)
--------- -----------
$ 28,165 $ 37,848
--------- -----------
--------- -----------
</TABLE>
6. LEASES
The Company and its subsidiaries are lessees under various operating lease
agreements for office space, manufacturing facilities, warehouses, equipment and
other properties. The Company in general is responsible for all taxes, insurance
and utility expenses associated with these leases. Lease renewal options are
present in many of the lease arrangements, and range in renewal periods from one
to five years. Future minimum rental commitments at December 31, 1998, are as
follows:
<TABLE>
<CAPTION>
RELATED
YEAR PARTY LEASES OTHER LEASES TOTAL
- --------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
1999............................................... $ 665,699 $ 934,096 $ 1,599,795
2000............................................... 559,235 587,114 1,146,349
2001............................................... 400,467 341,817 742,284
2002............................................... 187,428 162,341 349,769
2003............................................... 104,220 54,664 158,884
Thereafter......................................... -- 6,162 6,162
------------ ------------ ------------
Total.............................................. $1,917,049 $ 2,086,194 $ 4,003,243
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Rent expense was $124,687, $88,053 and $722,465 for the years ended December
31, 1996, 1997 and 1998, respectively. Of these amounts, related party rent
expense was $6,500 in 1997 and $296,123 in 1998. There was no related party rent
expense in 1996.
7. ACCRUED EXPENSES
Accrued expenses as of December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ------------
<S> <C> <C>
Payroll and related................................................. $ 203,513 $ 1,249,963
Warranties.......................................................... 30,000 209,655
Professional fees................................................... 300,000 619,830
Other............................................................... -- 695,991
---------- ------------
$ 533,513 $ 2,775,439
---------- ------------
---------- ------------
</TABLE>
F-24
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
8. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ------------
<S> <C> <C>
Bank revolving line of credit....................................... $ -- $ 5,250,000
Related party note payable.......................................... -- 1,500,000
Note payable to seller of business acquired by Company, with an
interest rate of 5.5%, unsecured and maturing on the earlier of
August 1999 or the date of a public offering of voting equity
securities........................................................ -- 1,500,000
Note payable to bank, with an interest rate of 9%, maturing in March
2004, with monthly payments of principal and interest totaling
$4,424............................................................ 255,994 227,580
Note payable to bank, with an interest rate of 9.25% (repaid in
January 1999)..................................................... -- 253,822
Other............................................................... 270,940 474,421
---------- ------------
526,934 9,205,823
Less current portion................................................ 295,872 595,754
---------- ------------
Long-term portion................................................... $ 231,062 $ 8,610,069
---------- ------------
---------- ------------
</TABLE>
The following is a schedule by years of future maturities of long-term debt
as of December 31, 1998:
<TABLE>
<S> <C>
1999............................................................ $ 595,754
2000............................................................ 5,400,412
2001............................................................ 86,378
2002............................................................ 50,771
2003............................................................ 3,048,725
Thereafter...................................................... 23,783
---------
Total......................................................... $9,205,823
---------
---------
</TABLE>
On April 20, 1998, the Company entered into an agreement with a venture
capital firm for a $5,000,000 revolving line of credit which expires on April
20, 2003. The line bears interest at prime (7.75% at December 31, 1998) plus 1%.
The line required an origination fee of $25,000. A stockholder, who also is an
officer and director of the Company, and a stockholder/director of the Company
have an ownership interest in the venture capital firm. There is no balance
outstanding on this line at December 31, 1998.
On August 31, 1998, the Company entered into a loan agreement with PNC Bank,
N.A., for a $15,000,000 revolving credit facility. At December 31, 1998, the
outstanding balance under the line of credit was $5,250,000. The interest rate
is a LIBOR-based variable rate which was 7.84% at December 31, 1998. Interest on
the line of credit is payable quarterly and principal is payable in full at
maturity on August 31, 2000.
Under this credit facility and other financing and lease arrangements,
substantially all of the Company's assets are pledged as collateral. The Company
is required to maintain certain financial ratios
F-25
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
8. LONG-TERM DEBT (CONTINUED)
and to comply with various other covenants and restrictions under the terms of
the credit facility and other agreements, including restriction as to the
payment of dividends, other than preferred stock dividends, and the incurrence
of additional indebtedness. The Company has not met certain covenants subsequent
to December 31, 1998. PNC Bank, N.A., has waived all covenant violations through
July 8, 1999, and has reset covenants to accommodate future compliance.
On December 18, 1998, the Company executed a $5,500,000 unsecured
subordinated promissory note in favor of four stockholders of the Company. Three
of the four stockholders are also officers and directors of the Company. The
principal amount outstanding under the note at December 31, 1998, was
$1,500,000. The interest rate is a LIBOR-based variable rate which was 9.59% at
December 31, 1998. Interest is payable monthly and principal was payable in full
at maturity on March 31, 1999, and is now payable on demand. As of December 31,
1998, the lenders are due a loan origination fee of $250,000 which is being
amortized over the term of the note.
Both the related party note and the note payable to seller have been
classified as long-term since the Company currently has the ability and the
intent to refinance these obligations on a long-term basis.
Cash paid for interest was $56,603, $90,032 and $383,244 for 1996, 1997 and
1998, respectively.
9. INCOME TAXES
Significant components of income tax benefit for the years ended December
31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -------------
<S> <C> <C>
Current:
Federal......................................................... $ -- $ --
State........................................................... -- 147,000
----------- -------------
-- 147,000
Deferred:
Federal......................................................... (211,000) (1,099,000)
State........................................................... (55,000) (183,000)
----------- -------------
(266,000) (1,282,000)
----------- -------------
Income tax benefit................................................ $ (266,000) $ (1,135,000)
----------- -------------
----------- -------------
</TABLE>
F-26
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
9. INCOME TAXES (CONTINUED)
A reconciliation of income tax benefit with the expected amount computed by
applying the federal statutory income tax rate to loss before income taxes for
the years ended December 31, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
Income tax benefit computed at federal statutory tax rate............... (34.0)% (34.0)%
State taxes, net of federal benefit..................................... (4.8) (.4)
Nondeductible expense related to sales of common stock to employees..... -- 12.5
Nondeductible merger and acquisition costs.............................. 21.2 1.5
Nondeductible goodwill amortization..................................... -- 2.5
Effect of sole proprietor's income taxed on proprietor's individual
return................................................................ (18.5) --
Other................................................................... (.2) --
---------- -----------
Total................................................................. (36.3)% (17.9)%
---------- -----------
---------- -----------
</TABLE>
Significant components of deferred income taxes as of December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1998
---------- ------------
<S> <C> <C>
Net operating loss carryforwards.................................... $ 154,000 $ 265,000
Allowance for doubtful accounts..................................... 6,000 94,000
Compensation expense related to stock options....................... -- 1,270,000
Warranties.......................................................... 12,000 84,000
Other............................................................... 94,000 62,000
---------- ------------
Total deferred tax assets........................................... $ 266,000 $ 1,775,000
---------- ------------
---------- ------------
</TABLE>
As of December 31, 1998, the Company has net operating loss carryforwards of
approximately $675,000 for federal income tax purposes which the Company expects
to be able to utilize in the year ended December 31, 1999. These net operating
losses expire in 2018. The Company believes it is more likely than not that
future earnings will be sufficient to ensure the realization of its deferred tax
assets.
Cash paid for income taxes was $17,614 in 1998. No income taxes were paid in
1996 or 1997.
10. STOCKHOLDERS' EQUITY
PREFERRED STOCK
SERIES A
On June 12, 1998, the Company commenced a Series A preferred stock offering
for the sale of a maximum of 4,000,000 shares of its 10% Cumulative Convertible
Series A preferred stock (the "Series A preferred stock") at $5.00 per share. On
October 15, 1998, the date the preferred stock offering terminated, 2,980,000
shares of Series A preferred stock had been sold and the Company collected
$14,513,583 in proceeds, after issuance costs.
F-27
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
10. STOCKHOLDERS' EQUITY (CONTINUED)
Dividends on the shares of Series A preferred stock at an annual rate of 50
cents per share are cumulative from the date of original issuance and are
payable quarterly in arrears. The Series A preferred stock has a liquidation
preference of $5 per share and is convertible at the option of the holder at any
time, unless previously redeemed by the Company, into the Company's $.001 par
value Common Stock (the "Common Stock") at a conversion price, subject to
adjustment in certain circumstances, of $5.00 per share of Common Stock
(initially equivalent to a conversion rate of one share of Common Stock for each
share of Series A preferred stock). Because of the beneficial conversion feature
of the Series A preferred stock relative to the OTC Bulletin Board price of
Common Stock at the date of issue, the Company has included $9,539,678 of
dividends in addition to cash dividends paid as an amount attributable to
preferred stockholders in the accompanying consolidated statement of operations
for the year ended December 31, 1998.
The Series A preferred stock is not redeemable prior to June 12, 2001
(except in the case of a public offering of the Company's Common Stock, in which
case the Series A preferred stock will be converted in whole at such time) and
is not redeemable by the Company for cash. On or after June 12, 2001, the Series
A preferred stock will be redeemable for Common Stock at the option of the
Company, in whole or in part, for such number of shares of Common Stock as are
issuable at a conversion rate of one share of Common Stock for each share of
Series A preferred stock, subject to adjustment in certain circumstances. The
Company may exercise this option only if for 20 trading days within any period
of 30 consecutive trading days, including the last trading day of such period,
the closing price of the Common Stock on the OTC Bulletin Board exceeds $5.00
per share, subject to adjustment in certain circumstances.
SERIES B
In October 1998, the Company's Board of Directors authorized the Company to
issue up to 4,000,000 shares of 10% Cumulative Series B preferred stock (the
"Series B preferred stock") to be used as consideration in certain acquisitions.
The Series B preferred stock has terms substantially identical to the Series A
preferred stock described above. As mentioned in Note 15, 400,000 shares of
Series B preferred stock were issued as partial consideration for a January 1999
acquisition.
VOTING RIGHTS
Generally, the holders of Series A and Series B preferred stock will not
have voting rights. Whenever dividends on the preferred stock are in arrears in
an amount equal to the dividends payable thereon for six quarterly dividend
periods, holders of the preferred stock will have the right to elect two
additional directors to serve on the Company's Board of Directors until all
accumulated and unpaid dividends on the preferred stock have been paid in full.
COMMON STOCK
On July 1, 1997, in connection with the Company's initial capitalization,
the Company issued 2,788,867 shares of common stock to the President of the
Company, at that time, and his family members in exchange for assets and
liabilities having a net book deficiency of $290,867. The Company also issued
1,144,083 shares of the Company's common stock to various outside investors in
exchange for assets having a fair value of $434,125.
F-28
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
10. STOCKHOLDERS' EQUITY (CONTINUED)
On September 29, 1997, the Company's common stock was split two for one.
In the last quarter of 1997, the Company issued 949,685 shares of common
stock in two private placements for net proceeds of $897,275. During the first
quarter of 1998, the Company completed these private placements by issuing an
additional 544,415 shares for net proceeds of $613,650.
As more fully described in Note 1, on April 15, 1998, the Company acquired
all of the outstanding common stock of Thermo-Tilt in a reverse merger.
During 1998, the Company issued 3,344,717 shares of common stock having a
fair value of $21,512,484 in connection with the acquisition of nine companies
and retired 273,853 shares of its common stock which was purchased for
$2,139,930.
EMPLOYEE STOCK OPTIONS
Prior to April 15, 1998, the Company had no formal employee stock option
plan. As such, all options granted to employees prior to April 15, 1998, were
non-qualified stock options. The exercise price and terms of any non-qualified
options granted are determined at the date of grant.
During 1998, the Company issued non-qualified, non-plan options to purchase
946,789 shares of common stock to key employees. The options were granted at
$1.15 per share which, except for an option to purchase 125,000 shares granted
to a key employee, equaled or exceeded the estimated fair value of the common
stock at the date of grant. All of these options are fully vested at December
31, 1998 and expire five years from the date of grant. The Company recognized
expense of $1,098,750 in 1998 in connection with the option for 125,000 shares.
On April 15, 1998, the Company adopted the 1998 Employee Stock Option Plan
(the "1998 Plan"). Under the 1998 Plan, qualified or non-qualified stock options
for up to 1,500,000 shares may be granted to key employees. The exercise price
and terms of any options granted are determined at the date of grant.
During 1998, the Company issued options to purchase 1,130,000 shares of
common stock under the 1998 Plan. The options were granted at exercise prices
ranging from $1.15 to $2.30 per share which, except for options to purchase
330,000 shares, equaled or exceeded the estimated fair value of the common stock
at the date of grant. The Company recognized expense of $2,076,000 in 1998 in
connection with the options for 330,000 shares. All of these options are fully
vested at December 31, 1998, and expire five to ten years from the date of
grant.
In October 1997, the Company issued an option to purchase 1,478,405 shares
of common stock to a company owned by immediate family members of an employee of
the Company. The option was granted at $.29 per share, vested one year after the
grant date and expires five years after grant date. The exercise price of the
option exceeded the estimated fair value of the Company's common stock at the
date of grant.
F-29
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
10. STOCKHOLDERS' EQUITY (CONTINUED)
Pursuant to SFAS No. 123 "ACCOUNTING FOR STOCK-BASED COMPENSATION," the
Company has elected to account for its employee stock options under APB No. 25
"ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES." Accordingly, no compensation cost
has been recognized for employee options except as noted above. Had compensation
cost for employee options been determined based on the fair value at the grant
date consistent with SFAS No. 123, the Company's net loss and loss per share
would have been as follows for the year ended December 31:
<TABLE>
<CAPTION>
1997 1998
----------- --------------
<S> <C> <C>
Net loss:
As reported.................................................... $ (466,228) $ (5,202,486)
Pro forma...................................................... (491,730) (5,992,725)
Net loss attributable to common stockholders:
As reported.................................................... (864,497) (15,327,269)
Pro forma...................................................... (889,999) (16,117,508)
Basic and diluted loss per common share:
As reported.................................................... (1.29)
Pro forma...................................................... (1.35)
</TABLE>
The fair value of each option grant to employees is estimated on the date of
grant using the Black Scholes option-pricing model with the following weighted
average assumptions:
<TABLE>
<S> <C>
Interest rate...................................................... 5%
Dividends.......................................................... --
Expected volatility................................................ 2.21
Expected life in years............................................. 3 years
</TABLE>
Stock option activity during 1997 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Outstanding, January 1.............................................. -- 1,478,405
Granted............................................................. 1,478,405 2,076,789
Exercised........................................................... -- --
Canceled............................................................ -- --
---------- ----------
Outstanding, December 31............................................ 1,478,405 3,555,194
---------- ----------
---------- ----------
Exercisable......................................................... -- 3,555,194
Available for grant................................................. -- 370,000
Average price per share:
Outstanding, January 1............................................ $ -- $ .29
Granted........................................................... .29 1.32
Exercised......................................................... -- --
Outstanding, December 31.......................................... .29 .89
Exercisable, December 31.......................................... -- .89
Weighted average grant date fair value of options................... $ .09 $ 1.25
</TABLE>
F-30
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
10. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about employee stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING WEIGHTED-AVERAGE
- ------------------------------------ REMAINING CONTRACTUAL
NUMBER OUTSTANDING EXERCISE PRICE LIFE
- ------------------- --------------- -------------------------
<C> <C> <S>
1,478,405...... $ .29 45 months
1,746,789...... 1.15 49
130,000........ 2.05 114
200,000........ 2.30 118
</TABLE>
In December 1998, the Company's Board of Directors adopted the 1999 Stock
Option Plan (the "1999 Plan") under which qualified or non-qualified options for
up to 2,500,000 shares may be granted to key employees and directors. On January
1, 1999, options for 720,123 shares of common stock were granted to 227
employees of the Company under the 1999 Plan at an exercise price of $5.31 per
share. These options vest over a three-year period and expire on July 1, 2003.
In January 1999, options for 350,000 shares of common stock were granted
under the 1998 Plan to certain employees of a business acquired by the Company
in January 1999. These options have the same terms as the options granted under
the 1999 Plan noted above. The remaining shares available for grant under the
1998 Plan (20,000 shares) are now considered shares reserved under the 1999
Plan.
In March 1999, the Company granted options for 100,000 shares of common
stock under the provisions of the 1999 Plan to an employee of a business
acquired in March 1999. The exercise price of the options is $8.62 per share.
The options vest equally in March 2004 and March 2005 and expire on March 23,
2009.
In April 1999, the Company granted options for 48,000 shares of common stock
under the provisions of the 1999 Plan to certain employees of a business
acquired in January 1999. The exercise price of the options is $6.46 per share.
The options vest over a three-year period and expire on April 16, 2009.
The Company granted options for 22,500 shares of common stock with an
exercise price of $3.88 to three non-employee directors in May 1999 under the
1999 Plan. The options vest over a three-year period and expire on May 10, 2009.
NON-EMPLOYEE STOCK OPTIONS AND PURCHASE WARRANTS
On October 22, 1997, the Company issued options to purchase 130,449 shares
of common stock to several consultants for services. The options were granted at
$0.29 per share, vested one year after the grant date and expire five years
after grant date. In March 1998, the Company issued options to purchase 130,449
shares of common stock to consultants for services. The options were granted at
$1.15 per share and vested immediately. The Company recognized expense of $1,050
and $11,950 for 1997 and 1998, respectively, for all of these options granted to
consultants based on an estimate of the fair value of the options granted.
F-31
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
10. STOCKHOLDERS' EQUITY (CONTINUED)
On November 1, 1998, the Company issued stock warrants to purchase 125,000
shares of common stock at $10 per share to a consultant. The warrants vested
immediately and expire five years from the date of issue. No expense was
recognized due to the insignificance of the estimated fair value of the
warrants.
COMMON STOCK SOLD TO EMPLOYEES BY SIGNIFICANT STOCKHOLDER
During 1998, a significant stockholder who is also an officer and director
of the Company sold 323,483 shares of his Company common stock to certain
employees or their children at prices below the OTC Bulletin Board price at the
date of sale. The Company recognized expense of $2,322,000 in 1998 in connection
with these sales.
COMMON SHARES RESERVED
The following table summarizes the number of shares of common stock reserved
for future issuance as of December 31, 1998:
<TABLE>
<S> <C>
Series A convertible preferred stock............................. 2,980,000
Employee stock options:
Options granted................................................ 3,555,194
Shares reserved for future grants:
1998 Plan.................................................... 350,000
1999 Plan.................................................... 2,500,000
Other stock options and stock purchase warrants.................. 385,898
---------
9,771,092
---------
---------
</TABLE>
11. EMPLOYEE BENEFIT PLANS
Effective January 1, 1999, the Company established a defined contribution
401(k) profit sharing plan and trust for the benefit of all its employees,
subject to certain age and service requirements. Plan participants may make
salary reduction contributions to the plan which are subject to Internal Revenue
Service contribution limitations. The Company will make matching employer
contributions of twenty-five percent of the first six percent of the employees'
contributions. Employee contributions vest immediately. Employer contributions
vest over a six-year period.
Thermo-Tilt has a 401(k) profit sharing plan established to cover
substantially all of its eligible employees. Employee contributions to the plan
are elective, and matching contributions by the employer are optional.
Thermo-Tilt incurred $23,476, $14,721 and $13,971 in contribution expense for
the years ended December 31, 1996, 1997 and 1998, respectively. This plan will
be merged into the ThermoView plan in 1999.
Five of the Company's acquired businesses have existing 401(k) profit
sharing plans. The Company will merge these plans into its own plan during 1999.
These plans have various eligibility requirements and vesting provisions. All of
the plans provide for either a predetermined or discretionary employer match.
Contribution expense for these plans aggregated $30,081 for the periods since
acquisition during 1998.
F-32
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
12. RELATED PARTY TRANSACTIONS
On December 20, 1997, in connection with a building sale-leaseback
transaction, the Company began leasing its place of business in Owensboro,
Kentucky, from a stockholder. In connection with the sale, the buyer assumed and
satisfied debts of the Company in the amount of $620,223. The lease expires
December 20, 2002. Future minimum aggregate lease payments required as of
December 31, 1998, approximate $312,000. The gain of $55,008 on the transaction
has been deferred and is being amortized over the term of the lease.
Amortization of the gain on the sale for the years ended December 31, 1997 and
1998 was $458 and $11,005, respectively. Lease expense and the related lease
commitment are included in related party amounts disclosed in Note 6.
During the years ended December 31, 1997 and 1998, the Company had notes
receivable at an interest rate of 8% from a company controlled by a relative of
a stockholder, who is also an officer and director of the Company. Amounts owed
the Company were approximately $232,000 and $181,000 at December 31, 1997 and
1998, respectively. The remaining $181,000 was repaid in January 1999.
At December 31, 1997 and 1998, the Company had receivables due from a
stockholder, who is also an officer and director of the Company, amounting to
$138,430 and $19,006, respectively.
During 1998, the Company purchased $4,106,375 of windows from a supplier
owned by a stockholder, who is also a director and officer of the Company. The
net amount owed this supplier at December 31, 1998, was approximately $225,393.
The Company purchased $1,487,090 and $779,518 of windows in 1997 and 1998,
respectively, from a company that is owned by a stockholder of the Company.
13. COMMITMENTS AND CONTINGENCIES
In October 1998, the Company entered into a $350,000 equipment lease line
with a bank. The lease line will be used principally for computer hardware and
software. Commitments for approximately $180,000 of purchases to be leased under
this line were outstanding at December 31, 1998.
The Company is subject to legal proceedings and claims which have arisen in
the ordinary course of its business and have not been finally adjudicated.
Although there can be no assurance as to the ultimate disposition of these
matters, it is the opinion of the Company's management, based upon the
information available at this time, that the expected outcome of these matters,
individually or in the aggregate, will not have a material adverse effect on the
results of operations and financial condition of the Company.
14. SEGMENT INFORMATION
In 1996 and 1997, the Company was comprised of only one business unit that
operated exclusively in the retail segment designing, selling, and installing
vinyl replacement windows. In 1998, the Company's ten business units have
separate management teams and infrastructures that operate primarily in the
vinyl replacement windows, doors and related home improvement products industry
in various states in the Midwest and in Southern California. The business units
have been aggregated into three reportable operating segments: manufacturing,
retail and financial services.
F-33
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
14. SEGMENT INFORMATION (CONTINUED)
MANUFACTURING
The manufacturing segment includes the businesses that manufacture and sell
vinyl replacement windows to the Company's retail segment and to unaffiliated
customers.
RETAIL
The retail segment includes the businesses that design, sell and install
vinyl replacement windows, doors and related home improvement products to
commercial and retail customers.
FINANCIAL SERVICES
The financial services segment is in a start-up phase and finances credit
sales of the retail segment.
The accounting policies of the segments are the same as those described in
Note 2. Intersegment sales prices are comparable to sales prices charged to
unaffiliated customers. The Company allocated $1,915,000 of corporate expenses
in 1998 to its operating business units as a management fee based on a percent
of revenues. The Company evaluates performance based on income from operations
of the respective businesses.
Segment information for 1998 was as follows:
<TABLE>
<CAPTION>
FINANCIAL
MANUFACTURING RETAIL SERVICES CORPORATE CONSOLIDATED
-------------- ------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers........ $ 3,365,808 $ 34,010,547 $ -- $ -- $ 37,376,355
Intersegment revenues................... 909,019 -- -- -- 909,019
Interest income......................... 10,935 32,050 11,651 14,421 69,057
Interest expense........................ 11,009 131,033 -- 297,089 439,131
Income (loss) from operations........... 312,680 (378,529) (188,920) (5,712,643) (5,967,412)
Depreciation and amortization........... 86,276 707,105 7,895 52,894 854,170
Total assets............................ 6,779,994 39,781,170 662,234 2,970,348 50,193,746
Capital expenditures.................... 269,004 356,652 76,409 158,832 860,897
</TABLE>
15. SUBSEQUENT EVENTS
On January 4, 1999, the Company purchased Thomas Construction, Inc.
(Thomas), for $11,095,000 in cash, 301,425 shares of common stock at an
estimated fair value of $1,500,000 and 400,000 shares of Series B preferred
stock at an estimated fair value of $2,000,000. The acquisition agreement
provides for additional consideration to be paid if Thomas exceeds certain
targeted levels of operating results. Thomas is primarily engaged in the home
improvement business in the St. Louis Metropolitan area.
On January 5, 1999, the Company purchased Precision Window Manufacturing,
Inc. (Precision), for $1,800,000 in cash, 112,053 shares of common stock at an
estimated fair value of $450,000 and a seller note for $1,200,000. Precision
manufactures windows and sells primarily to the Company's retail segment, and is
located in St. Louis.
Effective March 1, 1999, the Company purchased Thermo-Shield, Inc.
(Thermo-Shield), for $350,000 cash, 555,017 shares of common stock at an
estimated fair value of $2,625,000 and a seller note for
F-34
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
15. SUBSEQUENT EVENTS (CONTINUED)
$4,150,000. Thermo-Shield is primarily engaged in the home improvement business
(retail sales and installation) in Illinois, Wisconsin, Arizona, Michigan and
Indiana.
All of these acquisitions have been accounted for as purchase transactions.
The cash portion of the acquisitions was provided from a $9,750,000 draw on the
Company's $15,000,000 bank line, and the balance from the $5,500,000
related-party loan facility discussed in Note 8 and a $350,000 related-party
loan discussed below.
Subsequent to December 31, 1998, the Company borrowed $1,100,000 with
interest at 12% from three stockholders. Two of the three stockholders are also
officers and directors of the Company. The Company used $750,000 of the proceeds
to pay a portion of a contingent payment related to a 1998 business acquisition
and $350,000 was used to pay the cash portion of the March 1, 1999, acquisition
mentioned above. The Company subsequently repaid the $1,100,000.
On April 19, 1999, the Board of Directors authorized the Company to issue up
to 25,000 shares of Series C preferred stock.
On April 23, 1999, Brown Simpson Growth Fund, L.P., a New York limited
partnership, and Brown Simpson Growth Fund, Ltd., a Grand Cayman, Cayman Islands
limited partnership, pursuant to a securities purchase agreement, purchased
6,000 shares of Series C preferred stock at $1,000 per share for a total
investment of $6,000,000.
The Series C preferred stock has a stated value of $1,000 per share, with
certain other preferences, rights, voting powers, restrictions and limitations
as to dividends, qualifications and terms and conditions of redemption. Dividend
payments (9.6% per annum) are to be 70% cash and 30% Company common stock. The
Series C preferred stock is convertible at any time, in whole, or in part, at
the option of the holder into shares of common stock, at a conversion price
(initially equivalent to a conversion rate of 200 shares of common stock for
each share of Series C preferred stock). Additionally, the Series C preferred
stock is redeemable at the option of the holder: (i) on October 23, 2000, or
(ii) on April 23, 2002, and (iii) immediately upon the occurrence of certain
events of redemption, but only in the event such redemption would not violate
the Company's senior debt agreements then in effect. The Company has no right to
require redemption or conversion of the Series C preferred stock.
In conjunction with the issuance of the Series C preferred stock, the
Company issued to the two funds warrants to purchase up to a total of 1,200,000
shares of common stock at $7.00 per share (the number of shares and exercise
price being subject to adjustment in certain circumstances) at any time until
April 22, 2004. Additionally, the Company and the two funds entered into a
registration rights agreement whereby the Company has agreed to register 150% of
the shares of common stock issuable upon conversion of the Series C preferred
stock and exercise of the warrants. The Company has agreed to file a
registration statement on Form S-1 with the Securities and Exchange Commission
(SEC) by July 15, 1999 to register the aforementioned shares. The Company has
agreed to keep the registration statement effective for four years after the
date the SEC declares the registration statement effective unless the two funds
have sold all of the common stock covered by the registration statement or
unless the two funds may sell the common stock without volume restrictions
pursuant to Rule 144 under the Securities Act of 1933, as amended. For every
month in which (i) the Company has not met the required filing date of the
registration statement or the registration statement has not been declared
effective by the SEC within 120 days following the filing date of the
registration statement or 150 days if a delay results from the SEC review
process, (ii) the
F-35
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
15. SUBSEQUENT EVENTS (CONTINUED)
Company has failed to keep the registration statement effective as required, or
(iii) the common stock is not listed or quoted on the OTC Bulletin Board, the
NASDAQ National Market System or other national securities exchange, the funds
have the right to require the Company to pay them a cash penalty equal to 2% of
the product of the number of shares of Series C preferred stock then outstanding
and $1,000. The registration rights agreement also grants the two funds certain
other demand and piggy-back registration rights.
The portion of the proceeds from this mandatorily redeemable preferred stock
issue allocable to the detachable stock purchase warrants will be accounted for
as paid-in capital with the resulting discount to be accounted for as additional
dividends to the preferred stockholders from the date of issue to the earliest
redemption date (October 23, 2000). In addition, since the Series C preferred
stock has a beneficial conversion feature at the date of issue, preferred
dividends will also include approximately $1,200,000 in the second quarter of
1999.
Proceeds of the Series C were used to retire the $4,150,000 seller note
incurred in connection with the March 1, 1999, acquisition mentioned above.
On July 8, 1999, the Company entered into a senior subordinated promissory
note agreement with GE Capital Equity Investments, Inc. (GE) for $10,000,000.
Terms of the agreement require 12% interest, payable quarterly. The base rate
increases to 15% if the Company does not complete a qualified public offering as
defined in the agreement by July 8, 2000, and an additional 24% per annum if and
while the Company is paying penalties to Brown Simpson with respect to untimely
registration statement filing or effectiveness dates. The agreement provides for
redemption in whole or in part at the Company's option at a 103% premium the
first year, 102% the second year and 101% the third year. The Company must
redeem $10,000,000 (or such lesser amount as then may be outstanding) without
premium on the maturity date in July 2002. Upon a change in control of the
Company, GE has the option to require the Company to redeem all or a portion of
the note with a premium due as set forth above.
In connection with the loan agreement, GE was issued a warrant with the
right to purchase 1,666,028 shares of common stock at any time at $.01 per share
(the number of shares being subject to adjustment in certain circumstances)
until July 2007. The portion of the proceeds from this loan allocable to the
detachable stock purchase warrant will be accounted for as paid-in capital with
the resulting discount to be accounted for as additional interest over the term
of the loan. GE has certain demand and piggy-back registration rights with
respect to common stock underlying the warrant.
The Company must comply with various covenants and restrictions under the
terms of the loan agreement. The subordinated note and warrant are secured by a
second perfected interest in all assets of the Company and its subsidiaries and
by a pledge of all of the Company's ownership in its current and future
subsidiaries.
A portion of the proceeds of the loan will be used to retire the $5,500,000
related-party loan and the $1,500,000 seller note discussed in Note 8.
F-36
<PAGE>
THERMOVIEW INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
(NOTE 1) (UNAUDITED)
----------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents........................................................ $ 1,302,797 $ 2,417,885
Receivables:
Trade..................................................................... 2,969,462 2,859,432
Finance................................................................... 763,616 431,969
Related party............................................................. 410,720 47,742
Other..................................................................... 326,079 348,996
Costs in excess of billings on uncompleted contracts........................ 604,550 1,979,160
Inventories................................................................. 1,313,318 2,317,524
Prepaid expenses and other current assets................................... 169,584 259,371
Deferred income taxes....................................................... 533,000 706,000
----------------- --------------
Total current assets.......................................................... 8,393,126 11,368,079
Property and equipment, net................................................... 2,680,895 3,868,516
Other assets:
Goodwill, net............................................................... 37,040,101 60,949,160
Deferred income taxes....................................................... 1,242,000 1,242,000
Other assets................................................................ 837,624 558,414
----------------- --------------
39,119,725 62,749,574
----------------- --------------
Total assets.................................................................. $ 50,193,746 $ 77,986,169
----------------- --------------
----------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 2,052,937 $ 3,499,500
Due to sellers of acquired businesses....................................... 1,000,481 --
Accrued expenses............................................................ 2,775,439 4,739,061
Billings in excess of costs on uncompleted contracts........................ 566,702 1,083,587
Income taxes payable........................................................ 150,837 122,637
Current portion of long-term debt........................................... 595,754 582,895
----------------- --------------
Total current liabilities..................................................... 7,142,150 10,027,680
Long-term debt (including related party notes payable of $1,500,000 at
December 31, 1998 and $6,600,000 at March 31, 1999)......................... 8,610,069 27,995,518
Other long-term liabilities................................................... 43,545 40,795
Stockholders' equity:
Preferred stock, 50,000,000 shares authorized:
Series A, $.001 par value; 2,980,000 shares issued and outstanding at
December 31, 1998 and March 31, 1999.................................... 2,980 2,980
Series B, $.001 par value; 400,000 shares issued and outstanding at March
31, 1999................................................................ -- 400
Common stock, $.001 par value; 100,000,000 shares authorized; 13,470,864
shares issued and outstanding at December 31, 1998 and 14,439,359 shares
issued and outstanding at March 31, 1999.................................. 13,471 14,439
Paid-in capital............................................................. 40,448,514 46,582,372
Accumulated deficit......................................................... (6,066,983) (6,678,015)
----------------- --------------
Total stockholders' equity.................................................... 34,397,982 39,922,176
----------------- --------------
Total liabilities and stockholders' equity.................................... $ 50,193,746 $ 77,986,169
----------------- --------------
----------------- --------------
</TABLE>
See accompanying notes.
F-37
<PAGE>
THERMOVIEW INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
-------------------------------
1998 1999
-------------- ---------------
<S> <C> <C>
Revenues......................................................................... $ 1,225,395 $ 21,749,817
Cost of revenues earned.......................................................... 462,770 9,764,255
-------------- ---------------
Gross profit..................................................................... 762,625 11,985,562
Selling, general and administrative expenses..................................... 970,376 11,542,197
Depreciation and amortization.................................................... 22,573 800,104
-------------- ---------------
Loss from operations............................................................. (230,324) (356,739)
Interest expense................................................................. (14,988) (411,623)
Interest income.................................................................. 41 62,329
-------------- ---------------
Loss before income taxes......................................................... (245,271) (706,033)
Income tax benefit............................................................... (83,000) (95,000)
-------------- ---------------
Net loss......................................................................... (162,271) (611,033)
Less preferred stock dividends................................................... -- 424,730
-------------- ---------------
Net loss attributable to common stockholders..................................... $ (162,271) $ (1,035,763)
-------------- ---------------
-------------- ---------------
Basic and diluted loss per common share.......................................... $ (0.02) $ (0.07)
-------------- ---------------
-------------- ---------------
Weighted average shares outstanding.............................................. 9,015,204 14,060,487
-------------- ---------------
-------------- ---------------
</TABLE>
See accompanying notes.
F-38
<PAGE>
THERMOVIEW INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------
1998 1999
----------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss............................................................................. $ (162,271) $ (611,033)
Adjustments to reconcile net loss to net cash provided by (used in) operations:
Depreciation and amortization...................................................... 22,573 800,104
Deferred income taxes.............................................................. (83,000) (173,000)
Changes in operating assets and liabilities........................................ (94,736) 2,180,137
----------- --------------
Net cash provided by (used in) operating activities.................................. (317,434) 2,196,208
INVESTING ACTIVITIES
Acquisitions of businesses, net of cash acquired..................................... -- (11,929,554)
Payments for purchase of property and equipment...................................... (183,403) (973,392)
Other................................................................................ (700) 58,296
----------- --------------
Net cash used in investing activities................................................ (184,103) (12,844,650)
FINANCING ACTIVITIES
Increase in long-term debt........................................................... 166,659 12,779,011
Payments of long-term debt........................................................... (35,872) --
Payment of amount due to sellers of acquired businesses.............................. -- (1,000,481)
Proceeds from issuance of common stock............................................... 613,650 --
Other................................................................................ 35,856 (15,000)
----------- --------------
Net cash provided by financing activities............................................ 780,293 11,763,530
----------- --------------
Net increase in cash and equivalents................................................. 278,756 1,115,088
Cash and equivalents at beginning of period.......................................... 69,057 1,302,797
----------- --------------
Cash and equivalents at end of period................................................ $ 347,813 $ 2,417,885
----------- --------------
----------- --------------
</TABLE>
See accompanying notes.
F-39
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions in Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. ThermoView's business is subject to seasonal variations. The
demand for replacement windows and related home improvement products is
generally lower in certain of the Company's geographical markets during the
winter months due to inclement weather. Demand for replacement windows is
generally higher in the second and third quarters. Operating results for the
three-month period ended March 31, 1999, are not necessarily indicative of the
results that may be expected for the year ended December 31, 1999.
For further information, refer to the Company's consolidated financial
statements and footnotes thereto for the year ended December 31, 1998, included
elsewhere in this prospectus.
On April 15, 1998, ThermoView Industries, Inc. ("ThermoView" or "the
Company") acquired all of the outstanding stock of Thermo-Tilt Window Company
("Thermo-Tilt"), a Delaware corporation, in exchange for 9,360,000 shares of
ThermoView's authorized, but unissued, common stock which represented 90% of
ThermoView's then outstanding common stock. Such shares were issued to the
former stockholders of Thermo-Tilt. The stock exchange between Thermo-Tilt and
ThermoView was accounted for as a capital transaction similar to a reverse
acquisition except that no goodwill was recorded. As a result, Thermo-Tilt is
deemed to be the acquirer for accounting purposes and is the accounting survivor
and reporting successor. All share and per share data related to Thermo-Tilt has
been retroactively restated in the accompanying condensed consolidated financial
statements and notes thereto to reflect the number of shares received from
ThermoView. Results of operations for the quarter ended March 31, 1998, reflect
the activities of Thermo-Tilt, using Thermo-Tilt's historical cost basis.
Results of operations for the quarter ended March 31, 1999, reflect the
operating results of Thermo-Tilt consolidated with the operating results (since
the acquisition dates) of the following businesses acquired by ThermoView:
American Home Developers Co., Inc.
Primax Window Co.
The Rolox Companies
TD Windows, Inc. (formerly Allhom Eagle Windows and Doors, Inc.)
American Home Remodeling
Five Star Builders, Inc.
ThermoView of Missouri, Inc. (formerly NuView Industries, Inc.)
Leingang Siding and Window, Inc.
Thermal Line Windows, LLP
Thomas Construction, Inc. (see Note 2)
Precision Window Mfg., Inc. (see Note 2)
Thermo-Shield Companies (see Note 2)
F-40
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
2. BUSINESS COMBINATIONS
On January 4, 1999, the Company purchased Thomas Construction, Inc.
(Thomas), for $11,095,000 in cash, 301,425 shares of common stock at an
estimated fair value of $1,500,000 and 400,000 shares of Series B preferred
stock at an estimated fair value of $2,000,000. The acquisition agreement
provides for additional consideration to be paid if Thomas exceeds certain
targeted levels of operating results. Thomas is primarily engaged in the home
improvement business (retail sales and installation) in the St. Louis
metropolitan area.
On January 5, 1999, the Company purchased Precision Window Mfg., Inc.
(Precision), for $1,800,000 in cash, 112,053 shares of common stock at an
estimated fair value of $450,000 and a seller note for $1,200,000. Precision
manufactures windows and sells primarily to the Company's retail segment, and is
located in St. Louis.
Effective March 1, 1999, the Company purchased Thermo-Shield, Inc.
(Thermo-Shield), for $350,000 cash, 555,017 shares of common stock at an
estimated fair value of $2,625,000 and a seller note for $4,150,000. The
acquisition agreement provides for additional consideration to be paid if
Thermo-Shield exceeds certain targeted levels of operating results.
Thermo-Shield is primarily engaged in the home improvement business (retail
sales and installation) in Illinois, Wisconsin, Arizona, Michigan and Indiana.
All of these acquisitions have been accounted for as purchase transactions.
The cash portion of the acquisitions was provided from a $9,750,000 draw on the
Company's $15,000,000 bank line, and the balance from related-party loans
totaling $5,850,000.
The pro forma unaudited results of operations for the three months ended
March 31, 1998 and March 31, 1999, assuming 1998 and 1999 acquisitions were made
as of January 1, 1998, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
<S> <C> <C>
1998 1999
------------- -------------
Net revenues................................................... $ 23,206,700 $ 24,251,634
Net loss....................................................... (1,023,304) (569,944)
Net loss attributable to common stockholders................... (1,023,304) (994,674)
Basic and diluted loss per common share........................ (.07) (.07)
</TABLE>
The pro forma consolidated results of operations include adjustments to give
effect to amortization of goodwill, interest expense, preferred stock dividends,
and certain other adjustments, together with related income tax effects. The pro
forma consolidated results of operations for the three months ended March 31,
1998, do not reflect any corporate expenses, since corporate activities did not
commence until April 1998.
3. INVENTORIES
Inventories consist principally of components for the manufacturing of
windows such as glass, vinyl and other composites.
F-41
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
4. LOSS PER COMMON SHARE
Loss per common share is calculated in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "EARNINGS PER SHARE." The
Company calculates basic earnings per common share using the weighted average
number of shares outstanding for the period. Diluted earnings per common share
include both the weighted average number of shares and any common share
equivalents such as options or warrants in the calculation. As the Company
recorded losses for the three months ended March 31, 1998 and 1999, common share
equivalents outstanding would be anti-dilutive, and as such, have not been
included in weighted average shares outstanding.
5. RELATED PARTY TRANSACTIONS
During the three months ended March 31, 1999, the Company borrowed
$1,100,000 with interest at 12% from three stockholders. Two of the three
stockholders are also officers and directors of the Company. The Company used
$750,000 of the proceeds to pay a portion of a contingent payment related to a
1998 business acquisition and $350,000 was used to pay the cash portion of the
March 1, 1999, acquisition mentioned in Note 2. The Company repaid the loans
subsequent to March 31, 1999.
6. INCOME TAXES
The benefit for income taxes for the three months ended March 31, 1999,
differs from the amount computed by applying the statutory U.S. Federal income
tax rate to loss before income taxes primarily as a result of state taxes and
non-deductible goodwill amortization.
7. SEGMENT INFORMATION
For the three months ended March 31, 1998, the Company was comprised of only
one business unit that operated exclusively in the retail segment designing,
selling, and installing vinyl replacement windows. For the three months ended
March 31, 1999, the Company's business units have separate management teams and
infrastructures that operate primarily in the vinyl replacement windows, doors
and related home improvement products industry in various states in the Midwest
and in Southern California. The business units have been aggregated into three
reportable operating segments: manufacturing, retail and financial services.
MANUFACTURING
The manufacturing segment includes the businesses that manufacture and sell
vinyl replacement windows to the Company's retail segment and to unaffiliated
customers.
RETAIL
The retail segment includes the businesses that design, sell and install
vinyl replacement windows, doors and related home improvement products to
commercial and retail customers.
FINANCIAL SERVICES
The financial services segment is in a start-up phase and finances credit
sales of the retail segment.
F-42
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
7. SEGMENT INFORMATION (CONTINUED)
Segment information for the three months ended March 31, 1999, was as
follows:
<TABLE>
<CAPTION>
FINANCIAL
MANUFACTURING RETAIL SERVICES CORPORATE CONSOLIDATED
-------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers...... $ 1,250,086 $ 20,472,916 $ 18,015 $ 8,800 $ 21,749,817
Intersegment revenues................. 1,855,789 -- -- -- 1,855,789
Interest income....................... 22,466 4,537 26,277 9,049 62,329
Interest expense...................... 17,109 45,552 -- 348,962 411,623
Income (loss) from operations......... (19,624) 885,650 (80,946) (1,141,819) (356,739)
Depreciation and amortization......... 96,787 439,115 5,142 259,060 800,104
Total assets.......................... 10,965,380 63,563,948 1,003,675 2,453,166 77,986,169
</TABLE>
8. LONG-TERM DEBT
The Company is required to maintain certain financial ratios and to comply
with various other covenants and restrictions under the terms of its credit
facility with PNC Bank, N.A. The Company has not met certain covenants
subsequent to December 31, 1998. PNC Bank, N.A., has waived all covenant
violations through July 8, 1999, and has reset covenants to accommodate future
compliance.
9. SUBSEQUENT EVENTS
On April 19, 1999, the Board of Directors authorized the Company to issue up
to 25,000 shares of Series C preferred stock.
On April 23, 1999, Brown Simpson Growth Fund, L.P., a New York limited
partnership, and Brown Simpson Growth Fund, Ltd., a Grand Cayman, Cayman Islands
limited partnership, pursuant to a securities purchase agreement, purchased
6,000 shares of Series C preferred stock at $1,000 per share for a total
investment of $6,000,000.
The Series C preferred stock has a stated value of $1,000 per share, with
certain other preferences, rights, voting powers, restrictions and limitations
as to dividends, qualifications and terms and conditions of redemption. Dividend
payments (9.6% per annum) are to be 70% cash and 30% Company common stock. The
Series C preferred stock is convertible at any time, in whole, or in part, at
the option of the holder into shares of common stock, at a conversion price
(initially equivalent to a conversion rate of 200 shares of common stock for
each share of Series C preferred stock). Additionally, the Series C preferred
stock is redeemable at the option of the holder: (i) on October 23, 2000, or
(ii) on April 23, 2002, and (iii) immediately upon the occurrence of certain
events of redemption, but only in the event such redemption would not violate
the Company's senior debt agreements then in effect. The Company has no right to
require redemption or conversion of the Series C preferred stock.
In conjunction with the issuance of the Series C preferred stock, the
Company issued to the two funds warrants to purchase up to a total of 1,200,000
shares of common stock at $7.00 per share (the number of shares and exercise
price being subject to adjustment in certain circumstances) at any time until
April 22, 2004. Additionally, the Company and the two funds entered into a
registration rights agreement whereby
F-43
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
9. SUBSEQUENT EVENTS (CONTINUED)
the Company has agreed to register 150% of the shares of common stock issuable
upon conversion of the Series C preferred stock and exercise of the warrants.
The Company has agreed to file a registration statement on Form S-1 with the
Securities and Exchange Commission (SEC) by July 15, 1999 to register the
aforementioned shares. The Company has agreed to keep the registration statement
effective for four years after the date the SEC declares the registration
statement effective unless the two funds have sold all of the common stock
covered by the registration statement or unless the two funds may sell the
common stock without volume restrictions pursuant to Rule 144 under the
Securities Act of 1933, as amended. For every month in which (i) the Company has
not met the required filing date of the registration statement or the
registration statement has not been declared effective by the SEC within 120
days following the filing date of the registration statement or 150 days if a
delay results from the SEC review process, (ii) the Company has failed to keep
the registration statement effective as required, or (iii) the common stock is
not listed or quoted on the OTC Bulletin Board, the NASDAQ National Market
System or other national securities exchange, the funds have the right to
require the Company to pay them a cash penalty equal to 2% of the product of the
number of shares of Series C preferred stock then outstanding and $1,000. The
registration rights agreement also grants the two funds certain other demand and
piggy-back registration rights.
The portion of the proceeds from this mandatorily redeemable preferred stock
issue allocable to the detachable stock purchase warrants will be accounted for
as paid-in capital with the resulting discount to be accounted for as additional
dividends to the preferred stockholders from the date of issue to the earliest
redemption date (October 23, 2000). In addition, since the Series C preferred
stock has a beneficial conversion feature at the date of issue, preferred
dividends will also include approximately $1,200,000 in the second quarter of
1999.
In August 1999, the Company amended the exercise price of the warrant to
$6.00 per share in exchange for a commitment of the holders to refrain from
selling any securities of the Company until January 31, 2000. The estimated
increase in fair value of the warrants as the result of the change in the
exercise price will be accounted for as additional dividends to the preferred
stockholders from August 1999 through January 2000.
Proceeds of the Series C were used to retire the $4,150,000 seller note
incurred in connection with the March 1, 1999, acquisition mentioned in Note 2.
On July 8, 1999, the Company entered into a senior subordinated promissory
note agreement with GE Capital Equity Investments, Inc. (GE) for $10,000,000.
Terms of the agreement require 12% interest, payable quarterly. The base rate
increases to 15% if the Company does not complete a qualified public offering as
defined in the agreement by July 8, 2000, and an additional 24% per annum if and
while the Company is paying penalties to Brown Simpson with respect to untimely
registration statement filing or effectiveness dates. The agreement provides for
redemption in whole or in part at the Company's option at a 103% premium the
first year, 102% the second year and 101% the third year. The Company must
redeem $10,000,000 (or such lesser amount as then may be outstanding) without
premium on the maturity date in July 2002. Upon a change in control of the
Company, GE has the option to require the Company to redeem all or a portion of
the note with a premium due as set forth above.
F-44
<PAGE>
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
9. SUBSEQUENT EVENTS (CONTINUED)
In connection with the loan agreement, GE was issued a warrant with the
right to purchase 1,666,028 shares of common stock at any time at $.01 per share
(the number of shares being subject to adjustment in certain circumstances)
until July 2007. The portion of the proceeds from this loan allocable to the
detachable stock purchase warrant will be accounted for as paid-in capital with
the resulting discount to be accounted for as additional interest over the term
of the loan. GE has certain demand and piggy-back registration rights with
respect to common stock underlying the warrant.
The Company must comply with various covenants and restrictions under the
terms of the loan agreement. The subordinated note and warrant are secured by a
second perfected interest in all assets of the Company and its subsidiaries and
by a pledge of all of the Company's ownership in its current and future
subsidiaries.
A portion of the proceeds of the loan will be used to retire a $5,500,000
related-party loan and a $1,500,000 seller note.
F-45
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
American Home Developers Co., Inc.
We have audited the accompanying balance sheets of American Home Developers
Co., Inc. as of December 31, 1996 and 1997 and April 25, 1998, and the related
statements of operations, shareholders' equity, and cash flows for each of the
two years in the period ended December 31, 1997 and the period from January 1,
1998 through April 25, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Home Developers
Co., Inc. as of December 31, 1996 and 1997 and April 25, 1998, and the results
of its operations and its cash flows for each of the two years in the period
ended December 31, 1997 and the period from January 1, 1998 through April 25,
1998 in conformity with generally accepted accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
August 10, 1998
F-46
<PAGE>
AMERICAN HOME DEVELOPERS CO., INC.
BALANCE SHEETS
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 25, 1998
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- APRIL 25,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................................................. $ 297,136 $ 426,150 $ --
Costs and prepaid commissions on contracts in progress in excess of
billings................................................................. 100,429 65,779 56,467
Other receivables.......................................................... 19,502 16,210 8,526
Deferred tax asset......................................................... -- -- 34,595
---------- ---------- ----------
Total current assets..................................................... 417,067 508,139 99,588
---------- ---------- ----------
Property and equipment
Office equipment........................................................... 6,483 24,230 24,230
Automobiles................................................................ 30,518 30,518 25,293
---------- ---------- ----------
37,001 54,748 49,523
Less accumulated depreciation.............................................. 10,344 24,977 35,081
---------- ---------- ----------
Total property and equipment............................................. 26,657 29,771 14,442
---------- ---------- ----------
Other assets
Deposits................................................................... 3,000 3,000 3,000
---------- ---------- ----------
Total assets............................................................. $ 446,724 $ 540,910 $ 117,030
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable........................................................... $ 36,716 $ 40,549 $ 61,743
Accrued liabilities........................................................ 14,175 27,924 33,817
Due to related party....................................................... 30,000 30,000 --
Income taxes payable....................................................... 90,488 145,664 5,837
Deferred income taxes...................................................... 20,337 6,603 --
---------- ---------- ----------
Total current liabilities................................................ 191,716 250,740 101,397
---------- ---------- ----------
Commitments and contingencies
Shareholders' equity
Common stock, no par value 2,500 shares authorized 1,000 shares issued and
outstanding.............................................................. 500 500 500
Retained earnings.......................................................... 254,508 289,670 15,133
---------- ---------- ----------
Total shareholders' equity............................................... 255,008 290,170 15,633
---------- ---------- ----------
Total liabilities and shareholders' equity............................. $ 446,724 $ 540,910 $ 117,030
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
AMERICAN HOME DEVELOPERS CO., INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1997 AND
FOR THE PERIOD FROM JANUARY 1, 1998 THROUGH APRIL 25, 1998
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED FROM JANUARY
DECEMBER 31, 1, 1998
-------------------------- THROUGH APRIL
1996 1997 25, 1998
------------ ------------ --------------
<S> <C> <C> <C>
Contract revenues.................................................... $ 3,647,605 $ 4,883,265 $ 1,143,760
Contract costs....................................................... 1,990,721 2,690,084 580,555
------------ ------------ --------------
Gross profit......................................................... 1,656,884 2,193,181 563,205
------------ ------------ --------------
Operating expenses
Advertising expense................................................ 25,500 39,800 9,908
Selling............................................................ 982,069 1,044,318 274,737
General and administrative......................................... 757,576 1,045,282 736,892
------------ ------------ --------------
Total operating expenses......................................... 1,765,145 2,129,400 1,021,537
------------ ------------ --------------
Income (loss) from operations........................................ (108,261) 63,781 (458,332)
------------ ------------ --------------
Other income (expense)
Interest income.................................................... 7,892 12,823 4,268
Interest expense................................................... -- -- (1,500)
------------ ------------ --------------
Total other income (expense)..................................... 7,892 12,823 2,768
Income (loss) before provision for (benefit from) income taxes....... (100,369) 76,604 (455,564)
Provision for (benefit from) income taxes............................ (32,717) 41,442 (181,027)
------------ ------------ --------------
Net income (loss)................................................ $ (67,652) $ 35,162 $ (274,537)
------------ ------------ --------------
------------ ------------ --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
AMERICAN HOME DEVELOPERS CO., INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1997 AND
FOR THE PERIOD FROM JANUARY 1, 1998 THROUGH APRIL 25, 1998
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1995.......................................... 1,000 $ 500 $ 322,160 $ 322,660
Net loss............................................................ (67,652) (67,652)
--------- ----- ----------- -----------
Balance, December 31, 1996.......................................... 1,000 500 254,508 255,008
Net income.......................................................... 35,162 35,162
--------- ----- ----------- -----------
Balance, December 31, 1997.......................................... 1,000 500 289,670 290,170
Net loss............................................................ (274,537) (274,537)
--------- ----- ----------- -----------
Balance, April 25, 1998........................................... 1,000 $ 500 $ 15,133 $ 15,633
--------- ----- ----------- -----------
--------- ----- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
AMERICAN HOME DEVELOPERS CO., INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1997 AND
FOR THE PERIOD FROM JANUARY 1, 1998 THROUGH APRIL 25, 1998
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED FROM JANUARY
DECEMBER 31, 1, 1998
---------------------- THROUGH APRIL
1996 1997 25, 1998
---------- ---------- --------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)...................................................... $ (67,652) $ 35,162 $ (274,537)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities
Depreciation......................................................... 4,455 14,633 14,894
Deferred taxes....................................................... 22,445 (13,734) (41,198)
Income taxes......................................................... (55,167) 55,176 (139,827)
(Increase) decrease in
Costs and prepaid commissions in excess of billings.................. (54,346) 34,650 9,312
Other receivables.................................................... (14,822) 3,292 7,684
Increase in
Accounts payable..................................................... 1,771 3,833 21,194
Other accrued liabilities............................................ 954 13,749 5,893
---------- ---------- --------------
Net cash provided by (used in) operating activities...................... (162,362) 146,761 (396,585)
---------- ---------- --------------
Cash flows from investing activities
Purchase of fixed assets............................................... (20,232) (17,747) --
Proceeds from the sale of fixed assets................................. -- -- 435
---------- ---------- --------------
Net cash provided by (used in) investing activities...................... (20,232) (17,747) 435
---------- ---------- --------------
Cash flows from financing activities
Payments on note payable............................................... -- -- (30,000)
---------- ---------- --------------
Net cash used in financing activities.................................... -- -- (30,000)
---------- ---------- --------------
Net increase (decrease) in cash and cash equivalents..................... (182,594) 129,014 (426,150)
Cash and cash equivalents, beginning of period........................... 479,730 297,136 426,150
---------- ---------- --------------
Cash and cash equivalents, end of period................................. $ 297,136 $ 426,150 $ --
---------- ---------- --------------
---------- ---------- --------------
Supplemental disclosures of cash flow information
Interest paid.......................................................... $ -- $ -- $ 1,500
---------- ---------- --------------
---------- ---------- --------------
Income taxes paid...................................................... $ 6,914 $ 2,375 $ --
---------- ---------- --------------
---------- ---------- --------------
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1996, in connection with the purchase of
an automobile, the Company exchanged a vehicle with a net book value of $5,060.
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE>
AMERICAN HOME DEVELOPERS CO., INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 25, 1998
NOTE 1--BUSINESS ACTIVITY
American Home Developers Co., Inc. (the "Company") is a California
corporation, founded September 23, 1985. The Company's primary lines of business
are Tex-Coting, retail selling, and installing state-of-the-art vinyl
replacement windows for the existing home market. The Company markets its
products primarily through the use of an extensive telemarketing effort. The
Company retains independent contractors for the installation of its products at
the customer's site.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
METHOD OF ACCOUNTING FOR TEX-COTING AND WINDOW INSTALLATION CONTRACTS
The accompanying financial statements have been prepared using the completed
contract method of accounting. Accordingly, revenue and costs of individual
contracts are included in operations in the year during which they are
completed. Losses expected to be incurred on contracts in progress are charged
to operations in the period such losses are determined. The aggregate of costs
incurred on uncompleted contracts in excess of related billings is shown as an
asset, and the aggregate of billings on uncompleted contracts in excess of
related costs is shown as a liability.
Contract costs include all direct labor and benefits, materials unique to or
installed in the project, subcontract costs, and other direct installation
costs.
CASH AND CASH EQUIVALENTS
For the purpose of reporting cash flows, the Company considers cash on
deposit, cash on hand, and financial instruments purchased with an original
maturity of three months or less to be cash equivalents.
OTHER RECEIVABLES
Other receivables consist primarily of advances to employees. All amounts
are expected to be recovered, and as such, no allowance for uncollectible
amounts is deemed necessary.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain of the Company's financial instruments including cash and cash
equivalents, other receivables, accounts payable, and other accrued liabilities,
the carrying amounts approximate fair value due to their short maturities.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is generally
provided using the straight-line method. The estimated useful lives of the
related assets are as follows:
<TABLE>
<S> <C>
3 to 5
Office equipment............................................... years
Automobiles.................................................... 5 years
</TABLE>
ADVERTISING EXPENSE
The Company accounts for advertising expenditures by charging to expense all
amounts as incurred.
F-51
<PAGE>
AMERICAN HOME DEVELOPERS CO., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 25, 1998
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences, and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
all or a portion of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RISK CONCENTRATIONS
The Company's customers are primarily homeowners located in Southern
California. The Company purchases substantially all of its Tex-Coting material
from one supplier. Purchases from this supplier were 55%, 70%, and 70% of the
Company's total cost of sales for the years ended December 31, 1996 and 1997 and
the period from January 1, 1998 through April 25, 1998, respectively.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This statement requires companies to classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for financial statements issued
for fiscal years beginning after December 15, 1997. Management believes that
SFAS No. 130 will not have a material effect, if any, on the Company's financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." This statement establishes additional
standards for segment reporting in the financial statements and is effective for
fiscal years beginning after December 15, 1997. Management believes that SFAS
No. 131 will not have an effect on the Company's financial statements.
NOTE 3--CASH AND CASH EQUIVALENTS
The Company maintains its cash balances at several financial institutions.
The balances are insured by the Federal Deposit Insurance Corporation up to
$100,000. As of December 31, 1997, the uninsured portions of the balances held
at the banks aggregated to $13,387.
F-52
<PAGE>
AMERICAN HOME DEVELOPERS CO., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 25, 1998
NOTE 4--CONTRACTS IN PROGRESS
For the years ended December 31, 1996 and 1997 and the period from January
1, 1998 through April 25, 1998, contract amounts, accumulated costs, and the
related billings to date on completed contracts and contracts in progress were
as follows:
<TABLE>
<CAPTION>
CONTRACT CONTRACT
AMOUNTS COSTS
------------- -------------
<S> <C> <C>
Contracts in progress at December 31, 1995...................... $ 201,000 $ 48,878
Contracts initiated during the year............................. 3,859,031 2,045,567
Contracts completed during the year............................. (3,647,605) (1,990,721)
------------- -------------
Contracts in progress at December 31, 1996...................... 412,426 103,724
Contracts initiated during the year............................. 4,735,635 2,656,052
Contracts completed during the year............................. (4,883,265) (2,690,084)
------------- -------------
Contracts in progress at December 31, 1997...................... 264,796 69,692
Contracts initiated during the period........................... 1,279,107 567,330
Contracts completed during the period........................... (1,143,760) (580,555)
------------- -------------
Contracts in progress at April 25, 1998....................... $ 400,143 $ 56,467
------------- -------------
------------- -------------
</TABLE>
Contracts in progress:
<TABLE>
<CAPTION>
JANUARY 1,
FOR THE YEARS ENDED 1998
DECEMBER 31, THROUGH
--------------------- APRIL 25,
1996 1997 1998
---------- --------- -----------
<S> <C> <C> <C>
Cumulative costs to date................................... $ 103,724 $ 68,692 $ 76,477
Less cash collected to date................................ 3,295 2,913 20,010
---------- --------- -----------
Net contracts in progress.................................. $ 100,429 $ 65,779 $ 56,467
---------- --------- -----------
---------- --------- -----------
</TABLE>
Included in the accompanying balance sheet under the following caption:
<TABLE>
<S> <C> <C> <C>
Costs and prepaid commissions on contracts in
progress in excess of billings............... $ 100,429 $ 65,779 $ 56,467
--------- --------- -----------
--------- --------- -----------
</TABLE>
NOTE 5--COMMITMENTS AND CONTINGENCIES
LEASES
The Company has entered into an operating lease agreement for its facility.
The lease is terminable in 1998. The minimum rental commitment under this lease
agreement at December 31, 1997 is $4,250.
Management intends to extend the lease upon termination of the original
agreement.
Rent expense was approximately $48,500, $51,800, and $17,648 for the years
ended December 31, 1996 and 1997 and the period from January 1, 1998 through
April 25, 1998, respectively.
F-53
<PAGE>
AMERICAN HOME DEVELOPERS CO., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 25, 1998
NOTE 5--COMMITMENTS AND CONTINGENCIES (CONTINUED)
LITIGATION
The Company is involved in various litigation in the normal course of
business. The outcome of such litigation is not expected to have a material
effect on the Company.
NOTE 6--INCOME TAXES
Significant components of the provision for (benefit from) taxes based on
income for the years ended December 31, 1996 and 1997 and the period from
January 1, 1998 through April 25, 1998 are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED FROM JANUARY
DECEMBER 31, 1, 1998
---------------------- THROUGH APRIL
1996 1997 25, 1998
---------- ---------- --------------
<S> <C> <C> <C>
Current
Federal............................................ $ (46,888) $ 46,900 $ (118,854)
State.............................................. (8,274) 8,276 (20,975)
---------- ---------- --------------
(55,162) 55,176 (139,829)
---------- ---------- --------------
Deferred
Federal............................................ 19,078 (11,674) (35,018)
State.............................................. 3,367 (2,060) (6,180)
---------- ---------- --------------
22,445 (13,734) (41,198)
---------- ---------- --------------
Provision for (benefit from) income taxes.......... $ (32,717) $ 41,442 $ (181,027)
---------- ---------- --------------
---------- ---------- --------------
</TABLE>
A reconciliation of the provision for income tax expense with the expected
income tax computed by applying the federal statutory income tax rate to income
before provision for (benefit from) income taxes for the years ended December
31, 1996 and 1997 and the period from January 1, 1998 through April 25, 1998 is
as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FOR THE PERIOD
DECEMBER 31, FROM JANUARY 1,
-------------------- 1998 THROUGH
1996 1997 APRIL 25, 1998
--------- --------- -----------------
<S> <C> <C> <C>
Income tax provision (benefit) computed at federal
statutory tax rate..................................... (34.0)% 34.0% (34.0)%
State taxes, net of federal benefit...................... (6.0) 6.0 (6.0)
Permanent differences and other.......................... 7.0 14.0 --
--------- --- -----
Total.................................................. (33.0)% 54.0% (40.0)%
--------- --- -----
--------- --- -----
</TABLE>
F-54
<PAGE>
AMERICAN HOME DEVELOPERS CO., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 25, 1998
NOTE 6--INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
for income taxes consist of the following:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED FROM JANUARY
DECEMBER 31, 1, 1998
---------------------- THROUGH APRIL
1996 1997 25, 1998
---------- ---------- --------------
<S> <C> <C> <C>
Deferred tax assets
Accounts payable................................... $ 14,686 $ 16,220 $ 25,932
Accrued liabilities................................ 5,672 11,170 14,203
Other.............................................. -- -- 17,046
---------- ---------- --------------
20,358 27,390 57,181
---------- ---------- --------------
Deferred tax liability
Costs and prepaid commissions on contracts in
progress in excess of billings................... (37,625) (26,341) (22,586)
Other.............................................. (3,070) (7,652) --
---------- ---------- --------------
(40,695) (33,993) (22,586)
---------- ---------- --------------
Net deferred tax asset (liability)............... $ (20,337) $ (6,603) $ 34,595
---------- ---------- --------------
---------- ---------- --------------
</TABLE>
The Company files its income tax returns on a fiscal year-end, not calendar
year-end basis. The Company's fiscal year ends June 30. Deferred taxes are
stated as if the Company filed its income tax returns at December 31.
NOTE 7--RELATED PARTY TRANSACTIONS
During the years ended December 31, 1996 and 1997, the Company had a
non-interest bearing note payable agreement, no stated due date, with the
majority shareholder of the Company in which the Company owed $30,000 for each
of the two years. This note was repaid April 14, 1998.
NOTE 8--SUBSEQUENT EVENTS
On April 25, 1998, in connection with its acquisition, the Company entered
into an employment agreement with a former director and officer of the Company,
and the agreement expires April 30, 2001. Under the agreement, the Company is
required to pay an annual salary of $200,000 plus various other benefits.
On April 25, 1998, 100% of the Company's common stock was acquired by
ThermoView Industries, Inc.
F-55
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Primax Window Co.
We have audited the accompanying balance sheets of Primax Window Co. as of
December 31, 1996 and 1997 and April 30, 1998, and the related statements of
operations, shareholders' equity, and cash flows for each of the two years in
the period ended December 31, 1997 and the four months ended April 30, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Primax Window Co. as of
December 31, 1996 and 1997 and April 30, 1998, and the results of its operations
and its cash flows for each of the two years in the period ended December 31,
1997 and the four months ended April 30, 1998 in conformity with generally
accepted accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
July 8, 1998
F-56
<PAGE>
PRIMAX WINDOW CO.
BALANCE SHEETS
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 30, 1998
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- APRIL 30,
1996 1997 1998
---------- ---------- ---------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................................... $ 47,190 $ 241,219 $ 330,947
Marketable securities....................................................... 451,887 641,794 --
Accounts receivable......................................................... 21,734 23,855 20,928
Inventory................................................................... 61,430 61,430 89,068
Costs and prepaid commissions on contracts in progress in excess of
billings.................................................................. -- 107,735 --
Prepaid expenses............................................................ 22,712 3,347 32,787
---------- ---------- ---------
Total current assets...................................................... 604,953 1,079,380 473,730
---------- ---------- ---------
Property and equipment
Transportation equipment.................................................... 275,909 320,795 320,795
Small tools and equipment................................................... 11,075 11,948 11,948
Furniture and fixtures...................................................... 185,825 184,269 171,392
Leasehold improvements...................................................... 212,889 212,889 212,889
---------- ---------- ---------
685,698 729,901 717,024
Less accumulated depreciation and amortization.............................. 370,643 459,569 480,706
---------- ---------- ---------
Total property and equipment.............................................. 315,055 270,332 236,318
---------- ---------- ---------
Other assets
Cash surrender value--officers' life insurance.............................. 47,787 42,432 --
Notes receivable from related parties....................................... 317,896 135,769 172,284
Deposits.................................................................... 4,817 5,818 4,068
---------- ---------- ---------
Total other assets........................................................ 370,500 184,019 176,352
---------- ---------- ---------
Total assets............................................................ $1,290,508 $1,533,731 $ 886,400
---------- ---------- ---------
---------- ---------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt........................................... $ 15,051 $ 47,548 $ 40,058
Line of credit.............................................................. 30,000 -- --
Accounts payable............................................................ 233,173 232,133 226,723
Accrued liabilities:
Warranty.................................................................. 21,000 21,000 21,000
Payroll and items directly related to payroll............................. 80,502 92,034 89,895
Billings in excess of costs and prepaid commissions on contracts in
progress.................................................................. 56,871 113,502 13,578
Income taxes payable........................................................ 94,687 -- --
Deferred taxes.............................................................. 108,232 -- --
---------- ---------- ---------
Total current liabilities................................................. 639,516 506,217 391,254
Long-term debt, net of current portion........................................ 30,118 24,958 13,232
Deferred gain on sale of building............................................. 45,212 35,853 32,838
---------- ---------- ---------
Total liabilities......................................................... 714,846 567,028 437,324
---------- ---------- ---------
Commitments and contingencies
Shareholders' equity
Common stock, $100 par value, 100 shares authorized, issued, and
outstanding............................................................... 10,000 10,000 10,000
Additional paid-in capital.................................................. 10,000 10,000 10,000
Retained earnings........................................................... 555,662 946,703 429,076
---------- ---------- ---------
Total shareholders' equity................................................ 575,662 966,703 449,076
---------- ---------- ---------
Total liabilities and shareholders' equity.............................. $1,290,508 $1,533,731 $ 886,400
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE>
PRIMAX WINDOW CO.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1997 AND
FOR THE FOUR MONTHS ENDED APRIL 30, 1998
<TABLE>
<CAPTION>
FOR THE FOUR
FOR THE YEARS ENDED MONTHS
DECEMBER 31, ENDED APRIL
-------------------------- 30,
1996 1997 1998
------------ ------------ --------------
<S> <C> <C> <C>
Contract revenues.................................................... $ 5,840,446 $ 7,132,296 $ 2,150,747
Contract costs....................................................... 2,773,986 3,307,853 964,759
------------ ------------ --------------
Gross profit......................................................... 3,066,460 3,824,443 1,185,988
------------ ------------ --------------
Operating expenses
Advertising........................................................ 592,668 734,470 188,005
Selling............................................................ 1,073,611 1,415,804 596,201
General and administrative......................................... 1,227,152 1,412,497 342,053
------------ ------------ --------------
Total operating expenses......................................... 2,893,431 3,562,771 1,126,259
------------ ------------ --------------
Income from operations............................................... 173,029 261,672 59,729
------------ ------------ --------------
Other income (expense)
Interest expense................................................... (30,557) (10,827) (1,205)
Interest income.................................................... 26,347 31,039 9,553
Gain on sale of property and equipment............................. 480 620 --
Realized gains on investments...................................... 4,933 21,700 8,471
------------ ------------ --------------
Total other income............................................... 1,203 42,532 16,819
------------ ------------ --------------
Income before provision for (benefit from) income taxes.............. 174,232 304,204 76,548
Provision for (benefit from) income taxes............................ 103,112 (86,837) --
------------ ------------ --------------
Net income........................................................... $ 71,120 $ 391,041 $ 76,548
------------ ------------ --------------
------------ ------------ --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE>
PRIMAX WINDOW CO.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1997 AND
FOR THE FOUR MONTHS ENDED APRIL 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995............................... 100 $ 10,000 $ 10,000 $ 484,542 $ 504,542
Net income............................................... 71,120 71,120
--- --------- ----------- ---------- -----------
Balance, December 31, 1996............................... 100 10,000 10,000 555,662 575,662
Net income............................................... 391,041 391,041
--- --------- ----------- ---------- -----------
Balance, December 31, 1997............................... 100 10,000 10,000 946,703 966,703
Dividends distributed.................................... (594,175) (594,175)
Net income............................................... 76,548 76,548
--- --------- ----------- ---------- -----------
Balance, April 30, 1998 100 $ 10,000 $ 10,000 $ 429,076 $ 449,076
--- --------- ----------- ---------- -----------
--- --------- ----------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE>
PRIMAX WINDOW CO.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1997 AND
FOR THE FOUR MONTHS ENDED APRIL 30, 1998
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED FOUR MONTHS
DECEMBER 31, ENDED
---------------------- APRIL 30,
1996 1997 1998
--------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income............................................................... $ 71,120 $ 391,041 $ 76,548
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation........................................................... 106,682 124,957 34,014
Deferred taxes......................................................... 95,342 (108,232) --
Amortization of gain on sale of building............................... (1,561) (9,360) (3,015)
Gain on sale of property and equipment................................. (480) (620) --
Realized gains on investments.......................................... (4,933) (21,700) (8,471)
(Increase) decrease in
Accounts receivable.................................................... 8,841 (2,120) (7,073)
Inventory.............................................................. -- -- (27,638)
Costs and prepaid commissions on contracts in progress in excess of
billings............................................................. -- (107,735) 107,735
Prepaid expenses....................................................... 3,275 19,364 (29,440)
Other assets........................................................... (7,458) 4,356 44,182
Increase (decrease) in
Income taxes payable................................................... (12,885) (81,700) --
Accounts payable....................................................... 56,879 (1,040) (5,410)
Other accrued liabilities.............................................. 11,543 11,532 (2,139)
Billings in excess of costs and prepaid commissions on contracts in
progress............................................................. (2,963) 43,645 (99,924)
--------- ----------- ------------
Net cash provided by operating activities................................ 323,402 262,388 79,369
--------- ----------- ------------
Cash flows from investing activities
Purchase of fixed assets................................................. (85,078) (33,166) --
Proceeds from sale of property and equipment............................. 129,647 16,707 --
Purchase of investment securities........................................ (648,625) (1,498,207) --
Proceeds from sale of securities......................................... 300,000 1,330,000 650,265
Net payments from (lending to) related parties........................... (97,390) 182,127 (26,515)
--------- ----------- ------------
Net cash provided by (used in) investing activities...................... (401,446) (2,539) 623,750
--------- ----------- ------------
Cash flows from financing activities
Payments on notes payable................................................ (57,651) (65,820) (19,216)
Dividend payments........................................................ -- -- (594,175)
--------- ----------- ------------
Net cash used in financing activities.................................... (57,651) (65,820) (613,391)
--------- ----------- ------------
Net increase (decrease) in cash and cash equivalents..................... (135,695) 194,029 89,728
Cash and cash equivalents, beginning of period............................. 182,885 47,190 241,219
--------- ----------- ------------
Cash and cash equivalents, end of period................................... $ 47,190 $ 241,219 $ 330,947
--------- ----------- ------------
--------- ----------- ------------
Supplemental disclosures of cash flow information
Interest paid............................................................ $ 30,557 $ 10,827 $ 1,205
--------- ----------- ------------
--------- ----------- ------------
Income taxes paid........................................................ $ 7,670 $ 116,080 $ --
--------- ----------- ------------
--------- ----------- ------------
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
The Company executed notes payable for the acquisition of property and
equipment in the amount of $52,926 and $63,155 for the years ended December 31,
1996 and 1997, respectively.
On October 30, 1996, in connection with the sale of a building to a related
party, the buyer assumed Company liabilities in the amount of $273,774.
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
PRIMAX WINDOW CO.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 30, 1998
NOTE 1--BUSINESS ACTIVITY
Primax Window Co. (the "Company"), is a Kentucky corporation, founded May
21, 1981. The Company is a designer, retail seller, and installer of
state-of-the-art vinyl replacement windows for the existing home market.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
METHOD OF ACCOUNTING FOR WINDOW INSTALLATION CONTRACTS
The accompanying financial statements have been prepared using the
completed-contract method of accounting. Accordingly, revenue and costs of
individual contracts are included in operations in the year during which they
are completed. Losses expected to be incurred on contracts in progress are
charged to operations in the period such losses are determined. The aggregate of
costs incurred on uncompleted contracts in excess of related billings is shown
as an asset, and the aggregate of billings on uncompleted contracts in excess of
related costs is shown as a liability.
Contract costs include all direct labor and benefits, materials unique to or
installed in the project, subcontract costs, and other direct installation
costs.
CASH AND CASH EQUIVALENTS
For the purpose of reporting cash flows, the Company considers cash on
deposit, cash on hand, and financial instruments purchased with an original
maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES
Marketable securities are comprised of government bonds and are stated at
fair market value. They are classified as "available for sale." Unrealized gains
and losses, if any, and the related deferred income tax effects are excluded
from earnings and reported as a separate component of shareholders' equity.
Realized gains or losses are computed based upon specific identification of
securities sold.
ACCOUNTS RECEIVABLE
Accounts receivable consists of amounts due from customers. These are
uncollateralized, short-term receivables, typically with monthly payment plans.
To date, the Company has not experienced material losses resulting from bad
debts. As a result, the Company has not established an allowance for doubtful
accounts.
INVENTORY
Inventory is stated on a first-in, first-out basis, at the lower of cost or
market, and consists primarily of supplies.
F-61
<PAGE>
PRIMAX WINDOW CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 30, 1998
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
generally provided using the straight-line method. The estimated useful lives of
the related assets are as follows:
<TABLE>
<S> <C>
Transportation equipment................................. 3 to 5 years
Small tools and equipment................................ 3 to 5 years
Furniture and fixtures................................... 5 to 7 years
Leasehold improvements................................... lesser of useful
life
or life of the
lease
</TABLE>
WARRANTIES
The Company provides the retail customer with a limited warranty covering
workmanship and manufacturing defects. The Company provides an accrual for
future costs based upon the relationship of prior year's revenues to estimated
warranty costs. It is the Company's practice to classify the entire warranty
accrual as a current liability.
ADVERTISING EXPENSE
The Company accounts for advertising expenditures by charging to expense all
amounts as incurred.
INCOME TAXES
At April 1, 1997, under the provisions of the Internal Revenue Code, the
Company elected to be taxed as an "S" corporation whereby the Company's taxable
income or loss and tax credits are passed through to its shareholders.
Prior to that date, the Company used the liability method, whereby deferred
tax assets are recognized for deductible temporary differences, and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain of the Company's financial instruments including cash and cash
equivalents, accounts receivable, accounts payable, and other accrued
liabilities, the carrying amounts approximate fair value due to their short
maturities. The amount shown for long-term debt also approximates fair value
because current interest rates and terms offered to the Company for similar
long-term debt are substantially the same.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-62
<PAGE>
PRIMAX WINDOW CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 30, 1998
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RISK CONCENTRATIONS
The Company's customers are primarily homeowners located in Kentucky,
Indiana, and Ohio. In addition, the Company purchases substantially all of its
windows from one related-party supplier.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This statement requires companies to classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for financial statements issued
for fiscal years beginning after December 15, 1997. Management believes that
SFAS No. 130 will not have a material effect, if any, on the Company's financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." This statement establishes additional
standards for segment reporting in the financial statements and is effective for
fiscal years beginning after December 15, 1997. Management believes that SFAS
No. 131 will not have an effect on the Company's financial statements.
NOTE 3--CASH AND CASH EQUIVALENTS
The Company maintains its cash balances at a bank located in Kentucky. The
balances are insured by the Federal Deposit Insurance Corporation up to
$100,000. As of December 31, 1997, the uninsured portions of the balances held
at the bank aggregated to $21,116.
NOTE 4--MARKETABLE SECURITIES
The following is a summary of investment securities:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED FOUR MONTHS
DECEMBER 31, ENDED
---------------------- APRIL 30,
1996 1997 1998
---------- ---------- ---------------
<S> <C> <C> <C>
Available for sale securities United States Government
bonds, at cost and fair value........................ $ 451,887 $ 641,794 $ --
---------- ---------- ---
---------- ---------- ---
</TABLE>
Changes in the unrealized holding gains on investment securities available
for sale during the year ended December 31, 1997 were immaterial, and as such,
have not been reported as a separate component of shareholders' equity.
F-63
<PAGE>
PRIMAX WINDOW CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 30, 1998
NOTE 4--MARKETABLE SECURITIES (CONTINUED)
The following is a summary of investment earnings recognized in income:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED FOUR MONTHS
DECEMBER 31, ENDED
-------------------- APRIL 30,
1996 1997 1998
--------- --------- -------------
<S> <C> <C> <C>
Available for sale securities
Realized gains........................................... $ 4,933 $ 21,700 $ 8,471
--------- --------- ------
--------- --------- ------
</TABLE>
NOTE 5--CONTRACTS IN PROGRESS
Contract amounts, accumulated costs, and the related billings to date on
completed contracts and contracts in progress were as follows:
<TABLE>
<CAPTION>
CONTRACT CONTRACT
AMOUNTS COSTS
------------- -------------
<S> <C> <C>
Contracts in progress at December 31, 1995...................... $ 499,421 $ 31,117
Contracts initiated during the year............................. 6,351,727 2,911,704
Contracts completed during the year............................. (5,840,446) (2,773,986)
------------- -------------
Contracts in progress at December 31, 1996...................... 1,010,702 168,835
Contracts initiated during the year............................. 7,091,790 3,360,672
Contracts completed during the year............................. (7,132,296) (3,307,853)
------------- -------------
Contracts in progress at December 31, 1997.................... 970,196 221,654
Contracts initiated during the year............................. 1,975,984 873,048
Contracts completed during the year............................. (2,150,747) (964,759)
------------- -------------
Construction contracts in progress at April 30, 1998.......... $ 795,433 $ 129,943
------------- -------------
------------- -------------
</TABLE>
Contracts in progress:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED FOUR MONTHS
DECEMBER 31, ENDED
----------------------- APRIL 30,
1996 1997 1998
----------- ---------- ------------
<S> <C> <C> <C>
Cumulative costs to date.............................. $ 168,835 $ 221,654 $ 129,943
Less cash collected to date........................... 310,181 301,833 195,496
----------- ---------- ------------
(141,346) (80,179) (65,553)
Plus prepaid commissions on uncompleted contracts..... 84,475 74,412 51,975
----------- ---------- ------------
Net contracts in progress......................... $ (56,871) $ (5,767) $ (13,578)
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
F-64
<PAGE>
PRIMAX WINDOW CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 30, 1998
NOTE 5--CONTRACTS IN PROGRESS (CONTINUED)
Included in the accompanying balance sheet under the following captions:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED FOUR MONTHS
DECEMBER 31, ENDED
----------------------- APRIL 30,
1996 1997 1998
---------- ----------- ------------
<S> <C> <C> <C>
Costs and prepaid commissions on contracts in progress
in excess of billings................................ $ -- $ 107,735 $ --
Billings in excess of costs and prepaid commissions on
contracts in progress................................ (56,871) (113,502) (13,578)
---------- ----------- ------------
Total.............................................. $ (56,871) $ (5,767) $ (13,578)
---------- ----------- ------------
---------- ----------- ------------
</TABLE>
NOTE 6--CASH SURRENDER VALUE--OFFICERS' LIFE INSURANCE
The Company is the owner and beneficiary of life insurance policies insuring
the lives of Company officers. On April 30, 1998, in connection with the
acquisition of the Company by ThermoView Industries, Inc. (see Note 13), these
policies were distributed to the officers and majority shareholders in the form
of dividend distributions.
NOTE 7--LINE OF CREDIT
The Company has available a $150,000 line of credit bearing interest at the
bank's prime rate (8.25% at December 31, 1996) plus 0.5%. Any borrowings are
collateralized by substantially all assets of the Company and are personally
guaranteed by the shareholders of the Company. There were no outstanding
borrowings as of December 31, 1997 or April 30, 1998. As of December 31, 1996,
the balance was $30,000.
F-65
<PAGE>
PRIMAX WINDOW CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 30, 1998
NOTE 8--LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED FOUR MONTHS
DECEMBER 31, ENDED
-------------------- APRIL 30,
1996 1997 1998
--------- --------- ------------
<S> <C> <C> <C>
Notes payable to bank, with an aggregate original principal balance of
$89,746, interest rates between 7.9% and 8.25%, secured by four automobiles,
and maturing between January 20, 1997 and November 10, 1999................... $ 25,566 $ 68,650 $ 53,290
Note payable to finance company, with a principal balance of $26,286, an
interest rate of 9.25%, secured by a vehicle, and maturing on February 16,
1998.......................................................................... 16,948 3,452 --
Note payable to finance company, with a principal balance of $9,010, an
interest rate of 13%, secured by equipment, and maturing February 15, 1998.... 2,655 404 --
--------- --------- ------------
45,169 72,506 53,290
Less current portion.......................................................... 15,051 47,548 40,058
--------- --------- ------------
Long-term portion........................................................... $ 30,118 $ 24,958 $ 13,232
--------- --------- ------------
--------- --------- ------------
</TABLE>
The following is a schedule by years of future maturities of long-term debt
as of December 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------------------------------------------------------
<S> <C>
1998........................................................ $ 47,548
1999........................................................ 24,958
------------
TOTAL $ 72,506
------------
------------
</TABLE>
NOTE 9--EMPLOYEE BENEFIT PLAN
The Company has a profit sharing plan established in accordance with Section
401(k) of the Employee Retirement Income Security Act of 1974 as amended. The
plan covers substantially all eligible employees. Employee contributions to the
plan are elective, and matching contributions by the employer are optional. The
Company incurred $20,485 and $24,784 in contribution expense for the years ended
December 31, 1996 and 1997, respectively.
NOTE 10--COMMITMENTS AND CONTINGENCIES
LEASES
The Company has entered into a non-cancelable operating lease with an
affiliated entity (see Note 12) for its corporate offices and facilities. In
addition, the Company has entered into various operating lease agreements for
vehicles and sales facilities in two outlying markets.
F-66
<PAGE>
PRIMAX WINDOW CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 30, 1998
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum rental commitments under these lease agreements with initial
or remaining terms of one year or more at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- --------------------------------------------------------------
<S> <C>
1998.......................................................... $ 134,299
1999.......................................................... 136,138
2000.......................................................... 90,297
2001.......................................................... 68,500
----------
Total....................................................... $ 429,234
----------
----------
</TABLE>
Rent expense was approximately $58,400, $128,400, and $42,900 for the years
ended December 31, 1996 and 1997 and the four months ended April 30, 1998,
respectively.
LITIGATION
The Company is involved in various litigation in the normal course of
business. The outcome of such litigation is not expected to have an adverse
effect on the Company.
NOTE 11--INCOME TAXES
Significant components of the provision for (benefit from) taxes based on
income for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1996 1997
---------- -----------
<S> <C> <C>
Current
Federal............................................................ $ 3,390 $ 21,395
State.............................................................. 4,380 --
---------- -----------
7,770 21,395
---------- -----------
Deferred
Federal............................................................ 79,409 (88,750)
State.............................................................. 15,933 (19,482)
---------- -----------
95,342 (108,232)
---------- -----------
Provision for (benefit from) income taxes........................ $ 103,112 $ (86,837)
---------- -----------
---------- -----------
</TABLE>
F-67
<PAGE>
PRIMAX WINDOW CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 30, 1998
NOTE 11--INCOME TAXES (CONTINUED)
A reconciliation of the provision for (benefit from) income tax expense with
the expected income tax computed by applying the federal statutory income tax
rate to income before provision for income taxes for the years ended December 31
is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
1996 1997
----------- ------------
<S> <C> <C>
Income tax provision (benefit) computed at federal statutory tax rate... 34.0% 34.0 %
State taxes, net of federal benefit..................................... 6.0 --
Differences arising from release of deferred tax liability upon change
of corporate filing status............................................ -- (63.0)
Other................................................................... 19.0 --
----- -----
Total................................................................. 59.0% (29.0)%
----- -----
----- -----
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
for federal income taxes consist of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
<S> <C> <C>
1996 1997
----------- ----------
Deferred tax assets
Warranty reserve................................................... $ 8,400 $ --
Property and equipment............................................. 5,081 --
----------- ----------
13,481 --
----------- ----------
Deferred tax liabilities
Costs and prepaid commissions on contracts in progress in excess of
billings......................................................... 111,104 --
Other.............................................................. 10,609 --
----------- ----------
121,713 --
----------- ----------
Net deferred tax liability....................................... $ (108,232) $ --
----------- ----------
----------- ----------
</TABLE>
NOTE 12--RELATED PARTY TRANSACTIONS
On October 30, 1996, in connection with a sales lease-back transaction, the
Company began leasing its primary place of business from the majority
shareholder of the Company. The gain on the sale of $46,772 was recorded as a
deferred gain on the Company's financial statements. The lease expires October
31, 2001. Future minimum aggregate lease payments required under the lease are
$390,000. For the years ended December 31, 1996 and 1997 and the four months
ended April 30, 1998, total rent paid to the affiliated company was $13,700,
$82,200 and $27,400, respectively. Amortization of the gain was $1,561, $9,360
and $3,015 during the years ended December 31, 1996 and 1997 and the four months
ended April 30, 1998, respectively.
F-68
<PAGE>
PRIMAX WINDOW CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 30, 1998
NOTE 12--RELATED PARTY TRANSACTIONS (CONTINUED)
During the years ended December 31, 1996 and 1997 and the four months ended
April 30, 1998, the Company purchased substantially all of its windows from a
supplier partially owned by the Company's majority shareholder. Purchases from
this supplier were $2,040,094, $2,344,041, and $692,965 for the years ended
December 31, 1996 and 1997 and the four months ended April 30, 1998,
respectively.
During the years ended December 31, 1996 and 1997 and the four months ended
April 30, 1998, the Company retained an advertising agency that was owned by the
Company's majority shareholder. Expenditures related to this agency were
$513,078, $545,524, and $86,166 for the years ended December 31, 1996 and 1997
and the four months ended April 30, 1998, respectively.
During the years ended December 31, 1996 and 1997 and the four months ended
April 30, 1998, the Company conducted business with a company owned by the
Company's majority shareholder for messenger services. Expenditures related to
this Company were $10,068, $40,277, and $13,439 for the years ended December 31,
1996 and 1997 and the four months ended April 30, 1998, respectively.
During the year ended December 31, 1997 and the four months ended April 30,
1998, the Company charged administrative fees to a company owned by the majority
shareholder of the Company. Fees charged during the year ended December 31, 1997
and the four months ended April 30, 1998 were $42,100 and $48,800 respectively.
During the years ended December 31, 1996 and 1997 and the four months ended
April 30, 1998, the Company entered into certain notes receivable agreements
with the two shareholders of the Company. As of December 31, 1996 and 1997 and
April 30, 1998, the Company was owed $137,494, $17,655 and $73,140 respectively.
Interest rates on these notes ranged from 6% to 8%, and all balances were paid
in full following April 30, 1998.
During the years ended December 31, 1996 and 1997 and the four months ended
April 30, 1998, the Company entered into notes receivable agreements with two
companies controlled by the majority shareholder. Amounts owed the Company were
$180,401, $118,114, and $99,144 at December 31, 1996 and 1997 and April 30,
1998, respectively. Interest rates on the notes were 9.25% and 15%, and the
notes are due on October 6, 1998, and August 7, 1999. The Company is current on
these obligations.
During the year ended December 31, 1996, the Company leased an office with
its primary location of business to a related entity. Total rent collected for
the year was $14,000. The lease expired on October 30, 1996.
NOTE 13--ACQUISITION
On April 30, 1998, 100% of the Company's common stock was acquired by
ThermoView Industries, Inc.
F-69
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
The Rolox Companies
We have audited the accompanying combined balance sheets of The Rolox
Companies as of December 31, 1996, 1997 and April 30, 1998, and the related
combined statements of operations, shareholders' equity, and cash flows for each
of the two years in the period ended December 31, 1997 and the four months ended
April 30, 1998. These combined financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of The Rolox
Companies as of December 31, 1996, 1997 and April 30, 1998, and the combined
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1997 and the four months ended April 30, 1998 in
conformity with generally accepted accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
July 23, 1998
F-70
<PAGE>
THE ROLOX COMPANIES
COMBINED BALANCE SHEETS
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 30, 1998
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- APRIL 30,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................................... $ 611 $ 3,504 $ 2,120
Accounts receivable, net of allowance for doubtful accounts of $10,000 for
all periods............................................................... 184,058 157,325 156,002
Inventory................................................................... 46,250 46,250 46,250
Costs and prepaid commissions on contracts in progress in excess of
billings.................................................................. 190,153 55,589 90,007
Prepaid expenses............................................................ 1,544 9,784 1,051
---------- ---------- ----------
Total current assets.................................................... 422,616 272,452 295,430
---------- ---------- ----------
Property and equipment
Furniture and fixtures...................................................... 50,001 58,190 58,190
Vehicles.................................................................... 92,442 32,580 69,348
---------- ---------- ----------
142,443 90,770 127,538
Less accumulated depreciation............................................... 68,605 66,010 69,875
---------- ---------- ----------
Total property and equipment............................................ 73,838 24,760 57,663
---------- ---------- ----------
Total assets.......................................................... $ 496,454 $ 297,212 $ 353,093
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Current portion of long-term debt........................................... $ 5,744 $ 6,189 $ 21,026
Accounts payable............................................................ 232,639 196,341 315,831
Overdraft at bank........................................................... 32,061 -- --
Accrued liabilities:
Payroll................................................................... 101,115 100,042 90,961
Warranty.................................................................. 37,500 37,500 37,500
Other..................................................................... 63,406 55,047 87,900
Billings in excess of costs and prepaid commissions on contracts in
progress.................................................................. 183,652 72,738 14,373
---------- ---------- ----------
Total current liabilities................................................. 656,117 467,857 567,591
Long-term debt, net of current portion........................................ 11,741 5,552 24,818
---------- ---------- ----------
Total liabilities......................................................... 667,858 473,409 592,409
---------- ---------- ----------
Commitments and contingencies
Shareholders' deficit
Rolox of Kansas City, Inc.:
Common stock, $1.00 par value, 100 shares authorized, issued and
outstanding............................................................. 100 100 100
Additional paid in capital................................................ 400 400 400
Rolox of Wichita, Inc.:
Common stock, $1.00 par value, 1,000 shares authorized, issued and
outstanding............................................................. 1,000 1,000 1,000
Accumulated deficit......................................................... (172,904) (177,697) (240,816)
---------- ---------- ----------
Total shareholders' deficit............................................... (171,404) (176,197) (239,316)
---------- ---------- ----------
Total liabilities and shareholders' deficit............................. $ 496,454 $ 297,212 $ 353,093
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-71
<PAGE>
THE ROLOX COMPANIES
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1997 AND
FOR THE FOUR MONTHS ENDED APRIL 30, 1998
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE FOUR
DECEMBER 31, MONTHS ENDED
---------------------------- APRIL 30,
1996 1997 1998
------------- ------------- ------------
<S> <C> <C> <C>
Contract revenues.................................................... $ 10,651,741 $ 10,353,840 $3,786,513
Contract costs....................................................... 4,154,276 4,086,011 1,645,687
------------- ------------- ------------
Gross profit......................................................... 6,497,465 6,267,829 2,140,826
------------- ------------- ------------
Operating expenses
Advertising........................................................ 761,608 704,607 225,139
Selling............................................................ 2,343,531 2,299,615 806,351
General and administrative......................................... 3,293,800 3,259,499 1,171,920
------------- ------------- ------------
Total operating expenses......................................... 6,398,939 6,263,721 2,203,410
------------- ------------- ------------
Income (loss) from operations........................................ 98,526 4,108 (62,584)
------------- ------------- ------------
Other expense
Interest expense................................................... (671) (1,191) (535)
Loss on sale of property and equipment............................. -- (7,710) --
------------- ------------- ------------
Total other expense.............................................. (671) (8,901) (535)
------------- ------------- ------------
Net income (loss).................................................... $ 97,855 $ (4,793) $ (63,119)
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-72
<PAGE>
THE ROLOX COMPANIES
COMBINED STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1997 AND
FOR THE FOUR MONTHS ENDED APRIL 30, 1998
<TABLE>
<CAPTION>
ROLOX OF
ROLOX OF KANSAS CITY, INC. WICHITA, INC.
--------------------------------------- ----------------------
COMMON STOCK ADDITIONAL COMMON STOCK
------------------------ PAID-IN ---------------------- ACCUMULATED
SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT
----------- ----------- ------------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995.................. 100 $ 100 $ 400 1,000 $ 1,000 $ (270,759)
Net income.................................. 97,855
--- ----- ----- ----- --------- ------------
Balance, December 31, 1996.................. 100 100 400 1,000 1,000 (172,904)
Net loss.................................... (4,793)
--- ----- ----- ----- --------- ------------
Balance, December 31, 1997.................. 100 100 400 1,000 1,000 (177,697)
Net loss.................................... (63,119)
--- ----- ----- ----- --------- ------------
Balance, April 30, 1998..................... 100 $ 100 $ 400 1,000 $ 1,000 $ (240,816)
--- ----- ----- ----- --------- ------------
--- ----- ----- ----- --------- ------------
<CAPTION>
TOTAL
-----------
<S> <C>
Balance, December 31, 1995.................. $ (269,259)
Net income.................................. 97,855
-----------
Balance, December 31, 1996.................. (171,404)
Net loss.................................... (4,793)
-----------
Balance, December 31, 1997.................. (176,197)
Net loss.................................... (63,119)
-----------
Balance, April 30, 1998..................... $ (239,316)
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-73
<PAGE>
THE ROLOX COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1997 AND
FOR THE FOUR MONTHS ENDED APRIL 30, 1998
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED FOUR MONTHS
DECEMBER 31, ENDED
----------------------- APRIL 30,
1996 1997 1998
----------- ---------- ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)........................................................ $ 97,855 $ (4,793) $ (63,119)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities
Depreciation........................................................... 11,699 10,953 3,865
Loss on sale of property and equipment................................. -- 7,710 --
(Increase) decrease in
Accounts receivable.................................................... (34,833) 26,731 1,323
Costs and prepaid commissions on contracts in progress in excess of
billings............................................................. (14,123) 44,085 (34,418)
Prepaid expenses....................................................... 6,208 (8,240) 8,733
Increase (decrease) in
Accounts payable....................................................... (130,611) (36,838) 119,490
Other accrued liabilities.............................................. 5,987 (8,891) 23,772
Billings in excess of costs and prepaid commissions on contracts in
progress............................................................. 55,959 (20,433) (58,365)
----------- ---------- ------------
Net cash provided by (used in) operating activities.................... (1,859) 10,284 1,281
----------- ---------- ------------
Cash flows from investing activities
Purchase of property and equipment....................................... (9,335) (8,354) --
Proceeds from sale of property and equipment............................. 9,301 38,769 --
----------- ---------- ------------
Net cash provided by (used in) investing activities.................... (34) 30,415 --
----------- ---------- ------------
Cash flows from financing activities
Net change in overdraft at bank.......................................... 4,190 (32,061) --
Payments on notes payable................................................ (10,137) (5,745) (2,665)
----------- ---------- ------------
Net cash used in financing activities.................................. (5,947) (37,806) (2,665)
----------- ---------- ------------
Net increase (decrease) in cash and cash equivalents................... (7,840) 2,893 (1,384)
Cash and cash equivalents, beginning of period............................. 8,451 611 3,504
----------- ---------- ------------
Cash and cash equivalents, end of period................................... $ 611 $ 3,504 $ 2,120
----------- ---------- ------------
----------- ---------- ------------
Supplemental disclosures of cash flow information
Interest paid............................................................ $ 671 $ 1,191 $ 535
----------- ---------- ------------
----------- ---------- ------------
Income taxes paid........................................................ $ -- $ -- $ --
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
On September 13, 1996, the Company purchased property and equipment with a
note payable in the amount of $18,808.
On March 18, 1998, the Company purchased fixed assets with notes payable in
the amount of $36,768.
The accompanying notes are an integral part of these financial statements.
F-74
<PAGE>
THE ROLOX COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 30, 1998
NOTE 1--BUSINESS ACTIVITY AND BASIS OF PRESENTATION
The combined financial statements include the accounts and transactions of
Rolox of Kansas City, Inc., and Rolox of Wichita, Inc., together referred to
herein as "the Company." All material intercompany transactions and accounts
have been eliminated in the accompanying combined financial statements.
Management has chosen to omit RMS, Inc. ("RMS") from these combined
financial statements. RMS performs as a management company which employs the
Company's officers and collects fees for their services. Management believes
inclusion of RMS in these financial statements would have an immaterial effect.
The accompanying financial statements are presented on a combined basis as
each of the combined companies is owned by a common shareholder group, and the
Company comprises one operating segment primarily engaged in the design, retail
sale and installation of state-of-the-art vinyl replacement windows for the
existing home market. The majority of contracts are financed for the customers
by third party finance companies.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
METHOD OF ACCOUNTING FOR WINDOW INSTALLATION CONTRACTS
The accompanying financial statements have been prepared using the completed
contract method of accounting. Accordingly, revenue and costs of individual
contracts are included in operations in the year during which they are
completed. Losses expected to be incurred on contracts in progress are charged
to operations in the period such losses are determined. The aggregate of costs
in uncompleted contracts in excess of related billings is shown as an asset, and
the aggregate of billings on uncompleted contracts in excess of related costs is
shown as a liability.
Contract costs include all direct labor and benefits, materials unique to or
installed in the project, subcontract costs, and other direct installation
costs.
CASH AND CASH EQUIVALENTS
For the purpose of reporting cash flows, the Company considers cash on
deposit, cash on hand, and financial instruments purchased with an original
maturity of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain of the Company's financial instruments including cash and cash
equivalents, accounts receivable, accounts payable, and other accrued
liabilities, the carrying amounts approximate fair value due to their short
maturities. The amount shown for long-term debt also approximates fair value
because current interest rates and terms offered to the Company for similar
long-term debt are substantially the same.
INVENTORY
Inventory is stated on a first-in, first-out basis, at the lower of cost or
market, and consists primarily of supplies.
F-75
<PAGE>
THE ROLOX COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 30, 1998
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is generally
provided using the straight-line method. The estimated useful lives of the
related assets are as follows:
<TABLE>
<S> <C>
5 to 7
Furniture and fixtures......................................... years
3 to 5
Vehicles....................................................... years
</TABLE>
WARRANTIES
The Company provides the retail customer with a limited warranty covering
workmanship and manufacturing defects. The Company provides an accrual for
future warranty costs based upon the relationship of prior year's revenues to
estimated warranty costs. It is the Company's practice to classify the entire
warranty accrual as a current liability.
ADVERTISING EXPENSE
The Company accounts for advertising expenditures by charging to expense all
amounts as incurred.
INCOME TAXES
The two companies comprising the Company have elected to be taxed as S
corporations under the provisions of Subchapter S of the Internal Revenue Code.
Under those provisions, the companies do not pay federal income taxes on their
taxable income. Instead the shareholders are liable for federal income taxes on
the companies' taxable income.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RISK CONCENTRATIONS
The Company's customers are primarily homeowners located in Missouri and
Kansas. In addition, the Company purchases substantially all of its windows from
one related party supplier.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This statement requires companies to classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is
F-76
<PAGE>
THE ROLOX COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 30, 1998
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
effective for financial statements issued for fiscal years beginning after
December 15, 1997. Management believes that SFAS No. 130 will not have a
material effect, if any, on the Company's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." This statement establishes additional
standards for segment reporting in the financial statements and is effective for
fiscal years beginning after December 15, 1997. Management believes that SFAS
No. 131 will not have an effect on the Company's financial statements.
NOTE 3--CASH AND CASH EQUIVALENTS
The Company maintains its cash balance at banks. Balances are insured by the
Federal Deposit Insurance Corporation up to $100,000. As of December 31, 1997,
the uninsured portion of the balance held at the bank aggregated to $19,998.
NOTE 4--ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of amounts due from financing
companies related to construction projects already complete. The Company has
recorded an allowance for doubtful accounts of $10,000 and believes this to be
sufficient for any uncollectible amounts.
NOTE 5--CONTRACTS IN PROGRESS
Contract amounts, accumulated costs, and the related billings to date on
completed contracts and contracts in progress were as follows:
<TABLE>
<CAPTION>
CONTRACT CONTRACT
AMOUNTS COSTS
-------------- -------------
<S> <C> <C>
Contracts in progress at December 31, 1995..................... $ 1,658,923 $ 117,413
Contracts initiated during the year............................ 10,621,354 4,152,305
Contracts completed during the year............................ (10,651,741) (4,154,276)
-------------- -------------
Contracts in progress at December 31, 1996..................... 1,628,536 115,442
Contracts initiated during the year............................ 10,295,836 4,053,617
Contracts completed during the year............................ (10,353,840) (4,086,011)
-------------- -------------
Contracts in progress at December 31, 1997..................... 1,570,532 83,048
Contracts initiated during the year............................ 4,153,588 1,732,643
Contracts completed during the year............................ (3,786,513) (1,645,687)
-------------- -------------
Construction contracts in progress at April 30, 1998......... $ 1,937,607 $ 170,004
-------------- -------------
-------------- -------------
</TABLE>
F-77
<PAGE>
THE ROLOX COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 30, 1998
NOTE 5--CONTRACTS IN PROGRESS (CONTINUED)
Contracts in progress:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE FOUR
DECEMBER 31, MONTHS ENDED
------------------------ APRIL 30,
1996 1997 1998
----------- ----------- --------------
<S> <C> <C> <C>
Cumulative costs to date........................... $ 115,442 $ 83,048 $ 170,004
Less cash collected to date........................ 229,327 204,318 225,269
----------- ----------- --------------
(113,885) (121,270) (55,265)
Plus prepaid commissions on uncompleted
contracts........................................ 120,386 104,121 130,899
----------- ----------- --------------
Net contracts in progress........................ $ 6,501 $ (17,149) $ 75,634
----------- ----------- --------------
----------- ----------- --------------
</TABLE>
Included in the accompanying combined balance sheet under the following
captions:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE FOUR
DECEMBER 31, MONTHS ENDED
----------------------- APRIL 30,
1996 1997 1998
----------- ---------- --------------
<S> <C> <C> <C>
Costs and prepaid commissions on contracts in
progress in excess of billings.................... $ 190,153 $ 55,589 $ 90,007
Billings in excess of costs and prepaid commissions
on contracts in progress.......................... (183,652) (72,738) (14,373)
----------- ---------- --------------
Total............................................. $ 6,501 $ (17,149) $ 75,634
----------- ---------- --------------
----------- ---------- --------------
</TABLE>
NOTE 6--LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE FOUR
DECEMBER 31, MONTHS ENDED
-------------------- APRIL 30,
1996 1997 1998
--------- --------- --------------
<S> <C> <C> <C>
Notes payable to bank, with an original principal balance of $18,808,
bearing interest at a rate of 8.1%, secured by an automobile, and
maturing on October 13, 1998............................................. $ 17,485 $ 11,741 $ 9,733
Notes payable to bank, with an original principal balance of $36,768,
bearing interest at rates ranging from 7.6% to 8.1%, secured by vehicles,
and maturing on March 18, 2002........................................... -- -- 36,111
--------- --------- -------
17,485 11,741 45,844
Less current portion....................................................... 5,744 6,189 21,026
--------- --------- -------
Long-term portion........................................................ $ 11,741 $ 5,552 $ 24,818
--------- --------- -------
--------- --------- -------
</TABLE>
F-78
<PAGE>
THE ROLOX COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 30, 1998
NOTE 6--LONG-TERM DEBT (CONTINUED)
The following is a schedule by years of future maturities of long-term debt
as of December 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- -----------------------------------------------------------------------------------
<S> <C>
1998............................................................................... $ 6,189
1999............................................................................... 5,552
---------
Total............................................................................ $ 11,741
---------
---------
</TABLE>
NOTE 7--EMPLOYEE BENEFIT PLAN
The Company has a profit sharing plan established in accordance with Section
401(k) of the Employee Retirement Income Security Act of 1974 as amended. The
plan covers substantially all eligible employees. Employee contributions to the
plan are elective, and matching contributions by the employer are optional. The
Company incurred $92,000 and $81,000 in contribution expense for the years ended
December 31, 1996 and 1997, respectively. No contribution was made for the four
months ended April 30, 1998.
NOTE 8--COMMITMENTS AND CONTINGENCIES
LEASES
The Company has entered into certain non-cancelable operating leases with
related parties for its corporate offices and facilities and for computer
equipment. In addition, the Company has entered into various operating lease
agreements for vehicles.
Future minimum rental commitments under these lease agreements with initial
or remaining terms of one year or more at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- --------------------------------------------------------------------------------
<S> <C>
1998............................................................................ $ 271,709
1999............................................................................ 285,801
2000............................................................................ 272,964
2001............................................................................ 269,200
2002............................................................................ 89,733
------------
Total......................................................................... $ 1,189,407
------------
------------
</TABLE>
Rent expense was $190,183 and $202,258 for the years ended December 31, 1996
and 1997, respectively, and $72,033 for the four-month period ended April 30,
1998.
LITIGATION
The Company is involved in various litigation arising from the normal course
of business. The outcome of such litigation is not expected to have an adverse
effect on the Company.
F-79
<PAGE>
THE ROLOX COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND APRIL 30, 1998
NOTE 9--RELATED PARTY TRANSACTIONS
During the years ended December 31, 1997 and 1996 and for the four months
ended April 30, 1998, the Company paid fees to a related company for management
services in the amounts of $1,957,439, $2,196,984 and $680,000, respectively.
During the years ended December 31, 1996 and 1997 and the four months ended
April 30, 1998, the Company purchased substantially all of its windows from a
supplier partially owned by the Company's majority shareholder. Purchases from
this supplier were $2,085,280, $2,230,765 and $564,858 for the years ended
December 31, 1996 and 1997 and the four months ended April 30, 1998,
respectively.
During the years ended December 31, 1996 and 1997 and the four months ended
April 30, 1998, the Company retained an advertising agency that was owned by the
Company's majority shareholder. Expenditures related to this agency were
$766,761, $660,370, and $232,816 for the years ended December 31, 1996 and 1997
and the four months ended April 30, 1998, respectively.
During the years ended December 31, 1996 and 1997, the Company had entered
into operating leases with a related party as follows:
- - The Company leases facilities in Grandview, Missouri from a company owned by
the majority shareholder under two separate leases. Both leases expire on
April 30, 2002, and required monthly payments of $8,333 and $3,667.
- - The Company leases facilities in Wichita, Kansas, from an affiliated entity
owned by the Company's majority shareholder. The lease expires April 30, 2002,
and requires monthly payments of $5,100.
- - The Company leases certain computer and telephone equipment from the majority
shareholder of the Company. The lease expires on April 30, 1998 and requires
monthly payments of $4,500.
NOTE 10--ACQUISITION
On April 30, 1998, 100% of the common stock of each of the companies
comprising the Company was acquired by ThermoView Industries, Inc.
F-80
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
American Home Remodeling
We have audited the accompanying balance sheets of American Home Remodeling
as of December 31, 1997 and July 9, 1998, and the related statements of
operations, shareholders' equity, and cash flows for the year ended December 31,
1997 and the period from January 1, 1998 through July 9, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Home Remodeling as
of December 31, 1997 and July 9, 1998, and the results of its operations and its
cash flows for the year ended December 31, 1997 and the period from January 1,
1998 through July 9, 1998 in conformity with generally accepted accounting
principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
February 5, 1999
F-81
<PAGE>
AMERICAN HOME REMODELING
BALANCE SHEETS
DECEMBER 31, 1997 AND JULY 9, 1998
<TABLE>
<CAPTION>
DECEMBER 31, JULY 9,
1997 1998
------------ ----------
<S> <C> <C>
ASSETS
Current assets
Cash................................................................................. $ -- $ 80,415
Accounts receivable, net of allowance for doubtful accounts of $38,000 and $50,000... 16,359 2,562
------------ ----------
Total current assets............................................................... 16,359 82,977
------------ ----------
Furniture and equipment
Office equipment..................................................................... 89,398 91,142
Less accumulated depreciation........................................................ 81,085 82,884
------------ ----------
Total furniture and equipment...................................................... 8,313 8,258
------------ ----------
Other assets
Deposits............................................................................. 4,752 4,752
Due from officers.................................................................... 110,832 --
------------ ----------
Total assets..................................................................... $ 140,256 $ 95,987
------------ ----------
------------ ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank overdraft....................................................................... $ 18,343 $ --
Lines of credit...................................................................... 23,525 121,525
Accounts payable..................................................................... 321,945 337,587
Billings in excess of costs and prepaid commissions on contracts in progress......... 115,071 203,303
Accrued liabilities.................................................................. 112,742 148,073
Due to related party................................................................. 153,560 113,893
------------ ----------
Total current liabilities.......................................................... 745,186 924,381
------------ ----------
Commitments and contingencies
Shareholders' equity
Common stock, no par value
100,000 shares authorized
40,000 shares issued and outstanding
Accumulated deficit.................................................................. (604,930) (828,394)
------------ ----------
Total shareholders' deficit........................................................ (604,930) (828,394)
------------ ----------
Total liabilities and shareholders' deficit...................................... $ 140,256 $ 95,987
------------ ----------
------------ ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-82
<PAGE>
AMERICAN HOME REMODELING
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
FOR THE PERIOD FROM JANUARY 1, 1998 THROUGH JULY 9, 1998
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
JANUARY 1,
FOR THE 1998
YEAR ENDED THROUGH
DECEMBER 31, JULY 9,
1997 1998
------------ ---------------
<S> <C> <C>
Contract revenues.................................................................. $6,325,454 $ 3,343,847
Contract costs..................................................................... 3,028,114 1,262,510
------------ ---------------
Gross profit....................................................................... 3,297,340 2,081,337
------------ ---------------
Operating expenses
Advertising...................................................................... 269,452 37,375
Selling.......................................................................... 1,546,721 699,284
General and administrative....................................................... 1,620,905 1,336,568
------------ ---------------
Total operating expenses....................................................... 3,437,078 2,073,227
------------ ---------------
Income (loss) from operations...................................................... (139,738) 8,110
------------ ---------------
Other income (expense)
Interest income.................................................................. 9,433 542
Interest expense................................................................. (1,998) (4,587)
------------ ---------------
Total other income (expense)................................................... 7,435 (4,045)
------------ ---------------
Income (loss) before provision for income taxes.................................... (132,303) 4,065
Provision for income taxes......................................................... 1,775 --
------------ ---------------
Net income (loss)............................................................ $ (134,078) $ 4,065
------------ ---------------
------------ ---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE>
AMERICAN HOME REMODELING
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
FOR THE PERIOD FROM JANUARY 1, 1998 THROUGH JULY 9, 1998 AND
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1996.......................................... 40,000 $ -- $ (422,252) $ (422,252)
Distributions to shareholders....................................... (48,600) (48,600)
Net loss............................................................ (134,078) (134,078)
--------- ----- ----------- -----------
Balance, December 31, 1997.......................................... 40,000 -- (604,930) (604,930)
Distributions to shareholders....................................... (227,529) (227,529)
Net income.......................................................... 4,065 4,065
--------- ----- ----------- -----------
Balance, July 9, 1998............................................... 40,000 $ -- $ (828,394) $ (828,394)
--------- ----- ----------- -----------
--------- ----- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-84
<PAGE>
AMERICAN HOME REMODELING
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
FOR THE PERIOD FROM JANUARY 1, 1998 THROUGH JULY 9, 1998
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
FOR THE JANUARY 1, 1998
YEAR ENDED THROUGH
DECEMBER 31, JULY 9,
1997 1998
------------ ------------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss)............................................................ $ (134,078) $ 4,065
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities
Depreciation............................................................. 21,359 1,799
(Increase) decrease in
Billings in excess of costs and prepaid commissions........................ 26,613 88,232
Accounts receivable........................................................ (2,894) 13,797
Deposits................................................................... (1,064) --
Increase (decrease) in
Accounts payable........................................................... (44,919) 15,642
Other accrued liabilities.................................................. 87,741 35,331
------------ ----------
Net cash provided by (used in) operating activities...................... (47,242) 158,866
------------ ----------
Cash flows from investing activities
Purchase of furniture and equipment.......................................... (16,325) (1,744)
------------ ----------
Net cash used in investing activities.................................... (16,325) (1,744)
------------ ----------
Cash flows from financing activities
Net borrowing from officers.................................................. 31,248 --
Net borrowing from (payments to) related parties............................. 20,000 (39,667)
Net borrowing on lines of credit............................................. 23,525 98,000
Cash distributions to shareholders........................................... (48,600) (116,697)
------------ ----------
Net cash provided by (used in) financing activities...................... 26,173 (58,364)
------------ ----------
Net increase (decrease) in cash and cash equivalents................... (37,394) 98,758
Cash and cash equivalents (bank overdraft), beginning of period................ 19,051 (18,343)
------------ ----------
Cash and cash equivalents (bank overdraft), end of period...................... $ (18,343) $ 80,415
------------ ----------
------------ ----------
Supplemental disclosures of cash flow information
Interest paid................................................................ $ 1,998 $ 4,587
------------ ----------
------------ ----------
Income taxes paid............................................................ $ 975 $ 800
------------ ----------
------------ ----------
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the period January 1, 1998 to July 9, 1998, $110,832 of amounts due
from officers were distributed to the officers (shareholders) in the form of
distributions to shareholders.
The accompanying notes are an integral part of these financial statements.
F-85
<PAGE>
AMERICAN HOME REMODELING
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND JULY 9, 1998
NOTE 1--BUSINESS ACTIVITY
American Home Remodeling (the "Company") is a California corporation,
founded March 17, 1992. The Company's primary line of business is installing
replacement windows for the existing home market. The Company markets its
products primarily through the use of an extensive telemarketing effort. The
Company retains independent contractors for the installation of its products at
the customer's site.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
METHOD OF ACCOUNTING FOR WINDOW INSTALLATION AND CONTRACTS
The accompanying financial statements have been prepared using the completed
contract method of accounting. Accordingly, revenue and costs of individual
contracts are included in operations in the year during which they are
completed. Losses expected to be incurred on contracts in progress are charged
to operations in the period such losses are determined. The aggregate of costs
in uncompleted contracts in excess of related billings is shown as an asset, and
the aggregate of billings on uncompleted contracts in excess of related costs is
shown as a liability.
Contract costs include all direct labor and benefits, materials unique to or
installed in the project, subcontract costs, and other direct installation
costs.
CASH AND CASH EQUIVALENTS
For the purpose of reporting cash flows, the Company considers cash on
deposit, cash on hand, and financial instruments purchased with an original
maturity of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain of the Company's financial instruments including cash and cash
equivalents, other receivables, accounts payable, and other accrued liabilities,
the carrying amounts approximate fair value due to their short maturities.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is generally
provided using the straight-line method over the estimated useful lives of the
assets of three to five years.
WARRANTIES
The Company has a three-year warranty covering workmanship. The Company
provides an accrual for future warranty costs based upon the relationship of
prior year's revenues to estimated warranty costs. It is the Company's practice
to classify the entire warranty accrual as a current liability.
INCOME TAXES
Under the provisions of the Internal Revenue Code, the Company has elected
to be taxed as an "S" corporation, whereby the Company's taxable income or loss
and tax credits are passed through to its shareholders.
F-86
<PAGE>
AMERICAN HOME REMODELING
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND JULY 9, 1998
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RISK CONCENTRATIONS
The Company's customers are primarily homeowners located in Southern
California. The Company purchases substantially all of its Tex-Coting material
from one supplier. Purchases from this supplier were 56% of the Company's total
cost of sales for both the year ended December 31, 1997 and the period from
January 1, 1998 through July 9, 1998.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This statement requires companies to classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for financial statements issued
for fiscal years beginning after December 15, 1997. Management believes that
SFAS No. 130 will not have a material effect, if any, on the Company's financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." This statement establishes additional
standards for segment reporting in the financial statements and is effective for
fiscal years beginning after December 15, 1997. Management believes that SFAS
No. 131 will not have an effect on the Company's financial statements.
F-87
<PAGE>
AMERICAN HOME REMODELING
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND JULY 9, 1998
NOTE 3--CONTRACTS IN PROGRESS
For the year ended December 31, 1997 and the period from January 1, 1998
through July 9, 1998, contract amounts, accumulated costs, and the related
billings to date on completed contracts and contracts in progress were as
follows:
<TABLE>
<CAPTION>
CONTRACT CONTRACT
AMOUNTS COSTS
------------- -------------
<S> <C> <C>
Contracts in progress at December 31, 1996...................... $ 365,677 $ 69,252
Contracts initiated during the year............................. 6,413,819 3,013,356
Contracts completed during the year............................. (6,325,454) (3,028,114)
------------- -------------
Contracts in progress at December 31, 1997...................... 454,042 54,494
Contracts initiated during the period........................... 3,465,492 1,265,617
Contracts completed during the period........................... (3,343,847) (1,262,510)
------------- -------------
Contracts in progress at July 9, 1998......................... $ 575,687 $ 57,601
------------- -------------
------------- -------------
</TABLE>
Contracts in progress:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
FOR THE JANUARY 1, 1998
YEAR ENDED THROUGH
DECEMBER 31, JULY 9,
1997 1998
------------ ------------------
<S> <C> <C>
Cumulative costs to date................................... $ 54,494 $ 57,601
Plus prepaid commissions to date........................... 28,468 39,140
Less cash collected to date................................ (198,033) (300,044)
------------ ----------
Net contracts in progress.............................. $ (115,071) $ (203,303)
------------ ----------
------------ ----------
</TABLE>
Included in the accompanying balance sheet under the following caption:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
FOR THE JANUARY 1, 1998
YEAR ENDED THROUGH
DECEMBER 31, JULY 9,
1997 1998
------------ ------------------
<S> <C> <C>
Billings in excess of costs and prepaid commissions on
contracts in progress.................................... $ (115,071) $ (203,303)
------------ ----------
------------ ----------
</TABLE>
NOTE 4--LINES OF CREDIT
The Company had available a $25,000 line of credit bearing interest at
9.75%. Any borrowings are collateralized by substantially all assets of the
Company and are personally guaranteed by the shareholders of the Company.
Outstanding borrowings as of December 31, 1997 and July 9, 1998 were $23,525 for
both periods.
F-88
<PAGE>
AMERICAN HOME REMODELING
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND JULY 9, 1998
NOTE 4--LINES OF CREDIT (CONTINUED)
The Company also had available a $100,000 line of credit, bearing interest
at 10%. Any borrowings are collateralized by substantially all the assets of the
Company and are personally guaranteed by the shareholders of the Company.
Outstanding borrowings as of July 9, 1998 were $98,000.
NOTE 5--COMMITMENTS AND CONTINGENCIES
LEASES
The Company has entered into an operating lease agreement for its facility.
The lease is terminable in 1999. The minimum rental commitment under this lease
agreement at December 31, 1997 is $48,450.
Management intends to extend the lease upon termination of the original
agreement.
Rent expense was approximately $56,060 and $28,638 for the year ended
December 31, 1997 and for the period from January 1, 1998 through July 9, 1998.
NOTE 6--RELATED PARTY TRANSACTIONS
During the year ended December 31, 1997, the Company had two notes payable
aggregating $153,560 due to related party, bearing interest at 0% and 10%. Both
notes have no stated due date. Balances due aggregated to $113,893 at July 9,
1998.
At December 31, 1997, the Company maintained two draw accounts receivable
aggregating to $110,832 from officers of the Company. The amounts are payable on
demand and bear no interest. During the period from January 1, 1998 through July
9, 1998, the Company distributed the accounts in the form of distributions to
shareholders.
NOTE 7--SUBSEQUENT EVENTS
On July 9, 1998, 100% of the Company's common stock was acquired by
ThermoView Industries, Inc.
F-89
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Five Star Builders, Inc.
We have audited the accompanying balance sheets of Five Star Builders, Inc.
as of December 31, 1996 and 1997 and July 13, 1998, and the related statements
of operations, shareholders' equity, and cash flows for each of the two years in
the period ended December 31, 1997 and the period from January 1, 1998 through
July 13, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Five Star Builders, Inc. as
of December 31, 1996 and 1997 and July 13, 1998, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1997 and the period from January 1, 1998 through July 13, 1998 in
conformity with generally accepted accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
December 30, 1998
F-90
<PAGE>
FIVE STAR BUILDERS, INC.
BALANCE SHEETS
DECEMBER 31, 1996, DECEMBER 31, 1997 AND JULY 13, 1998
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JULY 13,
1996 1997 1998
--------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................................................... $ 98,087 $ 424,422 $ 74,963
Costs and prepaid commissions on contracts in progress in excess of
billings................................................................... 17,186 18,565 40,287
Accounts receivable, net of allowance for doubtful accounts of $12,363,
$13,877, and $14,328....................................................... 296,702 283,655 240,694
Other receivables............................................................ 33,936 16,190 21,836
Prepaid assets............................................................... 10,304 3,385 24,133
Deferred tax asset........................................................... -- -- 3,768
Income tax receivable........................................................ -- -- 183,812
--------- ----------- ---------
Total current assets....................................................... 456,215 746,217 589,493
Furniture and equipment
Furniture and fixtures....................................................... 73,096 71,744 81,247
Equipment.................................................................... 226,467 311,500 331,490
Leasehold improvements....................................................... 2,146 2,146 25,774
--------- ----------- ---------
301,709 385,390 438,511
Less accumulated depreciation................................................ 66,224 108,070 153,753
--------- ----------- ---------
Total furniture and equipment.............................................. 235,485 277,320 284,758
Other assets
Deposits..................................................................... 5,252 5,252 11,894
--------- ----------- ---------
Total assets............................................................... $ 696,952 $ 1,028,789 $ 886,145
--------- ----------- ---------
--------- ----------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable............................................................. $ 119,954 $ 57,964 $ 90,725
Accrued liabilities:
Payroll and related........................................................ 85,275 129,010 186,254
Warranty................................................................... -- 40,865 48,664
Income taxes payable......................................................... 136,815 247,851 197,504
Deferred taxes............................................................... 5,282 4,977 --
Current portion of capital lease obligation.................................. 61,437 96,959 75,010
Accrued legal settlement..................................................... -- -- 142,000
--------- ----------- ---------
Total current liabilities.................................................. 408,763 577,626 740,157
Capital lease obligation, net of current portion............................... 28,535 26,301 --
--------- ----------- ---------
Total liabilities.......................................................... 437,298 603,927 740,157
--------- ----------- ---------
Commitments and contingencies
Shareholders' equity
Common stock, no par value
1,000 shares authorized 450,900 and 900 shares issued and outstanding...... 11,250 41,250 41,250
Subscriptions receivable..................................................... -- (30,000) (30,000)
Retained earnings............................................................ 248,404 413,612 134,738
--------- ----------- ---------
Total shareholders' equity................................................. 259,654 424,862 145,988
--------- ----------- ---------
Total liabilities and shareholders' equity............................... $ 696,952 $ 1,028,789 $ 886,145
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-91
<PAGE>
FIVE STAR BUILDERS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1997 AND
FOR THE PERIOD FROM JANUARY 1, 1998 THROUGH JULY 13, 1998
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE YEARS ENDED JANUARY 1,
DECEMBER 31, 1998 THROUGH
-------------------------- JULY 13,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Contract revenues....................................................... $ 6,171,891 $ 8,278,494 $3,349,814
Contract costs.......................................................... 2,098,147 2,333,756 992,461
------------ ------------ ------------
Gross profit............................................................ 4,073,744 5,944,738 2,357,353
------------ ------------ ------------
Operating expenses
Advertising........................................................... 12,516 197,728 38,076
Selling............................................................... 1,516,695 1,309,519 1,087,700
General and administrative............................................ 2,187,962 4,108,730 1,500,346
Legal settlement...................................................... -- -- 202,000
------------ ------------ ------------
Total operating expenses............................................ 3,717,173 5,615,977 2,828,122
------------ ------------ ------------
Income (loss) from operations........................................... 356,571 328,761 (470,769)
------------ ------------ ------------
Other income (expense)
Interest income....................................................... 1,455 8,031 8,038
Interest expense...................................................... (7,672) (21,531) (8,700)
Loss on sale of assets................................................ -- (15,623) --
------------ ------------ ------------
Total other income (expense)........................................ (6,217) (29,123) (662)
------------ ------------ ------------
Income (loss) before provision for (benefit from) income taxes.......... 350,354 299,638 (471,431)
Provision for (benefit from) income taxes............................... 150,346 134,430 (192,557)
------------ ------------ ------------
Net income (loss)................................................... $ 200,008 $ 165,208 $ (278,874)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-92
<PAGE>
FIVE STAR BUILDERS, INC.
STATEMENTS OF SHAREHOLDLERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1997 AND
FOR THE PERIOD FROM JANUARY 1, 1998 THROUGH JULY 13, 1998
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- SUBSCRIPTIONS RETAINED
SHARES AMOUNT RECEIVABLE EARNINGS TOTAL
----------- --------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995........................... 450 $ 11,250 $ -- $ 48,396 $ 59,646
Net income........................................... 200,008 200,008
--- --------- ------------ ----------- -----------
Balance, December 31, 1996........................... 450 11,250 248,404 259,654
Issuance of common stock for subscriptions........... 450 30,000 (30,000) --
Net income........................................... 165,208 165,208
--- --------- ------------ ----------- -----------
Balance, December 31, 1997........................... 900 41,250 (30,000) 413,612 424,862
Net loss............................................. (278,874) (278,874)
--- --------- ------------ ----------- -----------
Balance, July 13, 1998............................... 900 $ 41,250 $ (30,000) $ 134,738 $ 145,988
--- --------- ------------ ----------- -----------
--- --------- ------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-93
<PAGE>
FIVE STAR BUILDERS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1997 AND
FOR THE PERIOD FROM JANUARY 1, 1998 THROUGH JULY 13, 1998
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1,
FOR THE YEARS ENDED 1998
DECEMBER 31, THROUGH
----------------------- JULY 13,
1996 1997 1998
------------ --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)........................................................ $ 200,008 $ 165,208 $(278,874)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities
Depreciation and amortization.......................................... 10,351 68,749 45,682
Deferred taxes......................................................... 12,731 (305) (8,745)
Allowance for doubtful accounts........................................ 8,175 1,514 451
Loss on sale of assets................................................. -- 15,623 --
(Increase) decrease in Costs and prepaid commissions in excess of
billings............................................................... (32,764) (1,279) (21,722)
Accounts receivable...................................................... (204,364) 11,433 42,510
Prepaid expenses and other current assets................................ (6,624) 6,919 (20,748)
Other receivables........................................................ (18,916) 17,746 (5,646)
Deposits and other long-term assets...................................... (4,152) -- (6,642)
Income taxes receivable.................................................. -- -- (183,812)
Increase (decrease) in Accounts payable.................................... 96,812 (61,991) 32,761
Accrued income taxes..................................................... 136,815 111,036 (50,347)
Other accrued liabilities................................................ 65,949 84,600 65,045
Accrued legal settlement................................................. -- -- 142,000
------------ --------- -----------
Net cash provided by (used in) operating activities........................ 264,021 419,253 (248,087)
------------ --------- -----------
Cash flows from investing activities
Purchase of furniture and equipment...................................... (61,606) (31,481) (53,122)
------------ --------- -----------
Net cash used in investing activities...................................... (61,606) (31,481) (53,122)
------------ --------- -----------
Cash flows from financing activities
Principal payments on capital lease obligation........................... (17,132) (61,437) (48,250)
------------ --------- -----------
Net cash used in financing activities...................................... (17,132) (61,437) (48,250)
------------ --------- -----------
Net increase (decrease) in cash and cash equivalents....................... $ 185,283 $ 326,335 $(349,459)
Cash and cash equivalents (book overdraft), beginning of period............ (87,196) 98,087 424,422
------------ --------- -----------
Cash and cash equivalents, end of period................................... $ 98,087 $ 424,422 $ 74,963
------------ --------- -----------
------------ --------- -----------
Supplemental disclosures of cash flow information
Interest paid............................................................ $ 7,672 $ 21,531 $ 8,700
------------ --------- -----------
------------ --------- -----------
Income taxes paid........................................................ $ 800 $ 23,699 $ 51,147
------------ --------- -----------
------------ --------- -----------
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1997, the Company entered into capital
lease agreements for assets valued at $94,723.
During the year ended December 31, 1997, the Company issued 450 shares of
common stock to an officer of the Company in exchange for a subscription
agreement for $30,000.
During the year ended December 31, 1996, the Company entered into capital
lease agreements for assets valued at $107,104.
The accompanying notes are an integral part of these financial statements.
F-94
<PAGE>
FIVE STAR BUILDERS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, DECEMBER 31, 1997 AND JULY 13, 1998
NOTE 1--BUSINESS ACTIVITY
Five Star Builders, Inc. (the "Company") is a California corporation,
founded June 18, 1992. The Company's primary lines of business are retail
selling and installing state-of-the-art vinyl replacement windows for the
existing home market. The Company markets its products primarily through the use
of an extensive telemarketing effort. The Company retains independent
contractors for the installation of its products at the customer's site.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
METHOD OF ACCOUNTING FOR CONTRACTS
The accompanying financial statements have been prepared using the completed
contract method of accounting. Accordingly, revenue and costs of individual
contracts are included in operations in the year during which they are
completed. Losses expected to be incurred on contracts in progress are charged
to operations in the period such losses are determined. The aggregate of costs
in uncompleted contracts in excess of related billings is shown as an asset, and
the aggregate of billings on uncompleted contracts in excess of related costs is
shown as a liability.
Contract costs include all direct labor and benefits, materials unique to or
installed in the project, subcontract costs, and other direct installation
costs.
CASH AND CASH EQUIVALENTS
For the purpose of reporting cash flows, the Company considers cash on
deposit, cash on hand, and financial instruments purchased with an original
maturity of three months or less to be cash equivalents.
OTHER RECEIVABLES
Other receivables consist primarily of advances to employees. All amounts
are expected to be recovered, and as such, no allowance for uncollectible
amounts is deemed necessary.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain of the Company's financial instruments including cash and cash
equivalents, other receivables, accounts payable, and other accrued liabilities,
the carrying amounts approximate fair value due to their short maturities.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation and amortization
are generally provided using the straight-line method. The estimated useful
lives of the related assets are as follows:
<TABLE>
<S> <C>
Furniture and fixtures............... 3 to 5 years
Equipment............................ 3 to 5 years
Leasehold improvements............... shorter of length of lease or
estimated useful life
</TABLE>
F-95
<PAGE>
FIVE STAR BUILDERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND JULY 13, 1998
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
WARRANTIES
The Company provides the retail customer with a warranty covering
workmanship and manufacturing defects. The Company provides an accrual for
future warranty costs based upon the relationship of prior year's revenues to
estimated warranty costs. It is the Company's practice to classify the entire
warranty accrual as a current liability.
ADVERTISING EXPENSE
The Company accounts for advertising expenditures by charging to expense all
amounts as incurred.
INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences, and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
all or a portion of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RISK CONCENTRATIONS
The Company's customers are primarily homeowners located in Southern
California.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This statement requires companies to classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for financial statements issued
for fiscal years beginning after December 15, 1997. Management believes that
SFAS No. 130 will not have a material effect, if any, on the Company's financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." This statement establishes additional
standards for segment reporting in the financial statements and is effective for
fiscal years beginning after December 15, 1997. Management believes that SFAS
No. 131 will not have an effect on the Company's financial statements.
F-96
<PAGE>
FIVE STAR BUILDERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND JULY 13, 1998
NOTE 3--CASH AND CASH EQUIVALENTS
The Company maintains its cash balances at several financial institutions.
The balances are insured by the Federal Deposit Insurance Corporation up to
$100,000. As of December 31, 1997, the uninsured portions of the balances held
at the banks aggregated to $606,599.
NOTE 4--CONTRACTS IN PROGRESS
For the years ended December 31, 1996 and 1997 and for the period from
January 1, 1998 through July 13, 1998, contract amounts, accumulated costs, and
the related billings to date on completed contracts and contracts in progress
were as follows:
<TABLE>
<CAPTION>
CONTRACT CONTRACT
AMOUNTS COSTS
------------- -------------
<S> <C> <C>
Contracts in progress at December 31, 1995...................... $ 48,234 $ 3,337
Contracts initiated during the year............................. 6,429,352 2,118,946
Contracts completed during the year............................. (6,171,891) (2,098,147)
------------- -------------
Contracts in progress at December 31, 1996...................... 305,695 24,136
Contracts initiated during the year............................. 8,294,631 2,329,969
Contracts completed during the year............................. (8,278,494) (2,333,756)
------------- -------------
Contracts in progress at December 31, 1997...................... 321,832 20,349
Contracts initiated during the period........................... 3,220,937 1,008,682
Contracts completed during the period........................... (3,349,814) (992,461)
------------- -------------
Contracts in progress at July 13, 1998........................ $ 192,955 $ 36,570
------------- -------------
------------- -------------
</TABLE>
Contracts in progress:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1,
FOR THE YEARS ENDED 1998
DECEMBER 31, THROUGH
-------------------- JULY 13,
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
Cumulative costs to date.................................. $ 24,136 $ 20,349 $ 36,570
Less cash collected to date............................... (8,652) (7,990) (3,699)
Plus prepaid commissions on contracts in progress......... 1,702 6,206 7,416
--------- --------- -----------
Net contracts in progress............................. $ 17,186 $ 18,565 $ 40,287
--------- --------- -----------
--------- --------- -----------
</TABLE>
F-97
<PAGE>
FIVE STAR BUILDERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND JULY 13, 1998
NOTE 4--CONTRACTS IN PROGRESS (CONTINUED)
Included in the accompanying balance sheet under the following caption:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1,
FOR THE YEARS ENDED 1998
DECEMBER 31, THROUGH
-------------------- JULY 13,
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
Costs and prepaid commissions on contracts in progress in
excess of billings....................................... $ 17,186 $ 18,565 $ 40,287
--------- --------- -----------
--------- --------- -----------
</TABLE>
NOTE 5--COMMITMENTS AND CONTINGENCIES
LEASES
The Company has entered into various operating leases for facilities and
equipment. The Company also leases certain office and computer equipment under
non-cancelable, capital lease arrangements. Future minimum payments under
capital and operating leases with initial or remaining terms of one year or more
at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES LEASES
- ---------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
1998.................................................................. $ 43,020 $ 96,961
1999.................................................................. 36,156 39,587
2000.................................................................. 26,784 4,319
---------- ----------
$ 105,960 140,867
----------
----------
Less amount representing interest..................................... 17,607
----------
123,260
Less current portion.................................................. 96,959
----------
Long-term portion................................................... $ 26,301
----------
----------
</TABLE>
Assets capitalized under capital lease agreements at December 31, 1997 were
valued at $201,827.
On January 1, 1998 and March 1, 1998, the Company entered into operating
leases for office spaces which have a total future commitment of $265,107.
LITIGATION
During the period from January 1, 1998 through July 13, 1998, the Company
settled a lawsuit arising from the Company's construction and installation
activities. The settlement called for payments totaling $202,000 and required an
initial payment of $60,000 on June 12, 1998, $43,000 on September 1, 1998, and
three quarterly payments thereafter of $33,000 beginning on January 6, 1999.
In addition, the Company is involved in various other litigation in the
normal course of business. The outcome of such litigation is not expected to
have a material effect on the Company.
F-98
<PAGE>
FIVE STAR BUILDERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND JULY 13, 1998
NOTE 6--INCOME TAXES
Significant components of the provision for (benefit from) taxes based on
income for the years ended December 31, 1996 and 1997 and the period from
January 1, 1998 through July 13, 1998 are as follows:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1,
FOR THE YEARS ENDED 1998
DECEMBER 31, THROUGH
---------------------- JULY 13,
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Current
Federal............................................... $ 109,196 $ 106,846 $(145,639)
State................................................. 28,419 27,889 (38,173)
---------- ---------- -----------
137,615 134,735 (183,812)
---------- ---------- -----------
Deferred
Federal............................................... 2,320 (53) (6,716)
State................................................. 10,411 (252) (2,029)
---------- ---------- -----------
12,731 (305) (8,745)
---------- ---------- -----------
Provision for (benefit from) income taxes........... $ 150,346 $ 134,430 $(192,557)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
A reconciliation of the provision for income tax expense with the expected
income tax computed by applying the federal statutory income tax rate to income
before provision for (benefit from) income taxes for the years ended December 31
is as follows:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1,
FOR THE YEARS ENDED 1998
DECEMBER 31, THROUGH
------------------------ JULY 13,
1996 1997 1998
----------- ----------- -------------
<S> <C> <C> <C>
Income tax provision (benefit) computed at federal
statutory tax rate....................................... 34.0% 34.0% (34.0)%
State taxes, net of federal benefit........................ 6.0 6.0 (6.0 )
Permanent, differences, and other.......................... 3.0 5.0 (1.0 )
--- --- -----
Total.................................................... 43.0% 45.0% (41.0 )%
--- --- -----
--- --- -----
</TABLE>
F-99
<PAGE>
FIVE STAR BUILDERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, DECEMBER 31, 1997 AND JULY 13, 1998
NOTE 6--INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
for income taxes consist of the following:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1,
FOR THE YEARS ENDED 1998
DECEMBER 31, THROUGH
-------------------- JULY 13,
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
Deferred tax asset
Warranty reserve......................................... $ -- $ -- $ 19,529
--------- --------- -----------
Deferred tax liability
Contracts in process..................................... 5,282 4,977 15,761
--------- --------- -----------
Net deferred tax asset (liability)..................... $ (5,282) $ (4,977) $ 3,768
--------- --------- -----------
--------- --------- -----------
</TABLE>
The Company files its income tax returns on a fiscal year-end, not calendar
year-end basis. Deferred taxes are stated as if the Company filed its income tax
returns at December 31.
NOTE 7--RELATED PARTY TRANSACTIONS
During the year ended December 31, 1997, the Company issued an
interest-bearing note receivable for $30,000 in exchange for common stock to an
officer of the Company. The note was due at December 31, 1997 and was in default
at that date and at July 13, 1998.
NOTE 8--SUBSEQUENT EVENTS
On July 13, 1998, the Company entered into a three year employment agreement
with a former director and officer of the Company. The agreement calls for a
base yearly salary of $200,000, plus various incentives.
On July 13, 1998, 100% of the Company's common stock was acquired by
ThermoView Industries, Inc.
F-100
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
ThermoView Industries, Inc.
We have audited the accompanying balance sheet of NuView Industries, Inc. as
of July 21, 1998 and the related statements of operations and accumulated
deficit and cash flows for the period from January 1, 1998 through July 21,
1998. These financial statements are the responsibility of the NuView
Industries, Inc.'s management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NuView Industries, Inc. at
July 21, 1998 and the results of its operations and its cash flows for the
period from January 1, 1998 through July 21, 1998 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Louisville, Kentucky
January 15, 1999
F-101
<PAGE>
NUVIEW INDUSTRIES, INC.
BALANCE SHEET
JULY 21, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash........................................................................... $ 19,287
Accounts receivable............................................................ 10,162
Note receivable--stockholder................................................... 150,000
Inventories.................................................................... 26,593
Costs in excess of billings on uncompleted contracts........................... 2,080
Prepaid commissions............................................................ 29,389
---------
Total current assets............................................................. 237,511
Property and equipment, net...................................................... 44,127
Other assets..................................................................... 16,000
---------
Total assets..................................................................... $ 297,638
---------
---------
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
Accounts payable............................................................... $ 217,492
Accrued expenses............................................................... 137,030
Billings in excess of costs on uncompleted contracts........................... 73,260
Current portion of long-term debt.............................................. 8,155
---------
Total current liabilities........................................................ 435,937
Long-term debt, less current portion............................................. 15,015
Stockholder's deficiency:
Common stock, no par value; 30,000 shares authorized, 100 shares issued and
outstanding.................................................................. 500
Accumulated deficit............................................................ (153,814)
---------
Total stockholder's deficiency................................................... (153,314)
---------
Total liabilities and stockholder's deficiency................................... $ 297,638
---------
---------
</TABLE>
See accompanying notes.
F-102
<PAGE>
NUVIEW INDUSTRIES, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
PERIOD FROM JANUARY 1, 1998 THROUGH JULY 21, 1998
<TABLE>
<S> <C>
Contract revenue................................................................ $2,478,656
Cost of revenues earned......................................................... 964,341
---------
Gross profit.................................................................... 1,514,315
Selling, general and administrative expenses.................................... 1,529,889
Depreciation.................................................................... 6,957
---------
Loss from operations............................................................ (22,531)
Interest income, net............................................................ 1,610
---------
Net loss........................................................................ (20,921)
Accumulated deficit, beginning of period........................................ (132,893)
---------
Accumulated deficit, end of period.............................................. $(153,814)
---------
---------
</TABLE>
See accompanying notes.
F-103
<PAGE>
NUVIEW INDUSTRIES, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1, 1998 THROUGH JULY 21, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss......................................................................... $ (20,921)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation................................................................. 6,957
Changes in operating assets and liabilities:
Accounts receivable........................................................ 7,954
Inventories................................................................ (593)
Costs in excess of billings on uncompleted contracts....................... (5,486)
Prepaid commissions........................................................ (8,047)
Other assets............................................................... (16,000)
Accounts payable........................................................... 131,769
Accrued expenses........................................................... (33,612)
Billings in excess of costs on uncompleted contracts....................... 18,673
---------
Net cash provided by operating activities........................................ 80,694
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property and equipment.............................................. (27,268)
Advances to stockholder.......................................................... (137,744)
---------
Net cash used in investing activities............................................ (165,012)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in restricted cash...................................................... 50,000
Proceeds from notes payable...................................................... 15,071
Payments on notes payable........................................................ (12,761)
---------
Net cash provided by financing activities........................................ 52,310
---------
Net decrease in cash............................................................. (32,008)
Cash, beginning of period........................................................ 51,295
---------
Cash, end of period.............................................................. $ 19,287
---------
---------
</TABLE>
SEE ACCOMPANYING NOTES.
F-104
<PAGE>
NUVIEW INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 21, 1998
1. ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
NuView Industries, Inc. (NuView) sells and installs home improvement
products in the St. Louis Metropolitan area, with offices in St. Louis,
Missouri, and Decatur, Illinois. NuView has an exclusive territory and product
line from Precision Window Mfg., Inc. in the states of Missouri and Illinois.
NuView's principal product lines are Barricade thermal replacement windows,
Barricade steel entry and patio doors, Barricade vinyl siding and accessories.
The Company does not finance customer purchases. More than half of the total
business is financed through banks or finance companies.
Effective July 22, 1998, the Company was purchased by ThermoView Industries,
Inc. and changed its name to ThermoView of Missouri.
REVENUE RECOGNITION
The Company recognizes revenues on the completed-contract method. A contract
is considered complete when the customer accepts the work.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor and
supplies costs. General and administrative costs are charged to expense as
incurred. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined.
Costs in excess of amounts billed are classified under current assets as
costs in excess of billings on uncompleted contracts. Billings in excess of
costs are classified under current liabilities as billings in excess of costs on
uncompleted contracts.
INVENTORIES
Inventories are recorded at the lower of cost (weighted average basis) or
market. Inventories primarily consist of finished goods, parts and supplies.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for major renewals
and improvements which increase the useful lives of assets are capitalized.
Maintenance, repairs and minor renewals are expensed as incurred. Assets are
depreciated on accelerated methods over their estimated useful lives which
generally range from 5 to 7 years.
WARRANTIES
The Company provides the retail customer with a one year warranty covering
workmanship. The Company expenses warranty costs as incurred.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense was
approximately $58,000 for the period from January 1, 1998 through July 21, 1998.
F-105
<PAGE>
NUVIEW INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 21, 1998
1. ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company has elected to be taxed as an S corporation under the provisions
of Subchapter S of the Internal Revenue Code. Under those provisions, the
Company does not pay federal corporate income taxes on its taxable income.
Instead, the Company's taxable income or loss passes through to the stockholder.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
2. RELATED PARTY TRANSACTIONS
The Company entered into a $50,000 line of credit with Magna Bank late in
1997, for which the bank required collateral. A $50,000 certificate of deposit
was established as the collateral. When the line of credit was canceled in 1998,
the stockholder received the cash for the certificate of deposit as an advance.
3. PROPERTY AND EQUIPMENT
Property and equipment at July 21, 1998 consists of the following:
<TABLE>
<S> <C>
Furniture, fixtures and equipment................................. $ 10,878
Computer equipment................................................ 15,621
Automobiles....................................................... 29,879
---------
56,378
Less accumulated depreciation..................................... (12,251)
---------
$ 44,127
---------
---------
</TABLE>
4. UNCOMPLETED CONTRACTS
Costs and billings on uncompleted contracts at July 21, 1998 are as follows:
<TABLE>
<S> <C>
Costs incurred on uncompleted contracts........................... $ 17,512
Billings to date.................................................. (88,692)
---------
$ (71,180)
---------
---------
</TABLE>
F-106
<PAGE>
NUVIEW INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 21, 1998
4. UNCOMPLETED CONTRACTS (CONTINUED)
These amounts are included in the accompanying balance sheet under the
following captions:
<TABLE>
<S> <C>
Costs in excess of billings on uncompleted contracts.............. $ 2,080
Billings in excess of costs on uncompleted contracts.............. (73,260)
---------
$ (71,180)
---------
---------
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses as of July 21, 1998 consist of the following:
<TABLE>
<S> <C>
Wages............................................................. $ 61,105
Payroll taxes..................................................... 70,553
Other............................................................. 5,372
---------
$ 137,030
---------
---------
</TABLE>
6. LONG-TERM DEBT
Long-term debt at July 21, 1998 consists of the following:
<TABLE>
<S> <C>
Note payable to stockholder, interest at 10%, monthly principal and
interest payments of $400, due in June 2000...................... $ 8,682
Note payable to finance company, interest at 3.9%, principal and
interest payments of $339, due in May 2000....................... 14,488
---------
23,170
Less current portion............................................... 8,155
---------
$ 15,015
---------
---------
</TABLE>
Aggregate principal payments of long-term debt at July 21, 1998 are as
follows (on a calendar year basis):
<TABLE>
<S> <C>
1998............................................................... $ 3,533
1999............................................................... 7,873
2000............................................................... 6,489
2001............................................................... 3,940
2002............................................................... 1,335
---------
$ 23,170
---------
---------
</TABLE>
Substantially all of the Company's assets are pledged as collateral under
financing and various lease agreements.
F-107
<PAGE>
NUVIEW INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 21, 1998
7. COMMITMENTS AND CONTINGENCIES
The Company leases an office building from a previous stockholder and also
leases equipment and vehicles under noncancelable operating leases. There are no
future commitments associated with the lease for the office building, as the
agreement is on a month-to-month basis and requires monthly rents of $2,000.
Future minimum lease payments for other operating leases at July 21, 1998 are as
follows (on a calendar year basis):
<TABLE>
<S> <C>
1998............................................................... $ 33,305
1999............................................................... 25,071
---------
Total.............................................................. $ 58,376
---------
---------
</TABLE>
The Company incurred rental expense under noncancellable operating leases
amounting to approximately $44,000 for the period from January 1, 1998 through
July 21, 1998 (including $13,354 to the previous stockholder).
8. YEAR 2000 READINESS (UNAUDITED)
The Company has initiated an assessment of the possible impact of Year 2000
issues to assure they are prepared to effectively deal with transactions in the
Year 2000 and beyond. This "Year 2000 Problem" creates risk for the Company from
unforeseen sources in its own computer systems and from third parties with whom
the Company deals on financial transactions.
The Company intends to achieve uninterrupted, high quality performance from
its computer systems before, during and after the year 2000. The cost of
assessment and ultimate assurance as to readiness is being expensed as incurred.
Total incremental spending by the Company is not expected to be material to the
Company's operations, liquidity or capital resources.
In addition to taking every reasonable step to secure its internal systems
and external relationships, the Company is further developing contingency plans
to assure that unexpected failures will not adversely affect operations. The
Company intends to monitor these processes through the rollover of 1999 into
2000 and to implement quickly alternate solutions if necessary.
Despite the Company's efforts and contingency plans, non compliant computer
systems could have a material effect on operations and financial position.
F-108
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors
LEINGANG SIDING AND WINDOW, INC.
Mandan, North Dakota
I have audited the accompanying balance sheets of Leingang Siding and
Window, Inc., as of December 31, 1996 and 1997 and August 14, 1998, and the
related statements of income changes in retained earnings and cash flows for the
periods then ended. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform my audits 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.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Leingang Siding and Window,
Inc. as of December 31, 1996 and 1997 and August 14, 1998 and the results of its
operations and its cash flows for the periods then ended, in conformity with
generally accepted accounting principles.
Bismarck, North Dakota
January 15, 1999
F-109
<PAGE>
LEINGANG SIDING AND WINDOW, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997 AND AUGUST 14, 1998
<TABLE>
<CAPTION>
AUGUST 14,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash................................................................................ $ 18,276 $ 26,960 $ 170,766
Trade receivables, net of allowance for doubtful accounts of $15,000................ 402,992 618,978 483,459
Due from employees.................................................................. 35,724 40,647 19,428
Due from officer.................................................................... 86,177 96,177 68,505
Due from related company--Thermal Line Windows, L.L.P............................... -- -- 1,873
Notes receivable.................................................................... -- 20,376 44,035
Accrued interest receivable......................................................... -- -- 279
Accrued refunds receivable.......................................................... -- -- 19,776
Costs in excess of billings on uncompleted contracts................................ 178,206 67,231 36,618
Prepaid expenses.................................................................... -- -- 17,804
----------- ----------- -----------
Total current assets............................................................ 721,375 870,369 862,543
----------- ----------- -----------
Other Assets
Financing costs, net of amortization................................................ 7,785 7,108 6,685
Other investments................................................................... 1,000 1,000 1,000
----------- ----------- -----------
Total other assets.............................................................. 8,785 8,108 7,685
----------- ----------- -----------
Property and Equipment
Building Improvements............................................................... 32,942 37,663 41,524
Vehicles and equipment.............................................................. 228,882 276,276 258,291
Office equipment.................................................................... 131,955 160,437 182,205
----------- ----------- -----------
Total........................................................................... 393,779 474,376 482,020
Less--accumulated depreciation.................................................. 74,568 98,689 109,646
----------- ----------- -----------
Total property, plant and equipment............................................... 319,211 375,687 372,374
----------- ----------- -----------
Total assets...................................................................... $ 1,049,371 $ 1,254,164 $ 1,242,602
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable.................................................................... $ 117,260 $ 159,842 $ 90,281
Due to officer...................................................................... -- -- 813
Due to Thermal Line Windows, L.L.P.................................................. 152,190 26,326 148,185
10% Note payable to bank, secured by all accounts receivable, inventories,
equipment, general intangibles and personal guarantee of stockholders............. -- 30,000 --
Current maturity of note payable.................................................... 9,522 18,764 --
Accrued liabilities--
Wages............................................................................. 113,060 137,868 152,928
Workers Compensation.............................................................. 23,375 26,319 4,825
Payroll and local taxes........................................................... 20,212 10,322 10,359
Retirement plan................................................................... 4,334 15,965 2,784
Rent.............................................................................. -- -- 7,000
----------- ----------- -----------
Total current liabilities....................................................... 439,953 425,406 417,175
Long Term Debt
Note payable, net of current maturity included above................................ 27,792 49,576 --
----------- ----------- -----------
Total liabilities............................................................... 467,745 474,982 417,175
----------- ----------- -----------
Stockholder's Equity
Common stock, par value $4 per share--
Authorized 25,000 shares, issued and outstanding 24,408 shares...................... 97,632 97,632 97,632
Retained earnings................................................................... 483,994 681,550 727,795
----------- ----------- -----------
Total stockholder's equity...................................................... 581,626 779,182 825,427
----------- ----------- -----------
Total liabilities and equity.................................................... $ 1,049,371 $ 1,254,164 $ 1,242,602
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to financial statements.
F-110
<PAGE>
LEINGANG SIDING AND WINDOW, INC.
STATEMENTS OF INCOME
THE YEARS ENDED DECEMBER 31, 1996 AND 1997 AND
FOR THE PERIOD JANUARY 1, 1998 TO AUGUST 14, 1998
<TABLE>
<CAPTION>
AUGUST 14,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Sales................................................................... $ 4,204,405 $ 5,457,411 $ 3,379,359
------------ ------------ ------------
Direct Costs
Materials............................................................. 1,997,444 2,318,494 1,460,659
Labor and benefits.................................................... 944,229 1,273,830 879,817
------------ ------------ ------------
Total direct costs.................................................. 2,941,673 3,592,324 2,340,476
------------ ------------ ------------
Gross profit on sales............................................... 1,262,732 1,865,087 1,038,883
Operating Expense....................................................... 1,233,706 1,426,360 933,671
------------ ------------ ------------
Operating income...................................................... 29,026 438,727 105,212
------------ ------------ ------------
Other Income (Expense)
Interest expense...................................................... (5,578) (17,661) (12,902)
Gain (loss) on sale of equipment...................................... (4,977) (4,762) 719
Interest income....................................................... 5,620 4,763 2,567
Miscellaneous income.................................................. 8,976 11,489 6,649
------------ ------------ ------------
Total other income (expense)........................................ 4,041 (6,171) (2,967)
------------ ------------ ------------
Net Income.............................................................. $ 33,067 $ 432,556 $ 102,245
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to financial statements.
F-111
<PAGE>
LEINGANG SIDING AND WINDOW, INC.
STATEMENTS OF CHANGES IN RETAINED EARNINGS
THE YEARS ENDED DECEMBER 31, 1996 AND 1997 AND
FOR THE PERIOD JANUARY 1, 1998 TO AUGUST 14, 1998
<TABLE>
<CAPTION>
AUGUST 14,
1996 1997 1998
----------- ----------- ----------
<S> <C> <C> <C>
Balance, Beginning of Period............................................... $ 550,927 $ 483,994 $ 681,550
Distributions.............................................................. (100,000) (235,000) (56,000)
Net Income for the period.................................................. 33,067 432,556 102,245
----------- ----------- ----------
Balance, End of Period..................................................... $ 483,994 $ 681,550 $ 727,795
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
See notes to financial statements.
F-112
<PAGE>
LEINGANG SIDING AND WINDOW, INC.
STATEMENTS OF CASH FLOWS
THE YEARS ENDED DECEMBER 31, 1996 AND 1997 AND
FOR THE PERIOD JANUARY 1, 1998 TO AUGUST 14, 1998
<TABLE>
<CAPTION>
AUGUST 14,
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Operating Activities
Cash received from customers....................................... $ 4,253,747 $ 5,176,253 $ 3,538,914
Interest received.................................................. 5,620 4,763 2,288
Miscellaneous receipts............................................. 8,976 11,489 6,649
Interest expense................................................... (5,578) (17,661) (12,902)
Cash disbursements for costs and expenses.......................... (4,074,286) (4,842,495) (3,233,615)
------------- ------------- -------------
Total............................................................ 188,479 332,349 301,334
------------- ------------- -------------
Investing Activities
Purchase of equipment and improvements............................. (129,247) (143,147) (92,822)
Repayment of shareholder loan...................................... 10,215 (10,000) 96,990
Employee receivable collection..................................... 19,146 (4,923) 21,219
Proceeds on sale of equipment...................................... 9,550 28,756 63,589
Loans to customers................................................. -- (20,376) (23,659)
Advance to officer................................................. -- -- (68,505)
------------- ------------- -------------
Total............................................................ (90,336) (149,690) (3,188)
------------- ------------- -------------
Financing Activities
Short term borrowing............................................... -- 30,000 --
Repayment of short-term debt....................................... 20,000 65,000 (30,000)
Repayment of long-term debt........................................ (8,315) (33,975) (68,340)
Distributions to shareholder....................................... (100,000) (235,000) (56,000)
------------- ------------- -------------
Total............................................................ (88,315) (173,975) (154,340)
------------- ------------- -------------
Net Increase in Cash................................................. 9,828 8,684 143,806
Cash Balance, Beginning of Period.................................... 8,448 18,276 26,960
------------- ------------- -------------
Cash Balance, End of Period.......................................... $ 18,276 $ 26,960 $ 170,766
------------- ------------- -------------
------------- ------------- -------------
Reconciliation of Net Income to Cash Flows from Operating Activities
Net income for the period.......................................... $ 33,067 $ 432,556 $ 102,245
Reconciling items--
Depreciation and amortization.................................... 37,843 53,831 33,688
(Gain)/Loss on sale of equipment................................. 4,977 4,762 (719)
Changes in--
Trade receivable................................................. (402) (215,986) 133,646
Costs in excess of billings...................................... (175,805) 110,975 30,613
Prepaid expenses................................................. 6,795 -- (17,804)
Lease deposit.................................................... 1,000 -- --
Accrued interest receivable...................................... -- -- (279)
Accrued refunds receivable....................................... -- -- (19,776)
Accounts payable................................................. 167,538 43,145 52,298
Accrued liabilities.............................................. 82,686 29,493 (12,578)
Related company payables......................................... 30,780 (126,427) --
------------- ------------- -------------
Cash flows from operating activities............................... $ 188,479 $ 332,349 $ 301,334
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See notes to financial statements.
F-113
<PAGE>
LEINGANG SIDING AND WINDOW, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 AND AUGUST 14, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Nature of Business--
The Company is engaged in retail sales and installation of exterior
building products including siding, gutters, and windows, throughout
North and South Dakota.
b. Depreciation--
Property and equipment are stated at cost. It is the policy of the
company to provide depreciation based on the estimated useful lives of
the individual units. Depreciation is computed using the straight-line
method with estimated useful lives as follows:
<TABLE>
<S> <C>
Building improvements............................................ 25 years
5-10
Vehicles and equipment........................................... years
5-10
Office equipment................................................. years
</TABLE>
Depreciation expense for 1996 and 1997 were $37,166 and $53,154
respectively. Depreciation expense from January 1 to August 14, 1998 was
$33,265.
c. Revenue Recognition--
The Company requires a deposit from most customers prior to the start of
a project. Contracts and sales orders are recognized as income upon
completion of the project. All contracts are of a short-term nature. The
Company is on the accrual basis of accounting.
Contract costs include all direct material, subcontract, subsistence and
labor costs and those indirect costs related to contract performance,
such as payroll taxes, retirement and other employee benefits. General
and administrative costs are charged to expense as incurred.
d. Use of Estimates--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
e. Income Taxes--
The Company has elected to be taxed under the provisions of Subchapter S
of the Internal Revenue Code. Under those provisions, the Company does
not pay federal and state corporate income taxes on its taxable income.
Instead, the stockholder is liable for individual federal and state
income taxes on the Company's taxable income.
Accelerated depreciation is used for tax reporting, and straight line
depreciation is used for financial statement reporting.
f. Retirement Plan--
The Company adopted a defined contribution retirement plan covering all
employees who work 1,000 hours or more the first year and 500 hours per
year thereafter, who have been employed at least one year. The employees
may contribute up to 8% of their eligible compensation. The Company will
match 25% of the employees contribution but limited to 1% of
compensation. The Company may also make discretionary contributions to a
profit sharing plan from time to time.
F-114
<PAGE>
LEINGANG SIDING AND WINDOW, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND AUGUST 14, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Retirement plan $7,410 and $25,586 respectively for the years 1996 and
1997. Retirement plan expense through August 14, 1998 was $7,019.
g. Advertising Costs--
Advertising costs are expensed as incurred. Total advertising costs for
1996 and 1997 were $124,200 and $169,011 respectively. Advertising costs
for the period ended August 14, 1998 were $128,580.
2. LOAN GUARANTEE
a. The Company has guaranteed the loans of $1,338,957 of Mr. Alvin Leingang
who refinanced his mortgage note payable during 1993 to provide funds for
additional expansion of the plant for North Country Thermal Line, Inc., a
new building for Leingang Siding & Window, Inc., for additional equipment
and working capital. One loan of $957,051 is 70% guaranteed by the U.S.
Small Business Administration (SBA). The mortgage notes of Mr. Al
Leingang are payable in monthly installments of $13,119 beginning January
1, 1994, with a final maturity date of December 1, 2008. Interest is
computed 2% over New York National Prime and will be adjusted annually.
The present stated interest rate is 10.25%. However, $420,000 of the loan
is being subsidized by the P.A.C.E. program administered by the Bank of
North Dakota and the Mandan Growth Fund whereby the net interest rate to
the Al Leingang Rental proprietorship is 1%. The related companies must
demonstrate that there is one job created for every $75,000 of total
borrowing. The collateral for this loan is all land, buildings,
equipment, inventory, accounts receivable and contract rights of Leingang
Siding & Window, Inc., North Country Thermal Line, Inc., and Alvin
Leingang. The loan is also guaranteed by these same entities. In
addition, life insurance on Alvin Leingang of $1,000,000 is assigned to
the bank. The loan agreements provide, among other things, the following:
1) No dividends or distributions may be made without the written consent
of the lender or SBA.
2) Salary and/or draw shall be limited to $125,000 per year from the
corporations, plus income tax due on corporate and proprietorship
income.
3) Capital purchases are limited to $50,000 per year without prior
approval of lender or SBA.
4) The companies must provide insurance coverage for fire, flood and
extended coverage equal to the face amount of the loan.
5) No additional debt may be acquired without prior approval from the
bank.
6) Minimum cash flows must be $250,000 on an annual basis.
7) The revolving line of credit must have no outstanding balance for at
least 30 days per year.
The proprietorship and companies are in compliance with all the terms of
the loan agreements.
b. The Company has also guaranteed three installment loans to employees and
subcontractor with an outstanding balances of $16,526.
F-115
<PAGE>
LEINGANG SIDING AND WINDOW, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND AUGUST 14, 1998
3. LINE OF CREDIT
The Company has a working capital line of credit of $200,000 from Norwest
Bank of which none is being used at August 14, 1998. As of December 31, 1997,
$30,000 of the line of credit was being used. The present rate is 9.75%. The
line of credit loan must be zero for at least 30 days on an annual basis. The
loan is subject to other loan provisions described in Note 2.
4. LEASES
a. The Company leased its Mandan plant and major equipment items from the
major stockholder on an operating lease dated January 1, 1997, for a
three year period at $7,150 per month. All operating costs including
taxes, insurance, repairs, maintenance, etc., shall be borne by the
lessee. On August 14, 1998, the original lease was amended and the per
month rent was changed to $5,557 per month. The lease may be renewed for
two additional terms of five years each, at $5,557 per month.
b. The Company leases its Minot building from the major stockholder on an
operating lease dated August 16, 1995 for a five year period beginning
February 1, 1996, at $2,000 per month. The lease may be renewed for two
additional terms, the first for three years at $2,200 per month and the
second for five years.
c. Minimum lease payments for future years are as follows:
<TABLE>
<CAPTION>
BISMARCK MINOT
LEASE LEASE TOTAL
----------- --------- ----------
<S> <C> <C> <C>
Through August 14, 1999..................................... $ 67,481 $ 24,000 $ 91,481
Through August 14, 2000..................................... 25,006 24,000 49,006
Through August 14, 2001..................................... -- 11,000 11,000
Later years................................................. -- -- --
----------- --------- ----------
$ 92,487 $ 59,000 $ 151,487
----------- --------- ----------
----------- --------- ----------
</TABLE>
d. Total rent expense for 1996 and 1997 was $123,535 and $118,790
respectively, including short-term rentals. Total rent expense through
August 14, 1998 was $75,552, including short term rentals.
F-116
<PAGE>
LEINGANG SIDING AND WINDOW, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND AUGUST 14, 1998
5. RELATED PARTY TRANSACTIONS
This Company is related to other Companies through common ownership. Mr. Al
Leingang is a 50% owner in Thermal Line Windows, L.L.P. and the majority owner
in all other companies. Intercompany transactions are as follows:
<TABLE>
<CAPTION>
JANUARY 1,
1998-- AUGUST
1996 1997 14, 1998
---------- ---------- ----------------
<S> <C> <C> <C>
Purchase from--
Thermal Line Windows, LLP........................ $ 785,340 $ 821,979 $ 574,229
Homeworks Supply, Inc............................ 289,347 -- --
Sales to Thermal Line Windows, L.L.P............... 9,567 -- --
Due to stockholder................................. -- -- 813
Due from stockholder............................... 86,177 96,177 68,505
Due to Thermal Line Windows, LLP................... 152,190 26,326 148,185
Due from Thermal Line Windows, LLP................. -- -- 1,873
</TABLE>
The Company also leases its plant and equipment from the major shareholder
as described in Note 4. See note 2 for loan guarantee for major shareholder.
6. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivables. Concentrations
of credit risk is limited due to the large number of customers comprising the
Company's customer base, primarily located in the upper mid-west. The Company
generally does not require collateral, but has the ability to secure mechanic
liens if needed.
As of August 14, 1998 the Company had on deposit $68,678 in excess of FDIC
insured limits in one bank.
7. SALE OF COMPANY
The Company's stockholder interest was sold to ThermoView Industries, Inc.,
as of the close of business on August 14, 1998, and consequently will be an
operating subsidiary thereof.
8. CASH EQUIVALENTS
For purpose of the statement of cash flows, the company considers all highly
liquid investments purchased with a maturity of three months or less to be cash
equivalents.
F-117
<PAGE>
LEINGANG SIDING AND WINDOW, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND AUGUST 14, 1998
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
AUGUST 14,
1996 1997 1998
--------- --------- -------------
<S> <C> <C> <C>
9.75% Note payable, due in installments of $1,650, including interest, to June
2001, secured by seamless siding equipment.................................... $ -- $ 57,019 $ --
9.14% Note payable, due in installments of $499, including interest to January
2000, secured by vehicle...................................................... 16,039 11,321 --
7.9% Note payable, due in installments of $526, including interest, to December
2000, secured by vehicle...................................................... 21,275 -- --
--------- --------- -----
Total notes payable........................................................... 37,314 68,340 --
Less--current maturity.......................................................... 9,522 18,764 --
--------- --------- -----
Net long-term debt............................................................ $ 27,792 $ 49,576 $ --
--------- --------- -----
--------- --------- -----
</TABLE>
During 1998, prior to August 14, 1998, all notes payable had been paid off.
10. YEAR 2000 ISSUE (UNAUDITED)
The Company has made an assessment of its year 2000 issues. Most of the
hardware has been replaced or upgraded to become 2000 complaint. New software
has been acquired or developed to become 2000 compliant. The Company is in the
process of getting assurances from third party vendors and major customers that
there will be no adverse consequences to the Company. Alternate contingency
plans are being developed in the event of a failure.
F-118
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Joint Management Committee
Thermal Line Windows, L.L.P.
Mandan, North Dakota
I have audited the accompanying balance sheets of Thermal Line Windows,
L.L.P., as of December 31, 1996 and 1997 and August 14, 1998, and the related
statements of income, partnership equity and cash flows for the periods then
ended. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform my audits 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.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Thermal Line Windows, L.L.P. as
of December 31, 1996 and 1997 and August 14, 1998 and the results of its
operations and its cash flows for the periods then ended, in conformity with
generally accepted accounting principles.
Bismarck, North Dakota
January 11, 1999
F-119
<PAGE>
THERMAL LINE WINDOWS, L.L.P.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997 AND AUGUST 14, 1998
<TABLE>
<CAPTION>
AUGUST 14,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash.................................................................. $ 36,384 $ 91,753 $ 121,675
Money market account.................................................. -- 502,608 10,482
Trade receivables, net of allowance for doubtful accounts of $5,000 in
1996, $20,000 in 1997 and $22,000 in 1998........................... 663,830 708,202 664,708
Current maturity of note receivable................................... -- 1,200 3,705
Due from related companies--
Leingang Siding and Window, Inc..................................... 152,190 26,326 148,185
Complast, Inc....................................................... -- -- 1,100
Hoyt Home Improvement, Inc.......................................... 14,596 79,659 158
Due from officer...................................................... 100,000 -- --
Inventories........................................................... 884,877 625,501 1,127,209
Refundable lease deposit.............................................. -- 58,320 --
Prepaid expenses...................................................... -- 14,203 30,947
------------ ------------ ------------
Total current assets.............................................. 1,851,877 2,107,772 2,108,169
------------ ------------ ------------
Other Assets
Organization costs, net of amortization computed on a five year
straight line basis................................................. 39,588 29,688 23,500
Note receivable net of current maturity included above................ -- 2,100 9,451
Lease security deposit................................................ -- 2,750 3,260
------------ ------------ ------------
Total other assets................................................ 39,588 34,538 36,211
------------ ------------ ------------
Property, Plant and Equipment
Leasehold improvements................................................ 200,029 250,312 255,710
Equipment............................................................. 404,454 477,175 534,169
------------ ------------ ------------
Total............................................................. 604,483 727,487 789,879
Less--accumulated depreciation........................................ 43,942 100,138 142,194
------------ ------------ ------------
Total property, plant and equipment............................... 560,541 627,349 647,685
------------ ------------ ------------
Total assets...................................................... $ 2,452,006 $ 2,769,659 $ 2,792,065
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-120
<PAGE>
THERMAL LINE WINDOWS, L.L.P.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997 AND AUGUST 14, 1998
<TABLE>
<CAPTION>
AUGUST 14,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
LIABILITIES AND PARTNERSHIP EQUITY
Current Liabilities
Current maturities of long-term debt.................................. $ 90,558 $ 98,837 $ 105,573
Accounts payable...................................................... 133,273 148,229 370,692
Notes payable--line of credit......................................... -- -- 50,000
Customer deposits..................................................... 1,425 -- 11,018
Due to related companies--
Complast, Inc....................................................... -- -- 50,379
North Country Glass................................................. 8,915 -- 8,481
Leingang Siding and Window, Inc..................................... -- -- 1,873
Due to officer...................................................... 37,125 -- --
Accrued liabilities--
Compensation........................................................ 49,326 65,783 90,555
Payroll and local taxes............................................. 96,005 29,061 19,196
Retirement plan..................................................... -- 15,798 1,669
Interest............................................................ 3,696 3,054 --
Warranty and other.................................................. 11,171 11,094 7,875
Unearned income, current portion...................................... 6,588 6,600 6,600
------------ ------------ ------------
Total current liabilities......................................... 438,082 378,456 723,911
------------ ------------ ------------
Other Liabilities
Long-term debt, net of current maturities included above.............. 350,656 253,280 182,217
Unearned income....................................................... 21,412 14,800 10,675
------------ ------------ ------------
Total other liabilities........................................... 372,068 268,080 192,892
------------ ------------ ------------
Total liabilities................................................. 810,150 646,536 916,803
------------ ------------ ------------
Partnership Equity
Capital contribution.................................................. 900,000 900,000 900,000
Undistributed earnings................................................ 741,856 1,223,123 975,262
------------ ------------ ------------
Total partnership equity.......................................... 1,641,856 2,123,123 1,875,262
------------ ------------ ------------
Total liabilities and equity...................................... $ 2,452,006 $ 2,769,659 $ 2,792,065
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to financial statements.
F-121
<PAGE>
THERMAL LINE WINDOWS, L.L.P.
STATEMENTS OF INCOME
THE YEARS ENDED DECEMBER 31, 1996 AND 1997 AND
FOR THE PERIOD JANUARY 1, 1998 TO AUGUST 14, 1998
<TABLE>
<CAPTION>
AUGUST 14,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Sales................................................................... $ 6,954,920 $ 6,088,024 $ 3,668,394
------------ ------------ ------------
Direct Costs
Materials............................................................. 3,234,514 2,774,335 1,625,803
Labor and benefits.................................................... 1,117,749 986,594 740,377
Freight out........................................................... 350,393 312,073 172,551
------------ ------------ ------------
Total direct costs.................................................. 4,702,656 4,073,002 2,538,731
------------ ------------ ------------
Gross profit on sales............................................... 2,252,264 2,015,022 1,129,663
Operating Expense....................................................... 1,482,696 1,333,866 888,620
------------ ------------ ------------
Operating income...................................................... 769,568 681,156 241,043
Other Income (Expenses)
Miscellaneous......................................................... 14,658 6,500 10,738
Interest income....................................................... 13,773 12,654 14,381
Warranty income, net.................................................. 13,938 20,669 7,067
Interest expense...................................................... (70,081) (39,708) (20,132)
Loss on sale of equipment............................................. -- -- (958)
------------ ------------ ------------
Total other income (expense)........................................ (27,712) 115 11,096
------------ ------------ ------------
Net Income.............................................................. $ 741,856 $ 681,271 $ 252,139
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to financial statements.
F-122
<PAGE>
THERMAL LINE WINDOWS, L.L.P.
STATEMENTS OF PARTNERSHIP EQUITY
THE YEARS ENDED DECEMBER 31, 1996 AND 1997 AND
FOR THE PERIOD JANUARY 1, 1998 TO AUGUST 14, 1998
<TABLE>
<CAPTION>
BLIZZARD
ENTERPRISES,
ICE, INC. INC. TOTAL
------------ --------------- ------------
<S> <C> <C> <C>
Initial Capital Contribution........................................ $ 350,000 $ 350,000 $ 700,000
Subsequent Capital Contribution..................................... 100,000 100,000 200,000
Net Income for the Year 1996........................................ 370,928 370,928 741,856
------------ --------------- ------------
Balance, December 31, 1996.......................................... 820,928 820,928 1,641,856
Net Income for the Year 1997........................................ 340,633 340,634 681,267
Withdrawals......................................................... (100,000) (100,000) (200,000)
------------ --------------- ------------
Balance, December 31, 1997.......................................... 1,061,561 1,061,562 2,123,123
Net income January 1, 1998 to August 14, 1998....................... 126,070 126,069 252,139
Withdrawals......................................................... (250,000) (250,000) (500,000)
------------ --------------- ------------
Balance, August 14, 1998............................................ $ 937,631 $ 937,631 $ 1,875,262
------------ --------------- ------------
------------ --------------- ------------
</TABLE>
See notes to financial statements.
F-123
<PAGE>
THERMAL LINE WINDOWS, L.L.P.
STATEMENTS OF CASH FLOWS
THE YEARS ENDED DECEMBER 31, 1996 AND 1997 AND
FOR THE PERIOD JANUARY 1, 1998 TO AUGUST 14, 1998
<TABLE>
<CAPTION>
AUGUST 14,
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Operating Activities
Cash received from customers....................................... $ 6,199,526 $ 6,088,028 $ 3,667,592
Interest received.................................................. 13,773 12,654 14,381
Warranty income.................................................... 18,938 20,669 7,067
Miscellaneous receipts............................................. 14,658 6,500 10,738
Interest expense................................................... (38,384) (40,350) (23,186)
Cash disbursements for costs and expenses.......................... (6,759,370) (5,153,053) (3,616,887)
------------- ------------- -------------
Total.......................................................... (550,859) 934,448 59,705
------------- ------------- -------------
Investing Activities
Make leasehold improvements........................................ (200,029) (50,283) (5,398)
Purchase of equipment.............................................. (404,454) (72,721) (63,994)
Due from officer................................................... (100,000) 100,000 --
Lease deposit returned............................................. -- -- 58,320
Purchase organization costs........................................ (49,488) -- --
Proceeds from sale of fixed assets................................. -- -- 4,000
Make lease deposits................................................ -- (61,070) (510)
Advance to employees............................................... -- (3,300) --
------------- ------------- -------------
Total.......................................................... (753,971) (87,374) (7,582)
------------- ------------- -------------
Financing Activities
Capital contribution............................................... 900,000 -- --
Short-term borrowings.............................................. -- -- 50,000
Loan from bank..................................................... 500,000 -- --
Payments on note payable........................................... (58,786) (89,097) (64,327)
Partner withdrawals................................................ -- (200,000) (500,000)
------------- ------------- -------------
Total.......................................................... 1,341,214 (289,097) (514,327)
------------- ------------- -------------
Net Increase in Cash................................................. 36,384 557,977 (462,204)
Cash Balance, Beginning of Year...................................... -- 36,384 594,361
------------- ------------- -------------
Cash Balance, End of Period.......................................... $ 36,384 $ 594,361 $ 132,157
------------- ------------- -------------
------------- ------------- -------------
Cash consists of--
Cash............................................................... $ 36,384 $ 91,753 $ 121,675
Money market accounts.............................................. -- 502,608 10,482
------------- ------------- -------------
Total.......................................................... $ 36,384 $ 594,361 $ 132,157
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-124
<PAGE>
THERMAL LINE WINDOWS, L.L.P.
STATEMENTS OF CASH FLOWS (CONTINUED)
THE YEARS ENDED DECEMBER 31, 1996 AND 1997 AND
FOR THE PERIOD JANUARY 1, 1998 TO AUGUST 14, 1998
<TABLE>
<CAPTION>
AUGUST 14,
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Reconciliation of Net Income to Cash Flows from Operating Activities
Net income for the period.......................................... $ 741,856 $ 681,267 $ 252,139
Reconciling items--
Depreciation and amortization.................................... 53,842 66,096 50,286
Loss on sale of fixed assets..................................... -- -- 958
Changes in--
Trade receivables................................................ (663,830) (44,372) (105,949)
Related company receivable....................................... (166,786) 60,801 105,985
Inventories...................................................... (884,877) 259,376 (501,708)
Prepaid expenses................................................. -- (14,203) (16,744)
Accounts payable................................................. 133,273 14,956 283,196
Related company payables......................................... 46,040 (46,040) --
Note receivable.................................................. -- -- (9,856)
Customer deposits................................................ 1,425 (1,425) 11,018
Accrued liabilities.............................................. 160,198 (35,408) (5,495)
Unearned income.................................................. 28,000 (6,600) (4,125)
------------- ------------- -------------
Cash flows from operating activities............................... $ (550,859) $ 934,448 $ 59,705
------------- ------------- -------------
------------- ------------- -------------
Non-Cash Transactions
Contribution to capital in exchange for note receivable............ $ 100,000 $ -- $ --
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See notes to financial statements.
F-125
<PAGE>
THERMAL LINE WINDOWS, L.L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 AND AUGUST 14, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Nature of Business--
The Company, a Minnesota limited liability partnership, is engaged in the
manufacturing and distribution of all architectural styles of vinyl and
composite window systems. The manufacturing plant is in Mandan, North
Dakota with sales to customers primarily in the Midwest.
b. Inventories--
Inventories are valued at the lower of cost or market, on a first-in
first-out basis. Substantially all of the inventories are manufacturing
components.
c. Depreciation--
Property, plant and equipment are stated at cost. It is the policy of the
company to provide depreciation based on the estimated useful lives of
the individual units. Depreciation is computed using the straight-line
method with estimated useful lives as follows:
<TABLE>
<S> <C>
Leasehold improvements........................................... 25 years
5-10
Equipment........................................................ years
</TABLE>
Depreciation expenses for 1996 and 1997 were $43,942 and $56,195
respectively. Depreciation expense from January 1, through August 14, 1998
was $44,098.
d. Revenue Recognition--
The company is on the accrual basis of accounting.
e. Use of Estimates--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
f. Income Taxes--
Income tax policies are substantially the same for financial statement
purposes as they are for income tax purposes, with the following
exceptions. Overhead costs relating to inventory are added to inventory
for income tax purposes. The company uses accelerated methods and shorter
lives for depreciation for income tax purposes.
The Company is organized as a limited liability partnership and
consequently files a partnership return. All profits of the Company are
passed through to the partners who in turn pay taxes on these profits.
Therefore, no income tax provision is recorded in these financial
statements.
g. Retirement Plan--
The Company adopted a defined contribution retirement plan covering all
employees who work 1,000 hours or more the first year and 500 hours per
year thereafter, who have been employed at least one year. The employees
may contribute up to 8% of their eligible compensation. The Company will
match 25% of the employees contribution but limited to 1% of
compensation. The Company may also make discretionary contributions to a
profit sharing plan. Retirement plan expenses for 1996 and 1997 were
$10,438 and $23,898 respectively. Retirement plan expense from January 1,
through August 14, 1998 was $5,271.
F-126
<PAGE>
THERMAL LINE WINDOWS, L.L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND AUGUST 14, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
h. Advertising Costs--
Advertising costs are expensed as incurred. Advertising costs for 1996
and 1997 were $25,936 and $38,098 respectively. Total advertising costs
for the period ended August 14, 1998 were $35,927.
2. FORMATION OF PARTNERSHIP
The Company was formed on January 2, 1996 as a joint venture by Ice, Inc.
and Blizzard Enterprises, Inc. which companies are controlled by Al Leingang or
the Hoyt family respectively. The initial contribution of capital was as
follows:
<TABLE>
<S> <C> <C>
Ice, Inc........................ Inventory....................... $ 350,000
Blizzard........................ Cash............................ 350,000
</TABLE>
Subsequent contributions were as follows:
<TABLE>
<S> <C> <C>
Ice, Inc........................ Cash............................ 100,000
Blizzard........................ Note receivable................. 100,000
</TABLE>
The note receivable was paid by April 15, 1997.
The joint venture agreement stipulates the partnership shall terminate no
later than December 31, 2020. Minimum distributions will be equal to the income
tax liability generated by the partnership profits. The agreement also provides
that a partner's interest may not be transferred except under the provisions of
the agreement. In the event of death of Al Leingang or Steve Hoyt, the company
must redeem the interest of the decedent at appraised value without regard to
minority interest discount or readily marketable discount. The purchase price
shall be payable as follows:
a) The down payment shall be the greater of the life insurance proceeds
received (limited to purchase price) or 20% of the purchase price.
b) The remaining balance shall be payable in 5 equal annual installments
with interest at the lowest applicable AFR rate. The company carries a
$1,000,000 policy on each person to fund this potential liability.
3. LINE OF CREDIT
The Company has a working capital line of credit of $400,000 from Norwest
Bank, $50,000 of which is being used at August 14, 1998. The present interest
rate is 10.00%. The line of credit loan must be zero for at least 30 days on an
annual basis. The loan is subject to other loan provisions described in Note 4.
F-127
<PAGE>
THERMAL LINE WINDOWS, L.L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND AUGUST 14, 1998
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
AUGUST 14,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
10.00% Note payable to bank, due in monthly installments of $10,800,
including interest, to February 2001, secured by all assets of the company
and personal guarantees by Alvin Leingang and Steve Hoyt................... $ 441,214 $ 352,117 $ 287,790
Less--current maturities................................................. 90,558 98,837 105,573
---------- ---------- ----------
Total long-term debt................................................... $ 350,656 $ 253,280 $ 182,217
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Minimum principal payments required on long-term debt, assuming the current
interest rate, are as follows:
<TABLE>
<S> <C>
Through August 14, 1999........................................... $ 105,573
Through August 14, 2000........................................... 116,628
Through August 14, 2001........................................... 65,589
---------
$ 287,790
---------
---------
</TABLE>
The interest expense on the 10.00% note payable is being subsidized by the
Mandan Growth Fund. The interest subsidy was received in advance for a lump sum
total of $32,949. It is being carried in an unearned income account and is being
recognized as a reduction to interest expense over the life of the loan which is
5 years.
Total interest expense for 1996 and 1997 was $70,081 and $39,708
respectively. Total interest expense through August 14, 1998 was $20,132. The
company has all its financing through Norwest Bank--Mandan.
Financial covenants included in the loan agreement for the term loan and the
line of credit are as follows:
a. The company shall at all times have a minimum equity position of 40%,
not to include intangible assets.
b. The company must maintain a working capital level of $500,000 at all
times.
c. The company must achieve a pretax profitability level of $1,000,000
in 1998.
d. The company may not acquire capital assets in excess of $150,000 per
year without prior bank approval.
e. The company may not make any distributions of capital or assets to
the partners without prior consent of the bank, except to pay their
personal income tax liability resulting from the profits of the
company.
f. Annual compensation for Alvin Leingang shall not exceed $100,000 and
no compensation shall be paid to Steve Hoyt.
g. No additional debt may be acquired without prior approval from the
bank.
F-128
<PAGE>
THERMAL LINE WINDOWS, L.L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND AUGUST 14, 1998
4. LONG-TERM DEBT (CONTINUED)
The bank has waived the profitability covenant in 1997. In all other
respects, the Company is in compliance with the loan agreement.
5. LEASES
a. Buildings--
The Company leases its plant from a related party, Mr. Al Leingang, on an
operating lease dated January 2, 1996 for a five year period at $12,375
per month. All operating costs including taxes, insurance, repairs,
maintenance, utilities, etc., shall be borne by the lessee. The Company
has the option to renew the lease for two additional five year terms.
b. Equipment--
The Company leases major equipment items from a related party, North
Country Thermal Line, Inc. on an operating lease dated January 2, 1996
for a five year period at $7,876 per month. The Company has an option to
purchase the equipment at the end of the lease term for $60,216.
The Company also leases equipment from a related party, Mr. Al Leingang,
on an operating lease dated January 2, 1996 for a five year period at
$1,340 per month. The Company has an option to purchase the equipment at
the end of the lease term for $9,925.
The Company also leases equipment on two operating leases at $3,798 per
month for four and five years respectively with the final payment due in
December 2002. The Company has the option of purchase the equipment at
the end of the lease for 20% of the original cost.
Total rent expense for 1996 and 1997 was $302,881 and $266,789
respectively. Total rent expense through August 14, 1998 was $192,034. At
August 14, 1998, future minimum lease payments are as follows:
<TABLE>
<CAPTION>
BUILDING EQUIPMENT TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
Through August 14, 1999.................................. $ 148,500 $ 156,168 $ 304,668
Through August 14, 2000.................................. 148,500 156,168 304,668
Through August 14, 2001.................................. 55,688 87,048 142,736
Through August 14, 2002.................................. -- 34,576 34,576
Through August 14, 2003.................................. -- 10,792 10,792
---------- ----------- ----------
$ 352,688 $ 444,752 $ 797,440
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
F-129
<PAGE>
THERMAL LINE WINDOWS, L.L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND AUGUST 14, 1998
6. RELATED PARTY TRANSACTIONS
This Company is related to other Companies through common ownership. Mr. Al
Leingang or the Hoyt family are the majority shareholders in all companies.
Intercompany transactions are as follows:
<TABLE>
<CAPTION>
AUGUST 14,
1996 1997 1998
------------ ---------- ----------
<S> <C> <C> <C>
Sales to--
Complast, Inc........................................ $ -- $ -- $ 4,800
Leingang Siding and Windows, Inc..................... 785,340 821,978 574,229
Homeworks Supply, Inc................................ 20,832 -- --
Hoyt Home Improvement, Inc........................... 829,345 434,813 33,868
North Country Thermal Line, Inc...................... -- 2,705 3,102
Purchase from--
Complast, Inc........................................ 1,673,588 923,134 790,531
Leingang Siding and Windows, Inc..................... 9,567 -- --
Homeworks Supply, Inc................................ 13,190 -- --
North Country Thermal Line, Inc...................... -- 96,263 169,651
Due to--
Complast, Inc........................................ -- -- 50,379
Leingang Siding and Windows, Inc..................... -- -- 1,873
Al Leingang.......................................... 37,125 -- --
North Country Thermal Line, Inc...................... 8,915 -- 8,481
Due from--
Complast, Inc........................................ 14,596 -- 1,100
Leingang Siding and Window, Inc...................... 152,190 26,326 148,185
Hoyt Home Improvement, Inc........................... -- 79,659 158
Steven Hoyt.......................................... 100,000 -- --
</TABLE>
The Company has entered into several requirement purchase agreements whereby
the company will purchase all of its extrusion inventory from Complast, Inc. and
Leingang Siding and Window, and Hoyt Home Improvement will purchase all their
window requirements from Thermal Line Windows.
The Company also leases its plant and equipment from the major shareholder
as described in Note 5 above.
7. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivables. Concentrations
of credit risk are limited due to their dispersion across a large geographic
area. The Company has a concentration of credit risk in that the customer base
consists of construction companies installing windows and siding. The company
generally does not require collateral, but does have the ability to secure
mechanic liens if needed.
The Company's money market account is invested in Norwest Advantage Cash
Investment, which is not FDIC insured.
F-130
<PAGE>
THERMAL LINE WINDOWS, L.L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND AUGUST 14, 1998
8. CASH EQUIVALENTS
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less, to
be cash equivalents.
9. UNION AGREEMENT
The Company entered into a collective bargaining agreement on September 1,
1997. This agreement covers the Company's production employees and governs the
wages, working conditions and fringe benefits of the production work force. This
agreement covers approximately 56% of the total payroll costs of the Company.
10. MAJOR CUSTOMERS
In addition to those described in Note 5, the Company has one additional
major customer with sales over 10% of total sales. Sales to Gravina Siding &
Window were as follows.
<TABLE>
<S> <C>
Period ended August 14, 1998...................................... $ 533,996
Year ended December 31, 1997...................................... 947,490
Year ended December 31, 1996...................................... 757,507
</TABLE>
11. PRIOR PERIOD ADJUSTMENT
Net income, partnership equity and accrued warranty payable have been
restated by $5,000 for the year 1996 to provide for estimated future warranty
costs on the company's manufactured products.
12. SALE OF COMPANY
The Company's partnership interest was sold to ThermoView Industries, Inc.,
as of the close of business August 14, 1998, and consequently will be an
operating subsidiary thereof.
13. YEAR 2000 ISSUE (UNAUDITED)
The Company has made an assessment of its year 2000 issues. Most of the
hardware has been replaced or upgraded to become 2000 complaint. New software
has been acquired or developed to become 2000 compliant. The Company is in the
process of getting assurances from third party vendors and major customers that
there will be no adverse consequences to the Company. Alternate contingency
plans are being developed in the event of a failure.
F-131
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholder and Boards of Directors
Thomas Construction, Inc., Castle Associates, Inc.
and Showplace Home Improvements, Inc.
We have audited the accompanying combined balance sheets of Thomas
Construction, Inc., Castle Associates, Inc. and Showplace Home Improvements,
Inc. (together referred to herein as the "Company" or "Thomas Construction") as
of December 31, 1997 and 1998 and the related combined statements of income and
retained earnings and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Thomas
Construction at December 31, 1997 and 1998 and the combined results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Louisville, Kentucky
March 5, 1999
F-132
<PAGE>
THOMAS CONSTRUCTION
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................................ $ 421,387 $ 472,361
Accounts receivable, net of allowance for doubtful accounts of $58,954 in 1997 and
$40,957 in 1998................................................................... 568,891 849,075
Other receivables................................................................... 109,591 73,939
Due from stockholder and related companies.......................................... 132,258 46,177
Inventories......................................................................... 134,961 113,077
Costs in excess of billings on uncompleted contracts................................ 240,331 179,612
Prepaid commisions.................................................................. 149,144 200,551
Other current assets................................................................ 26,287 20,075
------------ ------------
Total current assets.................................................................. 1,782,850 1,954,867
Property and equipment, net........................................................... 215,850 190,498
Note receivable....................................................................... 9,776 --
Other assets.......................................................................... 18,406 500
------------ ------------
Total assets.......................................................................... $ 2,026,882 $ 2,145,865
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.................................................................... $ 818,320 $ 722,882
Accrued expenses.................................................................... 805,218 935,774
Billings in excess of costs on uncompleted contracts................................ 194,286 214,192
------------ ------------
Total current liabilities............................................................. 1,817,824 1,872,848
Stockholder's equity:
Thomas Construction, Inc.--
Common stock, $1.00 par value--30,000 shares authorized, 25,961 shares issued and
16,875 outstanding.............................................................. 25,961 25,961
Paid-in capital................................................................... 539 539
Treasury stock, at cost, 9,086 shares............................................. (20,000) (20,000)
Castle Associates, Inc.--
Common stock, $1.00 par value--30,000 shares authorized, 100 shares issued and
outstanding..................................................................... 100 100
Showplace Home Improvements, Inc.--
Common stock, $1.00 par value--30,000 shares authorized, 500 shares issued and 375
outstanding..................................................................... 500 500
Treasury stock, at cost, 125 shares............................................... (5,000) (5,000)
Retained earnings................................................................... 206,958 270,917
------------ ------------
Total stockholder's equity............................................................ 209,058 273,017
------------ ------------
Total liabilities and stockholder's equity............................................ $ 2,026,882 $ 2,145,865
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-133
<PAGE>
THOMAS CONSTRUCTION
COMBINED STATEMENTS OF INCOME
AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Contract revenue.................................................... $ 24,218,233 $ 26,493,224 $ 25,553,981
Cost of revenues earned............................................. 12,909,235 14,039,731 13,277,004
------------- ------------- -------------
Gross profit........................................................ 11,308,998 12,453,493 12,276,977
Selling, general and administrative expenses........................ 8,359,371 9,282,888 9,823,912
Depreciation........................................................ 103,518 95,890 89,489
------------- ------------- -------------
Income from operations.............................................. 2,846,109 3,074,715 2,363,576
Other income (expense):
Interest income................................................... 61,669 71,890 54,885
Rental income..................................................... -- 41,696 188,677
Gain (loss) on disposal of assets................................. 8,387 (234,669) (3,217)
Other............................................................. 16,724 10,107 31,842
------------- ------------- -------------
86,780 (110,976) 272,187
------------- ------------- -------------
Income before income taxes.......................................... 2,932,889 2,963,739 2,635,763
Provision for income taxes.......................................... 14,100 16,625 13,833
------------- ------------- -------------
Net income.......................................................... 2,918,789 2,947,114 2,621,930
Retained earnings, beginning of year................................ 733,393 809,162 206,958
Distributions to stockholder........................................ (2,843,020) (3,549,318) (2,557,971)
------------- ------------- -------------
Retained earnings, end of year...................................... $ 809,162 $ 206,958 $ 270,917
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes.
F-134
<PAGE>
THOMAS CONSTRUCTION
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................................... $ 2,918,789 $ 2,947,114 $ 2,621,930
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation....................................................... 103,518 95,890 89,489
(Gain) loss on disposal of assets.................................. (8,387) 234,669 3,217
Changes in operating assets and liabilities:
Accounts receivable.............................................. (342,745) 448,935 (280,184)
Other receivables................................................ 74,657 (58,494) 35,652
Due from stockholder and related companies....................... 64,733 (126,991) 86,081
Inventories...................................................... 432 (99,686) 21,884
Costs in excess of billings on uncompleted contracts............. (42,121) 38,145 60,719
Prepaid commissions.............................................. (55,054) 39,140 (51,407)
Other current assets............................................. 78,949 (16,794) 6,212
Other assets..................................................... -- (7,625) 27,682
Accounts payable................................................. 22,832 (39,589) (95,438)
Accrued expenses................................................. 239,926 131,733 130,556
Billings in excess of costs on uncompleted contracts............. 70,397 (37,296) 19,906
------------- ------------- -------------
Net cash provided by operating activities............................ 3,125,926 3,549,151 2,676,299
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property and equipment.................................. (60,492) (166,122) (76,048)
Proceeds from sale of assets......................................... 12,127 750 8,694
Net proceeds from note receivable-related party...................... 117,255 -- --
------------- ------------- -------------
Net cash provided by (used in) investing activities.................. 68,890 (165,372) (67,354)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to stockholder......................................... (2,843,020) (3,549,318) (2,557,971)
------------- ------------- -------------
Net cash used in financing activities................................ (2,843,020) (3,549,318) (2,557,971)
------------- ------------- -------------
Net increase (decrease) in cash...................................... 351,796 (165,539) 50,974
Cash, beginning of year.............................................. 235,130 586,926 421,387
------------- ------------- -------------
Cash, end of year.................................................... $ 586,926 $ 421,387 $ 472,361
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes.
F-135
<PAGE>
THOMAS CONSTRUCTION
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The combined financial statements include the accounts and transactions of
Thomas Construction, Inc. (Thomas), Castle Associates, Inc. (Castle) and
Showplace Home Improvements, Inc. (Showplace), together referred to herein as
"the Company". All material intercompany transactions and accounts have been
eliminated in the accompanying combined financial statements.
The accompanying financial statements are presented on a combined basis as
each of the combined companies is owned by the same stockholder and the Company
comprises one operating segment primarily engaged in the home improvement
business in the St. Louis Metropolitan area. More specifically, Thomas is
engaged in the installation of maintenance-free siding, thermal replacement
windows, storm windows and doors, patio enclosures, as well as several related
items, for residential customers to whom credit is extended. Thomas may avail
itself of mechanics liens on customers' property in the event of non-payment of
amounts receivable. Castle is engaged in the construction of patio enclosures,
decks and room additions, and Showplace is engaged in the remodeling of kitchens
and bathrooms for residential customers to whom credit is extended.
REVENUE RECOGNITION
The Company recognizes revenues on the completed-contract method. A contract
is considered complete upon installation.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor, supplies,
tools, repairs and depreciation costs. General and administrative costs are
charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined.
Costs in excess of amounts billed are classified under current assets as
costs in excess of billings on uncompleted contracts. Billings in excess of
costs are classified under current liabilities as billings in excess of costs on
uncompleted contracts.
INVENTORIES
Inventories are recorded at the lower of cost (moving average basis) or
market. Inventories primarily consist of parts and supplies.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for major renewals
and improvements which increase the useful lives of assets are capitalized.
Maintenance, repairs and minor renewals are expensed as incurred. Assets are
depreciated on straight-line or accelerated methods over their estimated useful
lives which generally range from three to seven years.
WARRANTIES
The Company provides the retail customer with a one year warranty covering
workmanship, with an additional nine year warranty on the installation of
siding, soffit and fascia. The Company provides an
F-136
<PAGE>
THOMAS CONSTRUCTION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. ACCOUNTING POLICIES (CONTINUED)
accrual for future warranty costs based upon the relationship of prior years'
revenues to actual warranty costs. It is the Company's practice to classify the
entire warranty accrual as a current liability.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense was
approximately $2,885,000, $2,798,000 and $2,877,000 in 1996, 1997 and 1998,
respectively.
INCOME TAXES
The companies comprising the Company have elected to be taxed as S
corporations under the provisions of Subchapter S of the Internal Revenue Code.
Under those provisions, the companies do not pay federal corporate income taxes
on their taxable income. Instead, the stockholder is liable for federal income
taxes on the companies' taxable income. Certain states in which the companies do
business do not recognize the federal S corporation rules and assess an income
tax at the corporate level. Accordingly, the provision for income taxes consists
only of state and local income taxes.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
2. RELATED PARTY TRANSACTIONS
All of the Company's assets are pledged as collateral for outstanding bank
debt of an affiliated company owned by the Company's stockholder. The balance
outstanding amounts to approximately $1,174,000 as of December 31, 1998.
In 1993, the Company sold land for a total contract price of $850,000 to an
affiliated company owned by the Company's stockholder. A mortgage loan of
$145,113 was assumed by the buyer and the Company obtained an unsecured note
from the buyer for $705,379 for the balance of the selling price. The gain on
the sale, which amounted to $618,822, was deferred for financial reporting
purposes since the gain had not been realized through transactions with
unrelated parties. During 1998, the note receivable balance was transferred to
the Company's stockholder and the note balance, net of the deferred gain, has
been accounted for as a distribution to the stockholder amounting to $9,776.
No interest was charged on the note receivable in 1998. Interest income was
$37,745 and $36,344 for the years ended December 31, 1996 and 1997,
respectively.
F-137
<PAGE>
THOMAS CONSTRUCTION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consists of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Furniture, fixtures and equipment................................... $ 163,872 $ 156,091
Construction and computer equipment................................. 349,631 413,058
Computer software................................................... 44,647 51,048
----------- -----------
558,150 620,197
Less accumulated depreciation....................................... (342,300) (429,699)
----------- -----------
$ 215,850 $ 190,498
----------- -----------
----------- -----------
</TABLE>
4. UNCOMPLETED CONTRACTS
Costs and billings on uncompleted contracts at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts............................... $ 341,604 $ 267,026
Billings to date...................................................... 295,559 301,606
---------- ----------
$ 46,045 $ (34,580)
---------- ----------
---------- ----------
</TABLE>
These amounts are included in the accompanying combined balance sheets under
the following captions:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Costs in excess of billings on uncompleted contracts................ $ 240,331 $ 179,612
Billings in excess of costs on uncompleted contracts................ (194,286) (214,192)
----------- -----------
$ 46,045 $ (34,580)
----------- -----------
----------- -----------
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses as of December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Wages................................................................. $ 454,484 $ 358,883
Payroll taxes......................................................... 44,198 22,224
401(k) contribution................................................... 64,111 73,237
Warranty.............................................................. 100,000 100,000
Insurance............................................................. 55,884 151,232
Other................................................................. 86,541 230,198
---------- ----------
$ 805,218 $ 935,774
---------- ----------
---------- ----------
</TABLE>
F-138
<PAGE>
THOMAS CONSTRUCTION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. LINE OF CREDIT
The Company has available a $100,000 revolving line of credit, all of which
is unused at December 31, 1998. Bank advances on the credit bear interest at
prime plus 1.5% (10% at December 31, 1998) and are collaterialized by
substantially all of the assets of the Company.
7. COMMITMENTS AND CONTINGENCIES
The Company leases an office building from its stockholder and also leases
equipment and vehicles from non-related parties under noncancelable operating
leases. Future minimum lease payments at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
RELATED
PARTY OTHER
LEASE LEASES
------------ ----------
<S> <C> <C>
1999............................................................... $ 449,587 $ 210,346
2000............................................................... 449,587 89,537
2001............................................................... 449,587 16,667
2002............................................................... 449,587 4,639
2003............................................................... 449,587 4,639
Thereafter......................................................... 4,495,870 4,639
------------ ----------
Total............................................................ $6,743,805 $ 330,467
------------ ----------
------------ ----------
</TABLE>
The Company incurred rental expense under noncancellable operating leases
amounting to approximately $315,000, $654,000 and $717,000 for the years ended
December 31, 1996, 1997 and 1998, respectively ($367,000 in 1997 and $450,000 in
1998 under the related party lease).
In 1997, the Company began subleasing a portion of the office building.
Rental income under the subleases was approximately $42,000 in 1997 and $189,000
in 1998. Future minimum lease payments to be received under the sublease
agreements at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 111,058
2000.............................................................. 72,794
2001.............................................................. 65,142
2002.............................................................. 65,142
2003.............................................................. 27,143
---------
Total........................................................... $ 341,279
---------
---------
</TABLE>
A related company uses vehicles which are leased by the Company from an
unrelated commercial lessor. The related company pays the monthly rentals on the
leases. Although the liability to the lessor is a direct obligation of the
Company, the related company is expected to pay the remaining rentals on the
leases. Future minimum lease payments required at December 31, 1998 for which
the Company is contingently liable amount to approximately $24,000.
In December 1998, the Company received correspondence asserting a claim
involving a former employee of an entity related to the Company through common
ownership. Management of the Company
F-139
<PAGE>
THOMAS CONSTRUCTION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
believes the claim against the Company is totally without merit and, as such,
will not have a material adverse effect on the Company's combined financial
position or results of operations.
8. EMPLOYEE BENEFIT PLAN
Effective January 1, 1995, the Company established a defined contribution
401(k) profit-sharing plan and trust for the benefit of all of its employees,
subject to certain age and service requirements. Plan participants may make
salary reduction contributions to the plan which are subject to Internal Revenue
Service contribution limitations. Company contributions to the plan are made
from the Company's current or accumulated earnings and are at the discretion of
Company management. Company contributions to the plan were approximately
$50,000, $64,000 and $73,000 for the years ended December 31, 1996, 1997 and
1998, respectively.
9. SUBSEQUENT EVENTS
Effective January 1, 1999, the Company was acquired by ThermoView
Industries, Inc. (ThermoView), for $11,095,000 in cash, 301,425 shares of common
stock of ThermoView at an estimated fair value of $1,500,000 and 400,000 shares
of Series B preferred stock of ThermoView at an estimated fair value of
$2,000,000. The acquisition agreement provides for additional consideration to
be paid if Thomas exceeds certain targeted levels of operating results.
10. YEAR 2000 READINESS (UNAUDITED)
The Company has initiated an assessment of the possible impact of Year 2000
issues to assure it is prepared to effectively deal with transactions in the
Year 2000 and beyond. This "Year 2000 Problem" creates risk for the Company from
unforeseen sources in its own computer systems and from third parties with whom
the Company deals on financial transactions.
The Company intends to achieve uninterrupted, high quality performance from
its computer systems before, during and after 2000. The Company has determined
that modifications are required for certain existing systems to become Year 2000
compliant. These system modifications are in the process of being implemented.
The cost of assessment and ultimate assurance as to readiness is being expensed
as incurred. Total incremental spending by the Company is not expected to be
significant to the Company's operations, liquidity or capital resources.
In addition to taking every reasonable step to secure its internal systems
and external relationships, the Company is further developing contingency plans
to assure that unexpected failures will not adversely affect operations. The
Company intends to monitor these procedures through the rollover of 1999 into
2000 and to implement quickly alternate solutions if necessary.
However, despite the Company's efforts and contingency plans, noncompliant
computer systems could have a material adverse effect on the Company's
operations, or its financial condition.
F-140
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Precision Window Mfg., Inc.
We have audited the accompanying balance sheets of Precision Window Mfg.,
Inc. as of December 31, 1996, 1997 and 1998 and the related statements of
operations and retained earnings and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Precision Window Mfg., Inc.
at December 31, 1996, 1997 and 1998 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
Louisville, Kentucky
May 21, 1999
F-141
<PAGE>
PRECISION WINDOW MFG., INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................................. $ 3,053 $ 3,003 $ 422
Accounts receivable................................................... 424,901 368,363 447,524
Notes receivable...................................................... 229,668 63,481 46,564
Income taxes receivable............................................... -- 94,816 --
Inventories........................................................... 307,095 389,419 455,038
Other current assets.................................................. 10,741 13,249 41,383
------------ ------------ ------------
Total current assets................................................ 975,458 932,331 990,931
Property and equipment, net............................................. 104,394 133,391 110,168
------------ ------------ ------------
Total assets...................................................... $ 1,079,852 $ 1,065,722 $ 1,101,099
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable--bank.................................................... $ 80,000 $ 229,000 $ 140,000
Accounts payable...................................................... 343,688 359,938 267,354
Accrued expenses...................................................... 71,437 87,980 100,100
Income taxes payable.................................................. 37,292 -- 125,097
Current portion of long-term debt..................................... 184,360 127,470 86,123
------------ ------------ ------------
Total current liabilities......................................... 716,777 804,388 718,674
Long-term debt.......................................................... 168,828 96,453 12,180
Stockholders' equity:
Class A common stock, no par value--
15,000 shares authorized, 152 shares issued and
outstanding......................................................... 152 152 152
Class B common stock, no par value--
15,000 shares authorized, 10,486 shares issued and outstanding...... 1,216 1,216 1,216
Retained earnings..................................................... 192,879 163,513 368,877
------------ ------------ ------------
Total stockholders' equity........................................ 194,247 164,881 370,245
------------ ------------ ------------
Total liabilities and stockholders' equity........................ $ 1,079,852 $ 1,065,722 $ 1,101,099
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-142
<PAGE>
PRECISION WINDOW MFG., INC.
STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Sales................................................................... $ 5,695,675 $ 6,431,708 $ 6,547,964
Cost of sales........................................................... 4,974,109 5,738,665 5,499,617
------------ ------------ ------------
Gross profit............................................................ 721,566 693,043 1,048,347
Selling, general and administrative expenses............................ 354,695 630,111 642,543
Depreciation and amortization........................................... 57,114 44,608 48,914
------------ ------------ ------------
Income from operations.................................................. 309,757 18,324 356,890
Other income (expense):
Interest expense...................................................... (41,911) (41,921) (27,196)
Other................................................................. (1,775) 1,415 2,413
------------ ------------ ------------
(43,686) (40,506) (24,783)
------------ ------------ ------------
Income (loss) before income taxes....................................... 266,071 (22,182) 332,107
Income tax expense...................................................... 101,292 7,184 126,743
------------ ------------ ------------
Net income (loss)....................................................... 164,779 (29,366) 205,364
Retained earnings, beginning of year.................................... 28,100 192,879 163,513
------------ ------------ ------------
Retained earnings, end of year.......................................... $ 192,879 $ 163,513 $ 368,877
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-143
<PAGE>
PRECISION WINDOW MFG., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).......................................................... $ 164,779 $ (29,366) $ 205,364
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization............................................ 57,114 44,608 48,914
Write-off of note receivable............................................. -- 130,680 --
Changes in operating assets and liabilities:
Accounts receivable...................................................... (242,546) 56,538 (79,161)
Income taxes receivable.................................................. 41,776 (94,816) 94,816
Inventories.............................................................. (123,049) (82,324) (94,079)
Other current assets..................................................... 2,425 (2,508) 326
Accounts payable......................................................... 242,548 16,250 (92,584)
Accrued expenses......................................................... (49,376) 16,543 12,120
Income taxes payable..................................................... 37,292 (37,292) 125,097
----------- ----------- -----------
Net cash provided by operating activities.................................. 130,963 18,313 220,813
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property and equipment........................................ (36,841) (73,604) (25,692)
Advances on notes receivable............................................... (100,000) -- --
Payments received on notes receivable...................................... 106,562 35,506 16,917
----------- ----------- -----------
Net cash used in investing activities...................................... (30,279) (38,098) (8,775)
FINANCING ACTIVITIES
Net activity on note payable--bank......................................... 40,000 149,000 (89,000)
Proceeds from long-term debt............................................... 105,550 51,238 1,850
Payments on long-term debt................................................. (250,521) (180,503) (127,469)
----------- ----------- -----------
Net cash provided by (used in) financing activities........................ (104,971) 19,735 (214,619)
----------- ----------- -----------
Net decrease in cash....................................................... (4,287) (50) (2,581)
Cash, beginning of year.................................................... 7,340 3,053 3,003
----------- ----------- -----------
Cash, end of year.......................................................... $ 3,053 $ 3,003 $ 422
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid (received) for:
Interest............................................................... $ 45,263 $ 37,663 $ 30,957
Income taxes........................................................... 85,095 139,292 (93,170)
</TABLE>
SEE ACCOMPANYING NOTES.
F-144
<PAGE>
PRECISION WINDOW MFG., INC.
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The Company is engaged in the manufacturing and distribution of all
architectural styles of vinyl and composite window systems. The manufacturing
plant is in St. Louis, Missouri with sales to customers in the remodeling
industry primarily in the Midwest to whom credit is extended.
REVENUE RECOGNITION
The Company recognizes revenues when products are shipped.
INVENTORIES
Inventories are recorded at the lower of cost (moving average basis) or
market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for major renewals
and improvements which increase the useful lives of assets are capitalized.
Maintenance, repairs and minor renewals are expensed as incurred. Assets are
depreciated on straight-line or accelerated methods over their estimated useful
lives which generally range from 5 to 7 years.
WARRANTIES
The Company provides its customers with various warranty programs on its
products. The Company provides an accrual for future warranty costs based upon
the relationship of prior years' revenues to actual warranty costs. It is the
Company's practice to classify the entire warranty accrual as a current
liability.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense was
approximately $60,000, $46,000 and $63,000 in 1996, 1997 and 1998, respectively.
INCOME TAXES
Income taxes are provided for under the liability method, which takes into
account differences between financial statement treatment and tax treatment of
certain transactions.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
F-145
<PAGE>
PRECISION WINDOW MFG., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVENTORIES
Inventories at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Raw materials............................................ $ 250,617 $ 298,315 $ 382,035
Work in process.......................................... 27,500 8,560 9,329
Finished goods........................................... 28,978 82,544 63,674
---------- ---------- ----------
$ 307,095 $ 389,419 $ 455,038
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consists of the following:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Furniture, fixtures and equipment........................ $ 486,896 $ 560,501 $ 586,192
Automobiles and trucks................................... 89,904 89,904 89,904
Leasehold improvements................................... 67,634 67,634 67,634
---------- ---------- ----------
644,434 718,039 743,730
Less accumulated depreciation and amortization........... 540,040 584,648 633,562
---------- ---------- ----------
$ 104,394 $ 133,391 $ 110,168
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses as of December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ----------
<S> <C> <C> <C>
Wages....................................................... $ 34,095 $ 41,247 $ 52,783
Warranty.................................................... 12,500 12,500 12,500
Sales taxes................................................. 23,732 24,263 29,717
Other....................................................... 1,110 9,970 5,100
--------- --------- ----------
$ 71,437 $ 87,980 $ 100,100
--------- --------- ----------
--------- --------- ----------
</TABLE>
5. LINE OF CREDIT
The Company has available a $300,000 line of credit of which $140,000 was
outstanding at December 31, 1998. Advances bear interest at 9.5% and are
collaterialized by accounts receivable and inventories. The line of credit was
repaid and terminated in connection with Company's acquisition discussed in Note
10.
F-146
<PAGE>
PRECISION WINDOW MFG., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ---------
<S> <C> <C> <C>
Note payable, interest at prime plus 1%, maturing in
October 1999, with monthly payments of principal of
$1,835................................................... $ -- $ 40,330 $ 18,310
Note payable related party, interest at 9.25%, maturing in
September 1999, with monthly principal and interest
payments of $5,000....................................... 145,230 100,861 43,355
Equipment notes payable, interest ranging from 11% to 17%,
maturing through July 2000, monthly principal and
interest payments of $2,283.............................. 58,970 54,329 36,638
Notes payable, interest ranging from 8.5% to 10%........... 148,988 28,403 --
---------- ---------- ---------
353,188 223,923 98,303
Less current portion....................................... 184,360 127,470 86,123
---------- ---------- ---------
$ 168,828 $ 96,453 $ 12,180
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
The following is a schedule by years of future maturities of long-term debt
as of December 31, 1998:
<TABLE>
<S> <C>
1999............................................................... $ 86,123
2000............................................................... 12,180
---------
Total.............................................................. $ 98,303
---------
---------
</TABLE>
7. INCOME TAXES
Significant components of income tax expense for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------- --------- ----------
<S> <C> <C> <C>
Current:
Federal................................................... $ 86,523 $ 6,360 $ 108,469
State..................................................... 14,769 824 18,274
---------- --------- ----------
$ 101,292 $ 7,184 $ 126,743
---------- --------- ----------
---------- --------- ----------
</TABLE>
Income tax expense differs from the amounts computed by applying the
statutory U.S. Federal income tax rate to income (loss) before income taxes
primarily as a result of state taxes and certain expenses not deductible for
income tax purposes.
F-147
<PAGE>
PRECISION WINDOW MFG., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. LEASE COMMITMENTS
The Company leases its manufacturing facility and certain equipment and
vehicles under noncancelable operating leases. Future minimum lease payments at
December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 108,008
2000.............................................................. 27,403
2001.............................................................. 1,705
---------
Total............................................................. $ 137,116
---------
---------
</TABLE>
The Company incurred rental expense under noncancelable operating leases
amounting to approximately $96,000, $151,000 and $160,000 in 1996, 1997 and
1998, respectively.
9. MAJOR CUSTOMERS
Approximately 88% of the Company's sales for each of the three years in the
period ended December 31, 1998 were from three customers. Accounts receivable
from these customers amounted to approximately $296,000, $106,000 and $232,000
at December 31, 1996, 1997 and 1998, respectively.
10. SUBSEQUENT EVENT
On January 5, 1999, the Company was acquired by ThermoView Industries, Inc.
(ThermoView) for $1,800,000 in cash, 112,053 shares of ThermoView common stock
at an estimated fair value of $450,000 and a seller note for $1,200,000. The
Company sells primarily to ThermoView's retail segment.
11. YEAR 2000 READINESS (UNAUDITED)
The Company has initiated an assessment of the possible impact of Year 2000
issues to assure it is prepared to effectively deal with transactions in the
Year 2000 and beyond. This "Year 2000 Problem" creates risk for the Company from
unforeseen sources in its own computer systems and from third parties with whom
the Company deals on financial transactions.
The Company intends to achieve uninterrupted, high quality performance from
its computer systems before, during and after 2000. The cost of assessment and
ultimate assurance as to readiness is being expensed as incurred. Total
incremental spending by the Company is not expected to be significant to the
Company's operations, liquidity or capital resources.
In addition to taking every reasonable step to secure its internal systems
and external relationships, the Company is further developing contingency plans
to assure that unexpected failures will not adversely affect operations. The
Company intends to monitor these processes through the rollover of 1999 into
2000 and to implement quickly alternate solutions if necessary.
However, despite the Company's efforts and contingency plans, noncompliant
computer systems could have a material adverse effect on the Company's
operations, or its financial condition.
F-148
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Boards of Directors
Thermo-Shield Company, Inc.
Thermo-Shield of America (Wisconsin), Inc.
Thermo-Shield of America (Michigan), Inc.
Thermo-Shield of America (Arizona), Inc.
We have audited the accompanying combined balance sheets of Thermo-Shield
Company, Inc., Thermo-Shield of America (Wisconsin), Inc., Thermo-Shield of
America (Michigan), Inc., and Thermo-Shield of America (Arizona), Inc. (together
referred to herein as the "Company" or "The Thermo-Shield Company") as of
December 31, 1996, 1997 and 1998 and the related combined statements of
operations and retained earnings and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of The
Thermo-Shield Company at December 31, 1996, 1997 and 1998 and the combined
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Louisville, Kentucky
May 21, 1999
F-149
<PAGE>
THE THERMO-SHIELD COMPANIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
1996 1997 1998
---------- ---------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash..................................................................... $ 192,263 $ 211,716 $ 231,166
Accounts receivable...................................................... 144,813 214,722 225,727
Employee receivables..................................................... 18,601 56,073 67,262
Due from related party................................................... 2,622 18,185 60,000
Costs in excess of billings on uncompleted contracts..................... 101,804 138,998 218,128
Deferred income taxes.................................................... 40,000 20,000 103,000
---------- ---------- ------------
Total current assets................................................. 500,103 659,694 905,283
Property and equipment:
Furniture, fixtures and equipment........................................ 116,643 164,135 176,823
Leasehold improvements................................................... 510 73,793 134,043
---------- ---------- ------------
117,153 237,928 310,866
Less accumulated depreciation and amortization........................... (70,456) (94,191) (135,442)
---------- ---------- ------------
Net property and equipment................................................. 46,697 143,737 175,424
Note receivable, related party............................................. 138,354 147,261 156,169
Other assets............................................................. 10,100 18,177 28,101
---------- ---------- ------------
Total assets......................................................... $ 695,254 $ 968,869 $ 1,264,977
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
F-150
<PAGE>
THE THERMO-SHIELD COMPANIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
1996 1997 1998
---------- ---------- ------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable......................................................... $ 223,307 $ 343,907 $ 577,420
Accrued wages............................................................ 42,279 95,995 136,527
Accrued payroll taxes.................................................... 18,886 6,381 18,962
Accrued income taxes..................................................... 122,564 168,696 173,407
Billings in excess of costs on uncompleted contracts..................... 87,123 58,722 120,323
Loans from related parties............................................... -- 197,000 54,500
---------- ---------- ------------
Total current liabilities............................................ 494,159 870,701 1,081,139
Deferred income taxes...................................................... -- 18,000 28,000
Stockholders' equity:
Thermo-Shield Company, Inc.
Common stock, no par value--50,000 shares authorized, 1,000 shares
issued and outstanding................................................. 1,000 1,000 1,000
Thermo-Shield of America (Wisconsin), Inc.
Common stock, $1.00 par value--9,000 shares authorized, 100 shares
issued and outstanding................................................. 100 100 100
Thermo-Shield of America (Michigan), Inc.
Common stock, no par value--60,000 shares authorized, 1000 shares
issued and outstanding................................................. -- 1,000 1,000
Thermo-Shield of America (Arizona), Inc.
Common stock, Class A voting, no par value--50,000 shares authorized,
3,000 shares issued and outstanding.................................... -- 3,000 3,000
Common stock, Class B non-voting, no par value--50,000 shares authorized,
none issued and outstanding............................................ -- -- --
Additional paid-in capital............................................... -- 5,000 5,000
Retained earnings (deficit).............................................. 199,995 70,068 145,738
---------- ---------- ------------
Total stockholders' equity........................................... 201,095 80,168 155,838
---------- ---------- ------------
Total liabilities and stockholders' equity........................... $ 695,254 $ 968,869 $ 1,264,977
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-151
<PAGE>
THE THERMO-SHIELD COMPANIES
COMBINED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------
1996 1997 1998
------------ ------------- -------------
<S> <C> <C> <C>
Contract revenues.................................................... $ 8,084,602 $ 12,394,611 $ 14,905,796
Cost of revenues earned.............................................. 3,885,275 5,708,579 6,669,722
------------ ------------- -------------
Gross profit......................................................... 4,199,327 6,686,032 8,236,074
Selling, general and administrative expenses......................... 3,773,163 6,572,619 8,004,876
Depreciation and amortization........................................ 12,750 23,735 41,251
------------ ------------- -------------
Income from operations............................................... 413,414 89,678 189,947
Other income:
Interest income.................................................... 8,592 10,099 15,662
Other.............................................................. -- 500 31,586
------------ ------------- -------------
8,592 10,599 47,248
------------ ------------- -------------
Income before income taxes........................................... 422,006 100,277 237,195
Income tax expense (benefit)......................................... 165,000 129,000 (63,000)
------------ ------------- -------------
Net income (loss).................................................... 257,006 (28,723) 300,195
Retained earnings, beginning of year................................. 61,998 199,995 70,068
Distributions to stockholders........................................ (119,009) (101,204) (224,525)
------------ ------------- -------------
Retained earnings, end of year....................................... $ 199,995 $ 70,068 $ 145,738
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-152
<PAGE>
THE THERMO-SHIELD COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).......................................................... $ 257,006 $ (28,723) $ 300,195
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization............................................ 12,750 23,735 41,251
Deferred income taxes.................................................... (6,000) 38,000 (73,000)
Changes in operating assets and liabilities:
Accounts receivable...................................................... (48,921) (69,909) (11,005)
Other receivables........................................................ (18,601) (37,472) (11,189)
Due from related party................................................... (2,622) (15,563) (41,815)
Costs in excess of billings on uncompleted contracts..................... (61,336) (37,194) (79,130)
Other assets............................................................. 1,500 (8,077) (9,924)
Accounts payable......................................................... 40,752 120,600 233,513
Accrued expenses......................................................... 31,945 41,211 53,113
Accrued income taxes..................................................... 117,184 46,132 4,711
Billings in excess of costs on uncompleted contracts..................... 42,232 (28,401) 61,601
----------- ----------- -----------
Net cash provided by operating activities.................................. 365,889 44,339 468,321
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property and equipment........................................ (45,709) (120,775) (72,938)
Increase in note receivable, related party................................. (8,908) (8,907) (8,908)
----------- ----------- -----------
Net cash used in investing activities...................................... (54,617) (129,682) (81,846)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in loans from related parties.......................... -- 197,000 (142,500)
Increase in common stock................................................... -- 9,000 --
Distributions to stockholders.............................................. (119,009) (101,204) (224,525)
----------- ----------- -----------
Net cash provided by (used in) financing activities........................ (119,009) 104,796 (367,025)
----------- ----------- -----------
Net increase in cash....................................................... 192,263 19,453 19,450
Cash, beginning of year.................................................... -- 192,263 211,716
----------- ----------- -----------
Cash, end of year.......................................................... $ 192,263 $ 211,716 $ 231,166
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid for income taxes............................................... $ 5,289 $ 46,832 $ 51,525
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-153
<PAGE>
THE THERMO-SHIELD COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The combined financial statements include the accounts and transactions of
Thermo-Shield Company, Inc., Thermo-Shield of America (Wisconsin), Inc.,
Thermo-Shield of America (Michigan), Inc. and Thermo-Shield Of America
(Arizona), Inc. together referred to herein as "the Company" or "Thermo-Shield".
All material intercompany transactions and accounts have been eliminated in the
accompanying combined financial statements.
The accompanying financial statements are presented on a combined basis as
the same stockholder owns 80% of Thermo-Shield of America (Michigan), Inc. and
100% of each of the other combined companies, and the Company comprises one
operating segment primarily engaged in the home improvement business in
Illinois, Wisconsin, Indiana, Michigan and Arizona. More specifically, the
Company is engaged in cabinet refacing and in the installation of
maintenance-free siding and thermal replacement windows for residential
customers to whom credit is extended. The Company may avail itself of mechanics
liens on customers' property in the event of non-payment of amounts receivable.
REVENUE RECOGNITION
The Company recognizes revenues on the completed-contract method. A contract
is considered complete when the customer accepts the work.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor and
supplies. General and administrative costs are charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined.
Costs in excess of amounts billed are classified under current assets as
costs in excess of billings on uncompleted contracts. Billings in excess of
costs are classified under current liabilities as billings in excess of costs on
uncompleted contracts.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for major renewals
and improvements which increase the useful lives of assets are capitalized.
Maintenance, repairs and minor renewals are expensed as incurred. Assets are
depreciated on straight-line or accelerated methods over their estimated useful
lives which generally range from three to ten years.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense was
approximately $61,000, $118,000 and $133,000 for the years ended December 31,
1996, 1997 and 1998, respectively.
INCOME TAXES
Thermo-Shield Co., Inc. and Thermo-Shield of America (Wisconsin), Inc. have
elected to be taxed as "C" corporations. Accordingly, income taxes are provided
for under the liability method, which takes into account differences between
financial statement treatment and tax treatment of certain transactions.
Thermo-Shield of America (Michigan), Inc. and Thermo-Shield of America
(Arizona), Inc. have elected to be taxed as S corporations under the provisions
of Subchapter S of the Internal Revenue Code.
F-154
<PAGE>
THE THERMO-SHIELD COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
Under those provisions, the companies do not pay federal corporate income taxes
on their taxable income. Instead the stockholder is liable for federal income
taxes on the companies' taxable income.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
2. RELATED PARTY TRANSACTIONS
On November 3, 1997, the Company began leasing its primary place of business
from the majority stockholder of the Company. Lease expense and the related
lease commitment are included in related party amounts disclosed in Note 6.
The Company has a note receivable due from the majority stockholder at an
interest rate of 7.0%. Amounts owed the Company were $138,354, $147,261 and
$156,169 at December 31, 1996, 1997 and 1998, respectively.
The Company has amounts due from the majority stockholder of $2,622, $18,185
and $60,000 at December 31, 1996, 1997 and 1998, respectively.
The Company has non-interest bearing loans from related parties payable on
demand of $197,000 and $54,500 at December 31, 1997 and 1998, respectively.
3. UNCOMPLETED CONTRACTS
Costs and billings on uncompleted contracts at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Costs incurred on uncompleted contracts................ $ 178,085 $ 218,254 $ 330,003
Billings to date....................................... (163,404) (137,978) (232,198)
----------- ----------- -----------
$ 14,681 $ 80,276 $ 97,805
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
These amounts are included in the accompanying combined balance sheets under
the following captions:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Costs in excess of billings on uncompleted contracts.... $ 101,804 $ 138,998 $ 218,128
Billings in excess of costs on uncompleted contracts.... (87,123) (58,722) (120,323)
---------- ---------- -----------
$ 14,681 $ 80,276 $ 97,805
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
F-155
<PAGE>
THE THERMO-SHIELD COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. LINES OF CREDIT
The Company has available a $500,000 line of credit, all of which is unused
at December 31, 1998. Bank advances on the credit bear interest at the bank's
prime rate (7.75% at December 31, 1998) and are secured by a blanket lien on all
the assets of Thermo-Shield Company, Inc. and Thermo-Shield of America
(Wisconsin), Inc., and a personal guaranty of the majority stockholder.
On January 9, 1999, the Company entered into an additional $300,000 line of
credit with a bank. The line bears interest at the bank's prime rate and is
secured by a blanket lien on all the assets of Thermo-Shield Company, Inc. and
Thermo-Shield of America (Wisconsin), Inc.
5. INCOME TAXES
Significant components of income tax expense (benefit) for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal................................................. $ 136,000 $ 71,000 $ 6,000
State................................................... 35,000 20,000 4,000
---------- ---------- ----------
171,000 91,000 10,000
Deferred:
Federal................................................. (5,000) 32,000 (62,000)
State................................................... (1,000) 6,000 (11,000)
---------- ---------- ----------
(6,000) 38,000 (73,000)
---------- ---------- ----------
Income tax expense (benefit).............................. $ 165,000 $ 129,000 $ (63,000)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
A reconciliation of income tax expense (benefit) with the expected amount
computed by applying the federal statutory income tax rate to income before
income taxes for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Income tax provision computed at statutory rate........... $ 143,482 $ 34,094 $ 80,646
State taxes, net of federal effect........................ 22,440 17,160 (4,620)
Effect of S corporations.................................. -- 97,678 (88,570)
Other..................................................... (922) (19,932) (50,456)
---------- ---------- ----------
Income tax expense (benefit).............................. $ 165,000 $ 129,000 $ (63,000)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-156
<PAGE>
THE THERMO-SHIELD COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
consist of the following as of December 31:
<TABLE>
<CAPTION>
1996 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
Deferred tax assets:
Cash/accrual basis difference............................ $ 39,957 $ 22,042 $ 103,903
--------- ---------- ----------
Total deferred tax assets................................ 39,957 22,042 103,903
--------- ---------- ----------
Deferred tax liabilities:
Property and equipment................................... 3,365 (17,741) (27,576)
Other.................................................... (3,322) (2,301) (1,327)
--------- ---------- ----------
Total deferred tax liabilities............................. 43 (20,042) (28,903)
--------- ---------- ----------
Net deferred tax asset..................................... $ 40,000 $ 2,000 $ 75,000
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company leases a main office building from its majority stockholder and
other office facilities from non-related parties under noncancellable operating
leases. Future minimum lease payments at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
RELATED
PARTY OTHER
LEASE LEASES
------------ ----------
<S> <C> <C>
1999............................................................... $ 96,000 $ 67,853
2000............................................................... 96,000 61,755
2001............................................................... 96,000 7,526
2002............................................................... 96,000 --
2003............................................................... 96,000 --
Thereafter......................................................... 368,000 --
------------ ----------
Total.............................................................. $ 848,000 $ 137,134
------------ ----------
------------ ----------
</TABLE>
The Company incurred rental expense under noncancellable operating leases
amounting to approximately $42,000, $116,000 and $203,000 for the years ended
December 31, 1996, 1997 and 1998, respectively ($16,000 in 1997 and $96,000 in
1998 under the related party lease; and there was no related party rent expense
in 1996).
The Company is contingently liable for an irrevocable letter of credit
outstanding from a bank to Lowe's Companies, Inc. in the amount of $50,000. The
letter of credit is security for performance on Thermo-Shield contracts sold
through Lowe's stores.
7. SUBSEQUENT EVENTS
On March 23, 1999, a majority of the net assets of Thermo-Shield Co., Inc.
and Thermo-Shield of America (Wisconsin), Inc., and 100% of the capital stock of
Thermo-Shield of America (Michigan), Inc., and Thermo-Shield of America
(Arizona), Inc. were acquired by ThermoView Industries, Inc.
F-157
<PAGE>
THE THERMO-SHIELD COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. YEAR 2000 READINESS (UNAUDITED)
The Company has initiated an assessment of the possible impact of Year 2000
issues to assure it is prepared to effectively deal with transactions in the
Year 2000 and beyond. This "Year 2000 Problem" creates risk for the Company from
unforeseen sources in its own computer systems and from third parties with whom
the Company deals on financial transactions.
The Company intends to achieve uninterrupted, high quality performance from
its computer systems before, during and after 2000. The cost of assessment and
ultimate assurance as to readiness is being expensed as incurred. Total
incremental spending by the Company is not expected to be significant to the
Company's operations, liquidity or capital resources.
In addition to taking every reasonable step to secure its internal systems
and external relationships, the Company is further developing contingency plans
to assure that unexpected failures will not adversely affect operations. The
Company intends to monitor these processes through the rollover of 1999 into
2000 and to implement quickly alternate solutions if necessary.
However, despite the Company's efforts and contingency plans, noncompliant
computer systems could have a material adverse effect on the Company's
operations, or its financial condition.
F-158
<PAGE>
[INSIDE BACK COVER]
The images on the inside back cover page include a map of our facilities,
pictures of a variety of our windows and the inside of one of our warehouses.
The descriptions of the map and pictures are clockwise from the top left-hand
corner.
1. Map of the United States showing the locations of our retail, manufacturing
and credit facilities and our corporate office.
2. A picture of one of our warehouses filled with custom made windows ready for
delivery and installation.
3. A picture showing a few of our basic window styles including bow, bay,
double-hung, tilt slider and hopper windows.
<PAGE>
[LOGO]
SHARES
COMMON STOCK
--------------
PROSPECTUS
, 1999
------------------
EBI SECURITIES CORPORATION
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses payable by the
registrant in connection with this offering (excluding underwriting discounts
and commissions). All amounts shown except the SEC and NASD fees are estimates.
<TABLE>
<S> <C>
SEC registration fee............................................... $ 5,297
NASD filing fee.................................................... 2,405
Nasdaq National Market listing fee................................. 95,000
Underwriters' nonaccountable expense allowance..................... *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... *
Blue sky fees and expenses......................................... *
Printing and engraving costs....................................... *
Transfer agent fees and expenses................................... *
Miscellaneous fees and expenses.................................... *
---------
Total............................................................ $ *
---------
---------
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145(a) of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify any person (including his estate or personal
representative) who was, is or is threatened to be made a party in a threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, because he is or was a director against
liability incurred in the proceeding if: (i) he conducted himself in good faith;
(ii) he reasonably believed that his conduct was in or not opposed to the best
interests of the corporation; and (iii) in the case of any criminal action or
proceeding, he had no reasonable cause to believe his conduct was unlawful.
Indemnification may be made against the obligation to pay a judgment,
settlement, penalty, fine or reasonable expenses (including counsel fees)
incurred with respect to a proceeding. Pursuant to Section 145(e), a corporation
may pay for or reimburse the reasonable expenses incurred by a director in
advance of final disposition of the action, suit or proceeding if the director
undertakes to repay such advance upon an ultimate determination that he is not
entitled to indemnification by the corporation.
A director who has been successful, on the merits or otherwise, in the
defense of any action, suit or proceeding to which he was a party because he is
or was a director of the corporation is entitled to indemnification against
actual and reasonable expenses incurred by him in connection with the
proceeding. Unless limited by its certificate of incorporation, a Delaware
corporation may indemnify and advance expenses to an officer, employee or agent
of the corporation to the same extent that it may indemnify and advance expenses
to directors. An officer of the corporation is also entitled to mandatory
indemnification to the same extent as a director.
The indemnification and advancement of expenses provided by or granted
pursuant to Section 145 is not exclusive of any rights to which those seeking
indemnification or advancement of expenses may otherwise be entitled. Section
145(g) empowers a Delaware corporation to purchase and maintain insurance on
behalf of its directors, officers, employees or agents against liability
asserted against or incurred by the individuals in those capacities, whether or
not the corporation would have the power under Section 145 to indemnify them
against such liability. The registrant has purchased and maintains directors'
II-1
<PAGE>
and officers' liability insurance. The registrant has also entered into an
agreement with each of its directors which requires the registrant to indemnify
the director to the fullest extent permitted by Delaware law.
The registrant's certificate of incorporation and bylaws require it to
indemnify its directors to the fullest extent permitted by applicable state or
federal laws. The bylaws further permit the registrant to indemnify its officers
to the same extent that it indemnifies directors and to such further extent,
consistent with law, as may be provided by general or specific action of the
board of directors, or contract.
Under Section of the underwriting agreement filed as Exhibit 1.1 hereto,
the underwriters have agreed to indemnify, under certain circumstances, the
registrant, its directors, officers and persons who control the registrant
against certain liabilities which may be incurred in connection with the
offering, including certain liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Unless otherwise noted herein, the issuance of securities in the
transactions described below and for the period from July 1997 are deemed to be
exempt from registration under the Securities Act, either pursuant to the
exemption from registration contained in Section 4(2) thereof, or under the
provisions of Regulation D or Rule 701, each as promulgated under the Securities
Act. In the case of sales in reliance upon Regulation D, to the best of the
registrant's knowledge, such sales were made solely to investors who represented
in writing that they, or whom the registrant reasonably believed, were
accredited investors and to not more than 35 non-accredited investors, all of
whom purchased the securities for investment and not with a view to the
distribution thereof. All sales were made without general solicitation or
general advertising. Restrictions have been imposed upon the resale of such
securities, including placement of legends thereon describing such restrictions.
The following table describes the sale transactions and exemptions relied
upon by the registrant.
<TABLE>
<CAPTION>
DATE TITLE AMOUNT EXEMPTION
---------------------- -------------------------------- -------------------------------- ---------------------
<C> <S> <C> <C> <C>
1. July 1, 1997 Thermo-Tilt Window Company 2,261,162 shares of Thermo- Tilt Section 4(2)
Common Stock Window Company common stock
issued to 10 individuals or
entities upon incorporation of
Thermo-Tilt in exchange for cash
or property contributed by such
individuals or entities. These
shares increased to 4,522,324
upon a two-for-one stock split
which occurred on September 29,
1997. These shares converted to
7,865,900 shares of common stock
upon the registrant's
acquisition of Thermo-Tilt on
April 15, 1998.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
DATE TITLE AMOUNT EXEMPTION
---------------------- -------------------------------- -------------------------------- ---------------------
<C> <S> <C> <C> <C>
2. October 22, 1997 Options to Purchase Thermo-Tilt Options to purchase 925,000 Section 4(2)
Common Stock shares of Thermo-Tilt common
stock at $0.50 per share granted
to three consultants and one
employee for services to be
rendered. These options
converted to options to purchase
1,608,854 shares of common stock
at $0.29 per share upon
consummation of the Thermo-Tilt
acquisition. Options to purchase
21,741 shares of common stock at
$0.29 per share transferred to
the former spouse of one
consultant.
3. November 13, 1997 Thermo-Tilt Common Stock 400,000 shares of Thermo-Tilt Regulation D
common stock sold to one
accredited investor for $1.80
per share. These shares
converted to 695,720 shares of
common stock upon consummation
of the Thermo-Tilt acquisition.
4. January 19, 1998 Options to Purchase Thermo-Tilt Options to purchase 250,000 Section 4(2)
Common Stock shares of Thermo-Tilt common
stock at $2.00 per share granted
to Stephen A. Hoffmann for
services to be rendered pursuant
to an employment agreement with
Thermo-Tilt. These options
converted to options to purchase
434,825 shares of common stock
at $1.15 per share upon
consummation of the Thermo-Tilt
acquisition. Options to purchase
119,577 shares of common stock
at $1.15 per share transferred
to Mr. Hoffmann's former spouse.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
DATE TITLE AMOUNT EXEMPTION
---------------------- -------------------------------- -------------------------------- ---------------------
<C> <S> <C> <C> <C>
5. January 19, 1998 Options to Purchase Thermo-Tilt Options to purchase 50,000 Section 4(2)
Common Stock shares of Thermo-Tilt common
stock at $2.00 per share granted
to Nelson E. Clemmens for
services to be rendered pursuant
to an employment agreement with
Thermo-Tilt. These options
converted to options to purchase
86,964 shares of common stock at
$1.15 per share upon
consummation of the Thermo-Tilt
acquisition.
6. March 30, 1998 Options to Purchase Thermo-Tilt Options to purchase 25,000 Section 4(2)
Common Stock shares of Thermo-Tilt common
stock at $2.00 per share granted
to R. Jerry Falkner in
connection with investor
relations services to be
performed by R.J. Falkner &
Company, Inc. These options
converted to options to purchase
43,483 shares of common stock at
$1.15 per share upon
consummation of the Thermo-Tilt
acquisition.
7. March 30, 1998 Options to Purchase Thermo-Tilt Options to purchase 25,000 Section 4(2)
Common Stock shares of Thermo-Tilt common
stock at $2.00 per share granted
to Anthony V. Yonadi in
connection with consulting
services to be performed by Mr.
Yonadi. These options converted
to options to purchase 43,483
shares of common stock at $1.15
per share upon consummation of
the Thermo-Tilt acquisition.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
DATE TITLE AMOUNT EXEMPTION
---------------------- -------------------------------- -------------------------------- ---------------------
<C> <S> <C> <C> <C>
8. March 31, 1998 Thermo-Tilt Common Stock 459,000 shares of Thermo-Tilt Regulation D
common stock sold to 16
accredited investors and 24
nonaccredited investors for
$2.00 per share. These shares
converted to 798,380 shares of
common stock upon consummation
of the Thermo-Tilt acquisition.
9. April 1, 1998 Options to Purchase Thermo-Tilt Options to purchase 25,000 Section 4(2)
Common Stock shares of Thermo-Tilt common
stock at $2.00 per share granted
to Coffin Communications, Inc.
in connection with consulting
services to be performed by
Coffin. These options converted
to options to purchase 43,483
shares of common stock at $1.15
per share upon consummation of
the Thermo-Tilt acquisition.
10. April 15, 1998 Options Incentive stock options to Section 4(2) or Rule
purchase 800,000 shares of 701
common stock at $1.15 per share
granted to Stephen A. Hoffmann
pursuant to the registrant's
1998 employee stock option plan.
11. April 15, 1998 Options Options to purchase 300,000 Section 4(2)
shares of common stock at $1.15
per share granted to John H.
Cole for services to be rendered
pursuant to an employment
agreement with the registrant.
12. April 20, 1998 Options Options to purchase 125,000 Section 4(2)
shares of common stock at $1.15
per share granted to James J.
TerBeest for services to be
rendered pursuant to an
employment agreement with the
registrant.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
DATE TITLE AMOUNT EXEMPTION
---------------------- -------------------------------- -------------------------------- ---------------------
<C> <S> <C> <C> <C>
13. April 25, 1998 Common 775,000 shares issued to Regulation D
principals of American Home
Developers Co., Inc. upon its
acquisition by the registrant.
14. April 30, 1998 Common 486,000 shares issued to Regulation D
principals of Primax Window Co.
upon its acquisition by the
registrant.
15. April 30, 1998 Common 1,120,000 shares issued to Regulation D
principals of Rolox of Kansas
City, Inc. and Rolox of Wichita,
Inc. upon their acquisition by
the registrant.
16. June 12, 1998 to 10% Cumulative Convertible 2,980,000 shares of Series A Regulation D
October 15, 1998 Series A Preferred Stock preferred stock sold to 56
accredited investors for $5.00
per share.
17. June 24, 1998 Common 1,739 shares issued to Some Day Section 4(2)
Corp. for consulting services
rendered
18. July 1, 1998 Options Non-qualified stock options to Section 4(2) or Rule
purchase 130,000 shares of 701
common stock at $2.05 per share
granted to two key employees
pursuant to the registrant's
1998 employee stock option plan.
19. July 9, 1998 Common 367,246 shares issued to Regulation D
principals of American Home
Remodeling upon its acquisition
by the registrant.
20. July 9, 1998 Common 350,000 shares issued to Regulation D
principals of Five Star
Builders, Inc. upon its
acquisition by the registrant.
21. November 1, 1998 Options Incentive stock options to Section 4(2) or Rule
purchase 200,000 shares of 701
common stock at $2.30 per share
granted to Nelson E. Clemmens
pursuant to the registrant's
1998 employee stock option plan.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
DATE TITLE AMOUNT EXEMPTION
---------------------- -------------------------------- -------------------------------- ---------------------
<C> <S> <C> <C> <C>
22. November 1, 1998 Warrants Warrants to purchase 125,000 Section 4(2)
shares of common stock at an
exercise price of $10.00 per
share (subject to adjustment),
expiring in November 2003,
issued to EBI Securities
Corporation in connection with
merger and acquisition and
related services rendered.
23. January 1, 1999 Common; 10% Cumulative 301,425 shares of common stock Regulation D
Convertible Series B Preferred and 400,000 shares of Series B
Stock preferred stock issued to
principals of Thomas
Construction, Inc. upon its
acquisition by the registrant.
24. January 1, 1999 Options Incentive stock options to Section 4(2) or Rule
purchase 350,000 shares of 701
common stock at $5.31 per share
granted to six key employees
pursuant to the registrant's
1998 employee stock option plan.
25. January 1, 1999 Options Incentive stock options to Section 4(2) or Rule
purchase 720,123 shares of 701
common stock at $5.31 per share
granted to 227 key employees
pursuant to the registrant's
1999 stock option plan.
26. January 5, 1999 Common 112,053 shares issued to Regulation D
principals of Precision Window
Mfg., Inc. upon its acquisition
by the registrant.
27. March 4, 1999 Common 87,765 shares issued to certain Regulation D
former principals of Leingang
Siding and Window, Inc. in
connection with earn-out
agreement entered into upon the
registrant's acquisition of
Leingang.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
DATE TITLE AMOUNT EXEMPTION
---------------------- -------------------------------- -------------------------------- ---------------------
<C> <S> <C> <C> <C>
28. March 4, 1999 Common 87,092 shares issued to certain Regulation D
former principals of Thermal
Line Windows, L.L.P. in
connection with earn-out
agreement entered into upon the
registrant's acquisition of
Thermal Line.
29. March 4, 1999 Common 62,918 shares issued to certain Regulation D
former principals of North
Country Thermal Line, Inc. in
connection with earn-out
agreement entered into upon the
registrant's acquisition of
North Country.
30. March 23, 1999 Common 555,017 shares issued to a Regulation D
principal of Thermo-Shield Group
upon the registrant's
acquisition of Thermo-Shield.
31. March 23, 1999 Options Incentive stock options to Section 4(2) or Rule
purchase 100,000 shares of 701
common stock at $8.62 per share
granted to one key employee
pursuant to the registrant's
1999 stock option plan.
32. March 31, 1999 Common 8,696 shares issued to Some Day Section 4(2)
Corp. for consulting services
rendered.
33. April 19, 1999 Options Incentive stock options to Section 4(2) or Rule
purchase 48,000 shares of common 701
stock at $6.46 per share granted
to 9 key employees pursuant to
the registrant's 1999 stock
option plan.
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
DATE TITLE AMOUNT EXEMPTION
---------------------- -------------------------------- -------------------------------- ---------------------
<C> <S> <C> <C> <C>
34. April 23, 1999 9.6% Cumulative Convertible 6,000 Series C shares sold to 2 Section 4(2) or
Series C Preferred Stock; accredited investors for $1,000 Regulation D
Warrant per share. Warrants to purchase
1,200,000 shares of common stock
at an exercise price of $6.00
per share (subject to
adjustment), expiring in April
2004, issued to two accredited
investors in connection with
sale of Series C.
35. May 10, 1999 Options Non-qualified stock options to Section 4(2) or Rule
purchase 22,500 shares of common 701
stock at $3.88 per share granted
to three outside directors
pursuant to the registrant's
1999 stock option plan.
36. June 30, 1999 Common 54,000 shares issued to Section 4(2)
principals of Primax Window Co.
in connection with earn-out
agreement entered into upon
acquisition of Primax.
37. July 8, 1999 Warrant Warrants to purchase 1,666,028 Section 4(2)
shares of common stock at an
exercise price of $.01 per share
(subject to adjustment),
expiring in July 2007, issued to
one accredited investor.
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- -----------------------------------------------------------------------------------------------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement
3.1 -- Restated Certificate of Incorporation of the registrant
3.1(a) -- Certificate of Amendment of Restated Certificate of Incorporation of the registrant
3.2 -- Certificate of Designation of the registrant (9.6% Cumulative Convertible Series C Preferred
Stock)
3.2(a) -- Certificate of Amendment of Certificate of Designation of the registrant (9.6% Cumulative
Convertible Series C Preferred Stock)
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- -----------------------------------------------------------------------------------------------
<C> <C> <S>
3.3 -- Amended and Restated By-Laws of the registrant
4.1 -- Specimen common stock certificate
5.1* -- Opinion and consent of Stites & Harbison
10.1 -- ThermoView Industries, Inc. 1998 Employee Stock Option Plan
10.2 -- ThermoView Industries, Inc. 1999 Stock Option Plan
10.3 -- Stock Option Agreement, dated as of October 22, 1997, by and between Thermo-Tilt Window Company
and LD Capital, Inc.
10.4 -- Stock Option Agreement, effective as of October 22, 1997, by and between the registrant and
Stephen A. Hoffmann
10.5 -- Stock Option Agreement, dated as of October 22, 1997, by and between Thermo-Tilt Window Company
and Nelson E. Clemmens
10.6 -- Employment and Noncompetition Agreement, dated as of January 13, 1998, by and between
Thermo-Tilt Window Company and Stephen A. Hoffmann
10.7 -- First Amendment to Employment and Noncompetition Agreement, dated as of April 15, 1998, by and
between Thermo-Tilt Window Company and Stephen A. Hoffmann
10.8 -- Executive Employment Agreement, dated as of April 15, 1998, by and between the registrant and
Stephen A. Hoffmann
10.9 -- Stock Option Agreement, dated as of January 13, 1998, by and between the registrant and Stephen
A. Hoffmann
10.10 -- Option Certificate, dated as of April 15, 1998, by and between the registrant and Stephen A.
Hoffmann
10.11 -- Employment and Noncompetition Agreement, dated as of January 19, 1998, by and between
Thermo-Tilt Window Company and Nelson E. Clemmens
10.12 -- Stock Option Agreement, dated as of January 19, 1998, by and between Thermo-Tilt Window Company
and Nelson E. Clemmens
10.13 -- First Amendment to Employment and Noncompetition Agreement, dated as of April 15, 1998, by and
between Thermo-Tilt Window Company and Nelson E. Clemmens
10.14 -- Amended and Restated Employment and Noncompetition Agreement, dated as of April 15, 1998, by
and between the registrant and Nelson E. Clemmens
10.15 -- First Amendment to Amended and Restated Employment and Noncompetition Agreement, dated as of
November 1, 1998, by and between the registrant and Nelson E. Clemmens
10.16 -- Option Certificate, dated as of November 1, 1998, by and between the registrant and Nelson E.
Clemmens
10.17* -- Amended and Restated Employment and Noncompetition Agreement, dated as of June 28, 1999, by and
between the registrant and Richard E. Bowlds
10.18* -- Amended and Restated Employment and Noncompetition Agreement, dated as of June 28, 1999, by and
between the registrant and John H. Cole
10.19 -- Stock Option Agreement, dated as of April 15, 1998, by and between the registrant and John H.
Cole
10.20* -- Stock Option Agreement, dated as of June 28, 1999, by and between the registrant and John H.
Cole
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- -----------------------------------------------------------------------------------------------
<C> <C> <S>
10.21* -- Amended and Restated Employment and Noncompetition Agreement, dated as of June 28, 1999, by and
between the registrant and James J. TerBeest
10.22 -- Stock Option Agreement, dated as of April 20, 1998, by and between the registrant and James J.
TerBeest
10.23* -- Stock Option Agreement, dated as of June 28, 1999, by and between the registrant and James J.
TerBeest
10.24 -- Employment Agreement, dated as of April 29, 1998, by and between ThermoView Merger Corp. and
Charles L. Smith
10.25 -- Employment Agreement, dated as of January 5, 1999, by and between Precision Window Mfg., Inc.
and Charles L. Smith
10.26 -- Lease, dated as of November 1, 1998, by and between the registrant and Glenn Lyon Development
Corporation
10.27 -- Warrant, dated as of November 1, 1998, by and between the registrant and EBI Securities
Corporation
10.28 -- Loan Agreement, dated as of August 31, 1998, by and among the registrant, then-existing
subsidiaries of the registrant (collectively, "Borrowers") and PNC Bank, National Association
("PNC")
10.29 -- Joinder to Loan Documents and Amendment to Loan Documents (Thomas Construction, Inc.), dated as
of January 1, 1999, by and among Borrowers and PNC
10.30 -- Joinder to Loan Documents and Amendment to Loan Documents (Precision Window Mfg., Inc.), dated
as of January 5, 1999, by and among Borrowers and PNC
10.31 -- Joinder to Loan Documents and Amendment to Loan Documents (Thermo-Shield), dated as of July 8,
1999, by and among Borrowers and PNC
10.32 -- Securities Purchase Agreement, dated as of April 23, 1999, by and among the registrant, Brown
Simpson Strategic Growth Fund, Ltd ("Brown Ltd."). and Brown Simpson Strategic Growth Fund,
L.P. ("Brown L.P.", which together with Brown Ltd., "Brown Simpson")
10.33 -- Registration Rights Agreement, dated as of April 23, 1999, by and among the registrant and
Brown Simpson
10.34 -- Stock Purchase Warrant by and between the registrant and Brown L.P.
10.35 -- Amendments to Stock Purchase Warrant, by and between the registrant and Brown L.P.
10.36 -- Stock Purchase Warrant by and between the registrant and Brown Ltd.
10.37 -- Amendments to Stock Purchase Warrant, by and between the registrant and Brown Ltd.
10.38 -- Securities Purchase Agreement, dated as of July 8, 1999, between the registrant and GE Capital
Equity Investments, Inc.
10.39 -- Stock Purchase Warrant, by and between the registrant and GE Capital Equity Investments, Inc.
10.40 -- Form of Management Indemnification Agreement
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- -----------------------------------------------------------------------------------------------
<C> <C> <S>
10.41 -- Agreement and Plan of Merger, dated as of April 23, 1998, by and among the registrant,
ThermoView Merger Corp., American Home Developers Co., Inc. and the Shareholders of American
Home Developers Co., Inc.
10.42 -- Agreement and Plan of Merger, dated as of April 29, 1998, by and among the registrant,
ThermoView Merger Corp., Primax Window Co. and the Shareholders of Primax Window Co.
10.43 -- Lease, dated April 29, 1998, between Charles L. Smith and Primax Window Co.
10.44 -- Agreement and Plan of Merger, dated as of April 29, 1998, by and among the registrant,
ThermoView Merger Corp., Rolox of Wichita, Inc. and the Shareholders of Rolox of Wichita,
Inc.
10.45 -- Lease, dated April 29, 1998, by and between Robert L. Cox and Rolox, Inc.
10.46 -- Lease, dated April 29, 1998, by and between Robert L. Cox, Robert L. Cox II and Rolox, Inc.
10.47 -- Lease, dated April 29, 1998, by and between L & D Partnership and Rolox, Inc.
10.48 -- Lease, dated April 29, 1998, by and between LBD, L.L.C. and Rolox, Inc.
10.49 -- Asset Purchase Agreement, dated May 27, 1998, by and between TD Windows, Inc. and Allhom Eagles
Windows & Doors, Inc.
10.50 -- Agreement and Plan of Merger, dated as of July 9, 1998, by and among the registrant,
ThermoView/AHR Merger Corp., American Home Remodeling, Pacific Exteriors, Incorporated and
the Shareholders of American Home Remodeling and Pacific Exteriors, Incorporated.
10.51 -- Agreement and Plan of Merger, dated as of July 9, 1998, by and among the registrant,
ThermoView/FSB Merger Corp., Five Star Builders, Inc. and the Shareholders of Five Star
Builders, Inc.
10.52 -- Asset Purchase Agreement, dated July 21, 1998, by and among the registrant, NuView Industries,
Inc. and Douglas E. Miles.
10.53 -- Stock Purchase Agreement, dated August 14, 1998, by and between Alvin W. Leingang and the
registrant.
10.54 -- Net Lease, dated January 1, 1997, between Al Leingang and Leingang Siding and Window, Inc.
10.55 -- First Amendment to Lease, dated as of August 14, 1998, by and between Al Leingang and Leingang
Siding and Window, Inc.
10.56 -- Lease, dated August 16, 1995, between Wayne Kluck and Leingang Siding and Window, Inc.
10.57 -- First Amendment to Lease, dated as of August 14, 1998, by and between Alvin W. Leingang and
Leingang Siding and Windows, Inc.
10.58 -- Stock Purchase Agreement, dated August 14, 1998, by and among Alvin W. Leingang, Steven B. Hoyt
and the registrant.
10.59 -- Standard Commercial Lease, dated January 2, 1996, by and between Alvin W. Leingang and Thermal
Line Windows, L.L.P.
10.60 -- First Amendment to Lease, dated as of August 14, 1998, by and between Alvin W. Leingang and
Thermal Line Windows, L.L.P.
</TABLE>
II-12
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- -----------------------------------------------------------------------------------------------
<C> <C> <S>
10.61 -- Equipment Lease, dated as of January 2, 1996, by and between North Country Thermal Line, Inc.
and Thermal Line Windows, L.L.P.
10.62 -- First Amendment to Equipment Lease, dated as of August 14, 1998, by and between North Country
Thermal Line, Inc. and Thermal Line Windows, L.L.P.
10.63 -- Equipment Lease, dated as of January 2, 1996, by and between North Country Thermal Line, Inc.
and Thermal Line Windows, L.L.P.
10.64 -- First Amendment to Equipment Lease, dated as of August 14, 1998, by and between North Country
Thermal Line, Inc. and Thermal Line Windows, L.L.P.
10.65 -- Equipment Lease, dated as of January 2, 1996, by and between Alvin W. Leingang and Thermal Line
Windows, L.L.P.
10.66 -- Amendment to Equipment Lease, dated as of January 2, 1997, by and between Alvin W. Leingang and
Thermal Line Windows, L.L.P.
10.67 -- Second Amendment to Equipment Lease, dated as of August 14, 1998, by and between Alvin W.
Leingang and Thermal Line Windows, L.L.P.
10.68 -- Asset Purchase Agreement, dated November 18, 1998, by and between Thermal Line Windows, L.L.P.
and North Country Thermal Line, Inc.
10.69 -- Stock Purchase Agreement, dated January 5, 1999, by and among Charles L. Smith, Robert L. Cox,
Richard Ahrendts and the registrant.
10.70 -- Non-Negotiable Promissory Note, dated January 5, 1999, from the registrant to and in favor of
Charles L. Smith.
10.71 -- Non-Negotiable Promissory Note, dated January 5, 1999, from the registrant to and in favor of
Robert L. Cox.
10.72 -- Stock Purchase Agreement, dated December 22, 1998, by and between Rodney H. Thomas and the
registrant.
10.73 -- Furniture and Fixture Lease, dated as of January 1, 1999, by and between Investors Property
Holding I, LLC and Thomas Construction, Inc.
10.74 -- Lease, dated December 30, 1996, by and among Rodney H. Thomas, Dawn S. Thomas and the
registrant
10.75 -- Stock Purchase Agreement, dated March 23, 1999, by and among Joel S. Kron, Jonathan D. Kron and
the registrant
10.76 -- Asset Purchase Agreement, dated March 23, 1999, by and between Thermo-Shield Company, Inc.,
Thermo-Shield of America (Wisconsin), Inc. and the registrant
10.77 -- Lease, dated November 3, 1997, by and between JSK Properties, L.L.C. and the registrant
16.1 -- Letter from Singer, Lewak regarding change in independent accountants
21.1 -- Subsidiaries of the registrant.
23.1* -- Consent of Stites & Harbison (included in Exhibit 5.1)
23.2 -- Consent of Ernst & Young LLP
23.3 -- Consent of Singer, Lewak, Greenbaum & Goldstein, LLP
23.4 -- Consent of Rodney W. Melby
</TABLE>
II-13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- -----------------------------------------------------------------------------------------------
<C> <C> <S>
24.1 -- Powers of attorney (reference is made to page II-16 of this registration statement)
27.1 -- Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES.
All financial statement schedules are omitted, as the required information
is inapplicable or the information is present in the financial statements and
related notes included in the prospectus.
II-14
<PAGE>
ITEM 17. UNDERTAKINGS.
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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant, the registrant has been advised that in the opinion of the SEC 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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this 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 this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, 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.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Louisville, Commonwealth
of Kentucky, on the 30th day of July, 1999.
<TABLE>
<S> <C> <C>
THERMOVIEW INDUSTRIES, INC.
By: /s/ STEPHEN A. HOFFMANN
-----------------------------------------
Stephen A. Hoffmann,
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes Stephen A. Hoffmann and Nelson E. Clemmens, or either one of
them, to execute in the name of each such person and to file, any amendments to
this registration statement and any other documents as the registrant deems
appropriate, including without limitation, a registration statement filed
pursuant to Rule 462(b) under the Securities Act, and appoints each such agent
as attorney-in-fact to sign in his behalf individually and in each capacity
stated below and to file any and all amendments and post-effective amendments to
this registration statement and any and all such other documents.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board and
/s/ STEPHEN A. HOFFMANN Chief Executive Officer
- ------------------------------ (principal executive July 30, 1999
Stephen A. Hoffmann officer)
/s/ RICHARD E. BOWLDS Vice Chairman of the Board
- ------------------------------ and Executive Vice July 30, 1999
Richard E. Bowlds President-Acquisitions
/s/ NELSON E. CLEMMENS
- ------------------------------ President and Director July 30, 1999
Nelson E. Clemmens
/s/ CHARLES L. SMITH
- ------------------------------ Chief Operating Officer July 30, 1999
Charles L. Smith
/s/ JOHN H. COLE Chief Financial Officer
- ------------------------------ (principal financial and July 30, 1999
John H. Cole accounting officer)
/s/ J. SHERMAN HENDERSON,
III
- ------------------------------ Director July 30, 1999
J. Sherman Henderson, III
</TABLE>
II-16
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ DELORES P. KESLER
- ------------------------------ Director July 30, 1999
Delores P. Kesler
/s/ MICHAEL A. TOAL
- ------------------------------ Director July 30, 1999
Michael A. Toal
</TABLE>
II-17
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
THERMOVIEW INDUSTRIES, INC.
* * * * *
ThermoView Industries, Inc., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is THERMOVIEW INDUSTRIES, INC. (the
"Corporation"). The date of filing of its original Certificate of
Incorporation with the Secretary of State was April 22, 1998.
2. This Restated Certificate of Incorporation restates and integrates
and further amends the Certificate of Incorporation of the Corporation to (i)
increase the authorized shares of the Corporation's common stock, $.001 par
value, to 100,000,000 shares, (ii) authorize 50,000,000 shares of $.001 par
value preferred stock of the Corporation in such series and with such rights
and preferences to be determined by the Corporation's Board of Directors from
time to time and (iii) provide for certain indemnification rights for
directors and officers.
3. The text of the Certificate of Incorporation as amended or
supplemented heretofore is further amended hereby to read as herein set forth
in full:
"RESTATED CERTIFICATE OF INCORPORATION
OF
THERMOVIEW INDUSTRIES, INC.
* * * *
1. The name of the corporation is THERMOVIEW INDUSTRIES, INC.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered
agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
4. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is One Hundred Fifty
Million (150,000,000), consisting
<PAGE>
of (i) One Hundred Million (100,000,000) shares, par value $.001 per
share, of Common Stock ("Common Stock") and (ii) Fifty Million
(50,000,000) shares, par value $.001 per share, of Preferred Stock
("Preferred Stock").
4.1 COMMON STOCK PROVISIONS.
4.1.1 DIVIDEND RIGHTS. Subject to the provisions of
applicable law and the preferences of the Preferred Stock, the
holders of the Common Stock shall be entitled to receive
dividends at such times and in such amounts as may be
determined by the Board of Directors.
4.1.2 VOTING RIGHTS. The holders of Common Stock shall
have one vote for each share on each matter submitted to a vote
or consent of the stockholders of the Corporation.
4.1.3 LIQUIDATION RIGHTS. In the event of any
liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, after payment or provision
for payment of the debts or other liabilities of the
Corporation and the preferential amounts to which the holders
of the Preferred Stock shall be entitled, the holders of the
Common Stock shall be entitled to share ratably in the
remaining assets of the Corporation.
4.2 PREFERRED STOCK PROVISIONS.
4.2.1 The Preferred Stock may be issued from time to
time in one or more series subject to limitations prescribed by
law and the provisions of this Certificate of Incorporation or
any amendment hereto. Authority is expressly granted to the
Board of Directors to authorize the issuance of one or more
series of Preferred Stock without any vote or other action by
the stockholders of the Corporation (the "Stockholders"), and
to fix by designation (the "Preferred Stock Designation") the
voting powers, designations, preferences and relative,
participating, optional or other special rights, and the
qualifications, limitations and restrictions thereof to the
full extent now or hereafter permitted by law, including but
not limited to the following:
(a) The number of shares constituting that series and
the distinctive designation of the series;
(b) The dividend rate (or method of determining such
rate) on the shares of that series, the conditions and dates
upon which such dividends shall be payable, whether such
dividends shall be cumulative, and if so, from which date or
dates, and the relative rights of priority, if any, of payment
of dividends on shares of that series to the dividends payable
on any other class or series of stock of the Corporation;
-2-
<PAGE>
(c) Whether that series shall have voting rights, in
addition to the voting rights provided by law, and if so, the
terms of such voting rights;
(d) Whether or not the shares of that series shall be
convertible into or exchangeable for shares of any other class
or classes or of any other series of any class or classes of
stock of the Corporation, or convertible into or exchangeable
for other securities of the Corporation or securities of any
other corporation, partnership, or other person or entity, and
if so, the times, prices, rates, adjustments and other terms
and conditions of such conversion or exchange;
(e) Whether or not the shares of that series shall be
redeemable, in whole or in part, at the option of the
Corporation or at the option of the holder thereof or upon the
happening of a specified event, and if so, the times, prices
and other terms and conditions of such redemption;
(f) Whether the series shall have a sinking fund for
the redemption or purchase of shares of that series, and if so,
the terms and amount of such sinking fund;
(g) The rights of the shares of that series in the
event of the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, and the relative rights of
priority, if any, with respect to payment of amounts payable in
such event on shares of that series to amounts payable in such
event on shares of any other class or series of stock of the
Corporation; and
(h) Any other relative rights, preferences and
limitations of that series.
4.3 OTHER PROVISIONS.
4.3.1 The Board of Directors shall have authority to
authorize the issuance from time to time without any vote or
other action by the stockholders of the Corporation, of any or
all shares of stock of the Corporation of any class at any time
authorized, and any securities convertible into or exchangeable
for any such shares, in each case to such persons and for such
consideration and on such terms as the Board of Directors from
time to time in its discretion lawfully may determine;
provided, however, that the consideration for the issuance of
shares of stock of the Corporation having par value shall not
be less than such par value. Shares so issued, for which the
consideration has been paid to the Corporation, shall be fully
paid, and the holders of such stock shall not be liable to any
further call or assessments thereon.
-3-
<PAGE>
4.3.2 No holder of stock of any class or series of the
Corporation nor of any security convertible into or
exchangeable for stock of any class or series of the
Corporation, nor of any warrant, option, or right to purchase,
subscribe for or otherwise acquire stock of any class or series
of the Corporation, whether now or hereafter authorized, shall,
as such holder, have any preemptive right whatsoever to
purchase, subscribe for or otherwise acquire stock of any class
or series of the Corporation, or any security convertible into
or exchangeable for, or any warrant, option or right to
purchase, subscribe for or otherwise acquire, stock of any
class or series of the Corporation, whether now or hereafter
authorized. Nothing in this Section 4.3.2 shall be deemed to
eliminate or limit the ability of the Corporation to grant by
contract a preemptive right to purchase, subscribe for or
otherwise acquire stock of any class or series of the
Corporation or any security convertible into or exchangeable
for, or any warrant, option or right to purchase, subscribe for
or otherwise acquire, stock of any class or series of the
Corporation, whether now or hereafter authorized.
4.3.3 The Board of Directors may set a record date in
the manner and for the purposes authorized in the bylaws of the
Corporation, with respect to shares of stock of the Corporation
or any class or series.
5. The Board of Directors is authorized to make, alter or repeal the
bylaws of the Corporation. Election of directors need not be by
written ballot.
6. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director except for liability (i) for any breach
of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived any improper
personal benefit.
7. The Corporation shall indemnify to the fullest extent authorized or
permitted and in the manner provided by law, any person made, or
threatened to be made, a party to any action, suit, or proceeding
(whether civil, criminal, administrative, investigative or otherwise)
by reason of the fact that he or she or a person of whom he or she is
the legal representative is or was a director or officer of the
Corporation or by reason of the fact that such director or officer,
at the request of the Corporation, is or was serving any other
Corporation, partnership, joint venture, trust, employee benefit
plan, or other enterprise in any capacity. Nothing contained herein
shall affect any rights to indemnification to which employees and
agents other than directors and officers may be entitled by law, and
the Corporation may indemnify such employees and agents to the
fullest extent and in the manner permitted by law.
-4-
<PAGE>
The rights to indemnification set forth in this Section 7 shall not
be exclusive of any other rights to which any person may be entitled
under any law, statute, regulation, provision of this Corporation's
Restated Certificate of Incorporation (as may be amended or restated
from time to time), Bylaws, agreement, contract, vote of stockholders
or disinterested directors, or otherwise. The Corporation also is
authorized to enter into contracts of indemnification."
4. This Restated Certificate of Incorporation was duly adopted by
written consent of the stockholders in accordance with the applicable
provisions of Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware and written notice of the adoption of this Restated
Certificate of Incorporation has been given as provided by Section 228 of the
General Corporation Law of the State of Delaware to every stockholder
entitled to such notice.
5. This Restated Certificate of Incorporation shall be effective on May
22nd, 1998.
IN WITNESS WHEREOF, ThermoView Industries, Inc. has caused this
Certificate to be signed by Stephen A. Hoffmann, Chairman of the Board,
President and Chief Executive Officer, this 22nd day of May, 1998.
/s/ Stephen A. Hoffmann
------------------------------------
Stephen A. Hoffmann, Chairman of the
Board, President and Chief Executive
Officer
-5-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
THERMOVIEW INDUSTRIES, INC.
THERMOVIEW INDUSTRIES, INC. (the "Company"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Company, by unanimous written
consent of its members, filed with the minutes of the Board, duly adopted
resolutions setting forth a proposed amendment to the Company's Restated
Certificate of Incorporation, declaring said amendment to be advisable and
proposing stockholder consideration of such amendment at the Company's 1999
Annual Meeting of Stockholders. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, That the Company's Restated Certificate of Incorporation be amended
by changing Article 5 so that, as amended, said Article shall be and read as
follows:
"5. The business and affairs of the Corporation shall be managed and
conducted by or under the direction of the Board of Directors. The number of
directors of the Corporation shall be fixed from time to time by or in the
manner provided in the bylaws, but the number thereof shall never be less
than seven (7). The directors shall be divided into three classes, each
class to consist, as nearly as may be, of one-third of the number of
directors constituting the whole Board. The term of office of those of the
first class shall expire at the annual meeting of stockholders to be held in
2000. The term of office of the second class shall expire at the annual
meeting of stockholders to be held in 2001. The term of office of the third
class shall expire at the annual meeting of stockholders to be held in 2002.
At each annual meeting of stockholders following such initial classification
and election, directors elected to succeed those directors whose terms have
expired shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders following their election. Each
director shall be entitled to serve for the term for which he was elected or
until his successor shall be elected and qualified, whichever period is
longer.
The Board of Directors is authorized to make, alter or repeal the bylaws
of the Corporation.
Anything contained in this Certificate of Incorporation to the contrary
notwithstanding (and notwithstanding that a lesser percentage may be
specified or permitted by law), the affirmative vote of the holders of at
least 66-2/3% of the voting power of all of the then outstanding shares of
the Corporation entitled to vote generally in
<PAGE>
the election of directors, voting together as a single class, shall be
required to alter, amend or repeal any provision of this Article 5."
SECOND: That thereafter, the Company's 1999 Annual Meeting of
Stockholders was duly called and held, upon notice in accordance with Section
222 of the DGCL, at which meeting the necessary number of shares as required
by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the DGCL.
<PAGE>
IN WITNESS WHEREOF, said THERMOVIEW INDUSTRIES, INC. has caused this
certificate to be signed by Nelson E. Clemmens, its President, this 9th day of
March, 1999.
THERMOVIEW INDUSTRIES, INC.
By: /s/ Nelson E. Clemmens
-----------------------------
Nelson E. Clemmens, President
<PAGE>
CERTIFICATE OF DESIGNATION
OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
THERMOVIEW INDUSTRIES, INC.
_________________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
_________________________
ThermoView Industries Inc., a Delaware corporation (the "Company")
certifies that pursuant to the authority contained in Section 4.2 of Article IV
of its Restated Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Board of Directors of the
Company (the "Board of Directors"), at a meeting held on April 19, 1999, duly
approved and adopted the following resolution, which resolution remains in full
force and effect on the date hereof:
RESOLVED, that pursuant to the authority vested in the Board of Directors
by the Certificate of Incorporation, the Board of Directors does hereby
designate, create, authorize and provide for the issue of a series of preferred
stock, $.001 par value per share, and having a liquidation value of $1,000 per
share, which shall be designated as Series C Convertible Preferred Stock (the
"Preferred Stock") consisting of up to 25,000 shares, having voting powers,
designations, preferences, limitations, restrictions, and relative rights as
follows:
<PAGE>
CERTIFICATE OF DESIGNATION OF
CONVERTIBLE PREFERRED STOCK, SERIES C
OFTHERMOVIEW INDUSTRIES, INC.
1. DESIGNATION, AMOUNT, PAR VALUE, LIQUIDATION VALUE AND RANK. The
series of preferred stock shall be designated as 9.6% Cumulative Convertible
Series C Preferred Stock, Series C ("PREFERRED STOCK"), and the number of shares
so designated shall be up to 25,000 (which shall not be subject to increase
without the consent of each of the Holders of the Preferred Stock ("HOLDERS")).
Each share of Preferred Stock, $.001 par value per share, shall have a
liquidation value of $1,000 per share (the "LIQUIDATION VALUE").
The Preferred Stock shall rank senior to the Junior Securities as
to dividends, distributions and upon liquidation, dissolution or winding up. No
class of equity securities of the Company shall be senior to the Preferred Stock
as to dividends, distributions and upon liquidation, dissolution or winding up.
The Preferred Stock shall rank PARI PASSU with the Company's Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock.
2. DIVIDENDS.
(a) Holders of Preferred Stock shall be entitled to receive, out of
funds legally available therefor, and the Company shall pay, cumulative
dividends at the rate per share (as a percentage of the Liquidation Value per
share) equal to 0.8% per month, payable quarterly, commencing on May 1, 1999, in
cash or shares of Common Stock (as defined in Section 8) at the option of the
Holder. Dividends on the Series C Preferred Stock shall be calculated on the
basis of a 360-day year, shall accrue daily commencing on the Issuance Date, and
shall be deemed to accrue from such date and be cumulative whether or not earned
or declared and whether or not there are profits, surplus or other funds of the
Company legally available for the payment of dividends. Accrued and unpaid
dividends of the Preferred Stock for any shares which are being converted shall
be paid on the date on which such Preferred Stock is converted. Except as
otherwise provided herein, if at any time the Company pays less than the total
amount of dividends then accrued on account of the Preferred Stock, such payment
shall be distributed ratably among the Holders based upon the number of shares
held by each Holder. The Holders shall provide the Company monthly written
notice of its intention to receive dividends in cash or shares of Common Stock.
Such notice shall be delivered to the Company not less than two (3) Trading Days
prior to the first Trading Day of each month for so long as shares of Preferred
Stock are outstanding. If the Holder fails to give such notice, such dividends
shall be paid in cash. If dividends are paid in shares of Common Stock, the
number of shares of Common Stock payable as such dividend to each Holder shall
be equal to the quotient obtained by dividing (a) the cash amount of such
dividend payable to such Holder on such dividend payment date by (b) the Average
Per Share Market Value. As used herein, the "AVERAGE PER SHARE MARKET VALUE"
means the average of the Per Share Market Value for the five Trading Days prior
to such dividend payment date.
(b) Notwithstanding anything to the contrary contained herein, the
Company may not issue shares of Common Stock in payment of dividends (and must
deliver cash in respect thereof) on the Preferred Stock if the shares of Common
Stock to be issued in respect of such
1
<PAGE>
dividends are not (A) registered for resale pursuant to an effective
registration statement that names the recipient of such dividends as a
selling shareholder thereunder, (B) freely transferable without volume
restrictions pursuant to Rule 144 promulgated under the Securities Act of
1933, as amended (the "SECURITIES ACT"), or (C) authorized for trading on
the OTCBB or listed on such other registered national exchange on which the
Common Stock is then listed for trading.
(c) So long as any Preferred Stock shall remain outstanding or
unconverted, except pursuant to existing agreements of the Company on the date
hereof, neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities, nor shall the
Company directly or indirectly pay or declare any dividend or make any
distribution (other than a dividend or distribution described herein) upon, nor
shall any distribution be made in respect of, any Junior Securities, nor shall
any monies be set aside for or applied to the purchase or redemption (through a
sinking fund or otherwise) of any Junior Securities.
3. VOTING RIGHTS. Except as otherwise provided herein and as
otherwise required by law, the Preferred Stock shall have no voting rights.
However, so long as any shares of Preferred Stock are outstanding, the Company
shall not and shall cause its subsidiaries not to, without the affirmative vote
of the Holders of a majority of the shares of the Preferred Stock then
outstanding, (a) alter or change adversely the absolute or relative powers,
preferences or rights given to the Preferred Stock, (b) alter or amend this
Certificate of Designation, (c) amend its Certificate of Incorporation, bylaws
or other charter documents so as to affect adversely any rights of any Holders,
(d) increase the authorized number of shares of Preferred Stock, (e) sell all or
substantially all of its assets, (f) merge with or into another company or (g)
enter into any agreement with respect to the foregoing.
4. LIQUIDATION. Upon any liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary (a "LIQUIDATION"), the Holders
shall be entitled to receive out of the assets of the Company, whether such
assets are capital or surplus, for each share of Preferred Stock an amount equal
to the Liquidation Value, plus all accrued but unpaid dividends per share,
whether declared or not, before any distribution or payment shall be made to the
Holders of any Junior Securities. If the assets of the Company shall be
insufficient to pay in full all amounts due to the Holders then the entire
assets to be distributed to the Holders and the Holders of all securities
ranking PARI PASSU to the Preferred Stock ratably in accordance with the
respective amounts that would be payable on such shares if all amounts payable
thereon were paid in full. A sale, conveyance, lease, transfer or disposition
of all or substantially all of the assets of the Company or the consummation by
the Company of a transaction or series of related transactions in which more
than 50% of the voting power of the Company is disposed of, or a consolidation
or merger of the Company with or into any other company or companies shall not
be treated as a Liquidation, but instead shall be subject to the provisions of
Sections 7 and 8. The Company shall mail written notice of any such Liquidation,
not less than 45 days prior to the payment date stated therein, to each Holder.
5. MECHANICS OF CONVERSION.
(a) HOLDER'S DELIVERY REQUIREMENTS. Each share of Preferred
Stock shall be convertible into shares of Common Stock at the Conversion
Ratio (as defined in Section 11) at the option of the Holder in whole or
in part at any time after the Original Issue Date. The Holders shall
effect conversions by surrendering to the Company the certificate
2
<PAGE>
or certificates representing the shares of Preferred Stock to be
converted, together with a copy of the form of conversion notice attached
hereto as EXHIBIT A (the "CONVERSION NOTICE"). Each Conversion Notice
shall specify the Holder, the number of shares of Preferred Stock to be
converted and the date on which such conversion is to be effected, which
date may not be prior to the date the Holder delivers such Conversion
Notice by facsimile (the "CONVERSION DATE"). If no Conversion Date is
specified in a Conversion Notice, the Conversion Date shall be the date
that the Conversion Notice is deemed delivered pursuant to Section 12.
Subject to Section 5(b) hereof, each Conversion Notice, once given, shall
be irrevocable. If the Holder is converting less than all shares of
Preferred Stock represented by the certificate or certificates tendered
by the Holder with the Conversion Notice, or if a conversion hereunder
cannot be effected in full for any reason, the Company shall promptly
cause to be delivered to such Holder (in the manner and within the time
set forth in Section 5(b)) a new certificate for such number of shares of
Preferred Stock as have not been converted. Shares of Preferred Stock
converted into Common Stock shall be cancelled and shall have the status
of authorized but unissued shares of undesignated stock.
(b) COMPANY'S RESPONSE. Not later than three (3) Trading Days
after any Conversion Date, the Company will cause to be delivered to the
Holder (i) a certificate or certificates which shall be free of
restrictive legends and trading restrictions (other than those required
by Section 3.l(b) of the Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the conversion of shares of
Preferred Stock, including accrued but unpaid dividends, (if the Holder
has elected to receive dividends in Common Stock pursuant to Section 2
hereof), (ii) one or more certificates representing the number of shares
of Preferred Stock not converted, and (iii) a bank check in the amount of
accrued and unpaid dividends (if the Holder has elected to receive
accrued dividends in cash pursuant to Section 2 hereof). Upon request of
the Holder, in lieu of physical delivery of the shares of Preferred
Stock, provided the Company's transfer agent is participating in The
Depository Trust Company ("DTC") Fast Automated Securities Transfer
("FAST") program, upon request of the Holder and in compliance with the
provisions hereof, the Company shall use its best efforts to cause its
transfer agent to electronically transmit any certificate or certificates
required to be delivered to the Holder under this Section 5 by crediting
the account of the Holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission system. The time period for delivery
described herein shall apply to the electronic transmittals described
herein. If in the case of any Conversion Notice such certificate or
certificates, including for purposes hereof, any shares of Common Stock
to be issued on the Conversion Date on account of accrued but unpaid
dividends hereunder, are not delivered to or as directed by the
applicable Holder by the third Trading Day after the Conversion Date, the
Holder shall be entitled at any time on or before its receipt of such
certificate or certificates thereafter, to rescind such conversion by
written notice to the Company, in which event the Company shall
immediately return the certificates representing the shares of Preferred
Stock for which Common Stock was not delivered pursuant to such
conversion.
(c) LIQUIDATION DAMAGES; ETC.
(i) If the Company fails to deliver to the Holder such
certificate or certificates pursuant to this Section 5, including
for purposes hereof, any shares of
3
<PAGE>
Common Stock to be issued on the Conversion Date on account of
accrued but unpaid dividends hereunder, on or prior to the
third Trading Day after the Conversion Date (the "DELIVERY
DATE"), in addition to all other remedies that such Holder may
pursue hereunder or under the Purchase Agreement, the Company
shall pay to such Holder in cash, as liquidated damages and not
as a penalty, $5,000 per day until such certificates are
delivered. If the Company fails to deliver to the Holder such
certificate or certificates pursuant to this Section 5 prior to
the 15th day after the Conversion Date the Company shall, at
the Holder's option, (i) redeem from funds legally available
therefor at the time of such redemption, such number of shares
of Preferred Stock then held by such Holder, as requested by
such Holder, and (ii) pay all accrued but unpaid dividends on
account of the Preferred Stock for which the Company shall have
failed to issue Common Stock certificates hereunder, in cash.
If such Holder opts to redeem any number of shares of Preferred
Stock pursuant to this Section 5(c)(i), then the Company shall
immediately notify all other Holders of such Holder's election
to redeem and, at any other Holders' option, which shall be
exercised within two business days thereof, redeem, from funds
legally available therefor at the time of such redemption, such
number of shares of Preferred Stock then held by such other
Holder, as requested by such Holder, which redemption shall be
simultaneous with other redemptions referred to above. The
redemption price shall be equal to the sum of (A) the aggregate
of all accrued but unpaid dividends, plus (B) the number of
shares of Preferred Stock then held by such Holder multiplied
by (1) the average Per Share Market Value for the five Trading
Days immediately preceding (x) the Conversion Date or (y) the
date of payment in full by the Company of such prepayment
price, whichever is greater, multiplied by, (2) the Conversion
Ratio calculated on the Conversion Date. If the Holder has
requested that the Company redeem shares of Preferred Stock
pursuant to this Section and the Company fails for any reason
to pay the redemption price referenced above within seven days
after such notice is deemed delivered pursuant to Section
5(c)(i), the Company will pay interest on the redemption price
at a rate of 15% per annum in cash to such Holder, accruing
from such seventh day until the redemption price and any
accrued interest thereon is paid in full. Nothing herein shall
limit a Holder's right to pursue actual damages for the
Company's failure to deliver certificates representing shares
of Common Stock upon conversion within the period specified
herein (including, without limitation, damages relating to any
purchase of shares of Common Stock by such Holder to make
delivery on a sale effected in anticipation of receiving
certificates representing shares of Common Stock upon
conversion, such damages to be in an amount equal to (A) the
aggregate amount paid by such Holder for the shares of Common
Stock so purchased minus (B) the aggregate amount of net
proceeds, if any, received by such Holder from the sale of the
shares of Common Stock issued by the Company pursuant to such
conversion), and such Holder shall have the right to pursue all
remedies available to it at law or in equity (including,
without limitation, a decree of specific performance and/or
injunctive relief).
(ii) In addition to any other rights available to the
Holder, if the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 5(c)(i) by the
Delivery Date and after the Delivery Date the Holder purchases (in
an open market transaction or otherwise) shares of Common Stock to
4
<PAGE>
deliver to the satisfaction of a sale by such Holder of the
Underlying Shares which the Holder anticipated receiving on the
Delivery Date upon such conversion (a "BUY-IN"), then the Company
shall pay in cash to the Holder (in addition to any remedies
available to or elected by the Holder) the amount by which (A) the
Holder's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock purchased for a Buy-In exceeds
(B) the aggregate Conversion Price for the number of shares of
Common Stock in the Buy-In for which such conversion was not
timely honored. For example, if the Holder purchases shares of
Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of $10,000
aggregate Conversion Price for the number of shares of Common
Stock in the Buy-In, the Company shall be required to pay the
Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of
the Buy-In.
(d) CONVERSION PRICE. The conversion price for each share of
Preferred Stock (the "CONVERSION PRICE") in effect on any Conversion Date
shall be $5.00, subject to adjustment from time to time as provided
herein.
(e) RESTRICTION ON CONVERSION BY EITHER THE HOLDER OR THE
COMPANY. Notwithstanding anything herein to the contrary, in no event
shall any Holder or the Company have the right or be required to convert
shares of Preferred Stock if as a result of such conversion the aggregate
number of shares of Common Stock beneficially owned by such Holder and
its Affiliates would exceed 4.99% of the outstanding shares of the Common
Stock following such exercise. For purposes of this Section 5(e),
beneficial ownership shall be calculated in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended. The provisions of
this Section 5(e) may be waived by a Holder as to itself (and solely as
to itself) upon not less than 65 days prior written notice to the
Company, and the provisions of this Section 5(e) shall continue to apply
until such 65th day (or later, if stated in the notice of waiver).
6. REGISTRATION REQUIREMENTS.
(a) RESERVATION OF UNDERLYING SHARES. The Company covenants
that it will at all times reserve and keep available out of its
authorized and unissued Common Stock solely for the purpose of issuance
upon conversion of the Preferred Stock and free from preemptive rights or
any other actual contingent purchase rights of persons other than the
Holders of Preferred Stock, not less than 150% of such number of shares
of Common Stock as shall (subject to any additional requirements of the
Company as to reservation of such shares set forth in the Purchase
Agreement) be issuable (taking into account the adjustments of Section 7)
upon the conversion of all outstanding shares of Preferred Stock and
payment of dividends hereunder (without regard to any limitations on
conversion). The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized,
issued and fully paid, nonassessable and, subsequent to the effectiveness
of the Registration Statement (as defined in the Registration Rights
Agreement), freely tradable.
5
<PAGE>
(b) REGISTRATION DELAY PAYMENTS. Notwithstanding the
foregoing, the provisions of Section 2(d) of the Registration Rights
Agreement are incorporated herein by reference.
7. ADJUSTMENT OF CONVERSION PRICE.
(a) COMMON STOCK DIVIDENDS; COMMON STOCK SPLITS; REVERSE COMMON
STOCK SPLITS. If the Company, at any time after the Issuance Date (a) shall pay
a stock dividend on its Common Stock, (b) subdivide outstanding shares of Common
Stock into a larger number of shares, (c) combine outstanding shares of Common
Stock into a smaller number of shares, or (d) issue by reclassification of
shares of Common Stock any shares of capital stock of the Company, then
Conversion Price shall be multiplied by a fraction, the numerator of which shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and the denominator of which shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this paragraph 7(a) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
(b) RIGHTS; WARRANTS. If the Company, at any time after the
Issuance Date, shall issue rights or warrants to all of the holders of its
Common Stock entitling them to subscribe for or purchase shares of Common Stock
at a price per share less than the Per Share Market Value of Common Stock at the
record date mentioned below, the Conversion Price shall be multiplied by a
fraction, the denominator of which shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of such
rights or warrants plus the number of additional shares of Common Stock offered
for subscription or purchase, and the numerator of which shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding on the
date of issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would purchase
at such Per Share Market Value. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants.
(c) SUBSCRIPTION RIGHTS. If the Company, at any time after the
Issuance Date, shall distribute to all of the holders of Common Stock evidences
of its indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to in paragraphs 7(a) and (b) above),
then in each such case the Conversion Price at which the Preferred Stock shall
thereafter be convertible shall be determined by multiplying the Conversion
Price in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction, the
denominator of which shall be the Per Share Market Value of Common Stock
determined as of the record date mentioned above, and the numerator of which
shall be such Per Share Market Value of the Common Stock on such record date
less the then fair market value at such record date of the portion of such
assets or evidence of indebtedness so distributed applicable to one outstanding
share of Common Stock as determined by the Board of Directors in good faith;
PROVIDED, HOWEVER, that in the event of a
6
<PAGE>
distribution exceeding ten percent (10%) of the net assets of the Company,
such fair market value shall be determined by a nationally recognized or
major regional investment banking firm or firm of independent certified
public accountants of recognized standing (an "APPRAISER") selected in good
faith by the Holders of the Preferred Stock; and PROVIDED, FURTHER, that the
Company, after receipt of the determination by such Appraiser shall have the
right to select in good faith an additional Appraiser meeting the same
qualifications, in which case the fair market value shall be equal to the
average of the determinations by each such Appraiser. Such adjustment shall
be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(d) ROUNDING. All calculations under this Section 7 shall be
made to the nearest cent or the nearest l/l00th of a share, as the case may be.
(e) NOTICE OF ADJUSTMENT. Whenever the Conversion Price is
adjusted pursuant to paragraphs 7(a), (b) or (c), the Company shall promptly
mail to the Holders a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(f) REDEMPTION EVENT. In case of (A) any reclassification of
the Common Stock, (B) any Change of Control Transaction, (C) any compulsory
share exchange pursuant to which the Common Stock is converted into other
securities, cash or property, (D) suspension from listing or delisting of the
Common Stock from the OTCBB or any Subsequent Market (as defined in the Purchase
Agreement) on which the Common Stock is listed for a period of five consecutive
days, (E) the Company's notice to any Holder, including by way of public
announcement, at any time, of its intention, for any reason, not to comply with
proper requests for the conversion of any shares of Preferred Stock into shares
of Common Stock or (F) a breach by the Company of any representation, warranty,
covenant or other term or condition of the Purchase Agreement, the Registration
Rights Agreement, this Certificate of Designation or any other agreement,
document, certificate or other instrument delivered in connection with the
transactions contemplated thereby or hereby, except to the extent that such
breach would not have a Material Adverse Effect (as defined in Section 2.1(a) of
the Purchase Agreement) and except, in the case of a breach of a covenant which
is curable, only if such breach continues for a period of at least ten days
after the Company knows or reasonably should have known of the existence of such
breach (clauses (A) through (F) above are referred to as a "REDEMPTION EVENT"),
in the case of (A), (B) and (C), the Holders shall have the right thereafter to
convert the shares of Preferred Stock for shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of Common
Stock following such Redemption Event, and the Holders shall be entitled upon
such event to receive such amount of securities, cash or property as the shares
of the Common Stock of the Company into which the shares of Preferred Stock
could have been converted immediately prior to such Redemption Event (without
taking into account any limitations or restrictions on the convertibility of the
Securities) would have been entitled; PROVIDED, HOWEVER, that in the case of a
transaction specified in (B) in which holders of the Company's Common Stock
receive cash, the Holders shall have the right to convert the shares of
Preferred Stock for such number of shares of the surviving company equal to the
amount of cash into which the shares of Preferred Stock are convertible divided
by the fair
7
<PAGE>
market value of the shares of the surviving company on the effective date of
the merger; PROVIDED, FURTHER, that on and after the date of any Redemption
Event, the Holders shall have the option to require the Company to redeem,
from funds legally available therefor at the time of such redemption, its
shares of Common Stock immediately theretofore acquirable and receivable upon
the conversion of such Holder's Preferred Stock at a price per share equal to
the product of (i) the average Per Share Market Value for the five Trading
Days immediately preceding (1) the effective date, the date of the closing,
date of occurrence or the date of the announcement, as the case may be, of
the Redemption Event triggering such redemption right or (2) the date of
payment in full by the Company of the redemption price hereunder, whichever
is greater, and (ii) the Conversion Ratio calculated on the effective date,
the date of the closing, date of occurrence or the date of the announcement,
as the case may be or, at the option of the Holder, on the date of submission
of a Redemption Notice. The entire redemption price shall be paid in cash,
and the terms of payment of such redemption price shall be subject to the
provisions set forth in Section 9(b). In the case of (A), (B) and (C), the
terms of any such Redemption Event shall include such terms so as to continue
to give to the Holders the right to receive the securities, cash or property
set forth in this Section 7(f) upon any conversion or redemption following
such Redemption Event. This provision shall similarly apply to successive
Redemption Events.
(g) RECLASSIFICATION, ETC. If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
C. the Company shall authorize the granting to the holders of
the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any
rights; or
D. the approval of any stockholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company, any consolidation or merger to
which the Company is a party, any sale or transfer of all
or substantially all of the assets of the Company, of any
compulsory share of exchange whereby the Common Stock is
converted into other securities, cash or property; or
E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of
the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of the conversion of the Preferred Stock, and shall cause to be
mailed to the Holders at the address specified herein, at least 15 calendar days
prior to the applicable record or effective date hereinafter specified, a notice
(provided such notice shall not include any material non-public information)
stating (x) the date on which a record is to be taken for the purpose of such
8
<PAGE>
dividend, distribution, redemption, rights or warrants, or if a record is not
to be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are
to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange;
PROVIDED, HOWEVER, that the failure to mail such notice or any defect therein
or in the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice. Notwithstanding the
foregoing, Holders shall be entitled to convert shares of Preferred Stock
during the 15-day period commencing the date of such notice to the effective
date of the event triggering such notice.
(h) ADJUSTMENT TO CONVERSION PRICE. In order to prevent
dilution of the rights granted under this Certificate of Designation, the
Conversion Price will be subject to adjustment from time to time as provided in
this Section 7(h):
(i) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF COMMON
STOCK. If at any time after the Issuance Date the Company issues or
sells, or is deemed to have issued or sold, any shares of Common Stock
(other than the Underlying Shares or shares of Common Stock deemed to
have been issued by the Company in connection with an Approved Stock Plan
(as defined below) or shares of Common Stock issuable upon the exercise
of any options or warrants outstanding on the date hereof and listed in
Schedule 2.1(c) of the Purchase Agreement or shares of Common Stock
issued or deemed to have been issued as consideration for an acquisition
(including earn-out payments funded with Common Stock) by the Company of
a division, assets or business (or stock constituting any portion
thereof) from another person) for a consideration per share less than the
Conversion Price in effect immediately prior to such issuance or sale,
then immediately after such issue or sale the Conversion Price then in
effect shall be reduced to an amount equal to the consideration per share
of Common Stock of such issuance or sale. For purposes of determining the
adjusted Conversion Price under this Section 7(h)(i), the following shall
be applicable:
(A) ISSUANCE OF OPTIONS. If at any time after the
Issuance Date the Company in any manner grants any rights or options to
subscribe for or to purchase Common Stock or any stock or other
securities convertible into or exchangeable for Common Stock (other than
the Underlying Shares or shares of Common Stock deemed to have been
issued by the Company in connection with an Approved Stock Plan (as
defined below) or shares of Common Stock issuable upon the exercise of
any options or warrants outstanding on the date hereof and listed in
Schedule 2.1(c) of the Purchase Agreement or shares of Common Stock
issued or deemed to have been issued as consideration for an acquisition
(including earn-out payments funded with Common Stock) by the Company of
a division, assets or business (or stock constituting any portion
thereof) from another Person) (such rights or options being herein called
"OPTIONS" and such convertible or exchangeable stock or securities being
herein called "CONVERTIBLE SECURITIES") and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon
9
<PAGE>
conversion or exchange of such Convertible Securities is less than the
Conversion Price in effect immediately prior to such grant, then the
Conversion Price shall be adjusted to equal the price per share for which
Common Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities. No adjustment of
the Conversion Price shall be made upon the actual issuance of such
Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion
or exchange of such Convertible Securities.
(B) ISSUANCE OF CONVERTIBLE SECURITIES. If at any time
after the Issuance Date the Company in any manner issues or sells any
Convertible Securities (other than the Underlying Shares or shares of
Common Stock deemed to have been issued by the Company in connection with
an Approved Stock Plan (as defined below) or shares of Common Stock
issuable upon the exercise of any options or warrants outstanding on the
date hereof and listed in Schedule 2.1(c) of the Purchase Agreement or
shares of Common Stock issued or deemed to have been issued as
consideration for an acquisition (including earn-out payments funded with
Common Stock) by the Company of a division, assets or business (or stock
constituting any portion thereof) from another Person) and the price per
share for which Common Stock is issuable upon such conversion or exchange
is less than the Conversion Price in effect immediately prior to issuance
or sale, then the Conversion Price shall be adjusted to equal the price
per share for which Common Stock is issuable upon the conversion or
exchange of such Convertible Securities. No adjustment of the Conversion
Price shall be made upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any such
issue or sale of such Convertible Securities is made upon exercise of any
Options for which adjustment of the Conversion Price had been or are to
be made pursuant to other provisions of this Section 7(h)(i), no further
adjustment of the Conversion Price shall be made by reason of such issue
or sale.
(C) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If
there is a change at any time in (i) the purchase price provided for in
any Options, (ii) the additional consideration, if any, payable upon the
issue, conversion or exchange of any Convertible Securities or (iii) the
rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock, then the Conversion Price in effect at the
time of such change shall be readjusted to the Conversion Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold; provided that no
adjustment shall be made if such adjustment would result in an increase
of the Conversion Price then in effect.
(D) CERTAIN DEFINITIONS. For purposes of determining
the adjusted Conversion Price under this Section 7(h)(i), the following
terms have meanings set forth below:
(I) "APPROVED STOCK PLAN" shall mean any
contract, plan or agreement which has been approved by the Board of
Directors of the Company, pursuant to
10
<PAGE>
which the Company's securities may be issued to any employee, officer,
director or consultant.
(E) EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For
purposes of determining the adjusted Conversion Price under this Section
7(h)(i), the following shall be applicable:
(I) CALCULATION OF CONSIDERATION RECEIVED. If
any Common Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount received by the Company
therefor. In case any Common Stock, Options or Convertible Securities
are issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company will be the fair
value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the
Company will be the arithmetic average of the Per Share Market Values of
such security for the five (5) consecutive Trading Days immediately
preceding the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving
entity in connection with any merger in which the Company is the
surviving entity the amount of consideration therefor will be deemed to
be the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined jointly by
the Company and the registered owners of a majority of the shares of
Preferred Stock then outstanding. If such parties are unable to reach
agreement within thirty (30) days after the occurrence of an event
requiring valuation (the "VALUATION EVENT"), the fair value of such
consideration will be determined within four (4) days of the thirtieth
(30th) day following the Valuation Event by an Appraiser selected in good
faith by the Company, and agreed upon in good faith by the registered
owners of a majority of the shares of Preferred Stock then outstanding.
The determination of such Appraiser shall be binding upon all parties
absent manifest error.
(II) INTEGRATED TRANSACTIONS. In case any Option
is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties
thereto, the Options will be deemed to have been issued for an aggregate
consideration of $.001.
(III) TREASURY SHARES. The number of shares of
Common Stock outstanding at any given time does not include shares owned
or held by or for the account of the Company, and the disposition of any
shares so owned or held will be considered an issue or sale of Common
Stock.
(IV) RECORD DATE. If the Company takes a record
of the holders of Common Stock for the purpose of entitling them (1) to
receive a dividend or other
11
<PAGE>
distribution payable in Common Stock, Options or in Convertible
Securities or (2) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to
have been issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
(V) CERTAIN EVENTS. If any event occurs of the
type contemplated by the provisions of Section 7(h)(i) (subject to the
exceptions stated therein) but not expressly provided for by such
provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity
features), then the Company's Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights of the
Holders or assigns; PROVIDED, HOWEVER, that no such adjustment will
increase the Conversion Price as otherwise determined pursuant to this
Section 7(h).
(i) REPORTING REQUIREMENT. In the event that the Company
shall fail to comply with Section 3.19 of the Purchase Agreement the
Conversion Price shall be decreased by 1% on the date on which the
Company is in violation of Section 3.19, and 2% per month thereafter,
prorated for partial months, until the Company is in compliance with
Section 3.19. Any decrease in the Conversion Price pursuant to this
Section shall remain in effect notwithstanding the fact that the Company
shall have complied with Section 3.19 of the Purchase Agreement and
further monthly decreases have ceased.
(j) CERTAIN EXCEPTIONS. Sections 7(a) through 7(i) shall not
apply to (i) the issuance of any securities (including, but not limited
to, subordinated debt, preferred stock or warrants) to General Electric
Capital Corporation or its affiliates (collectively "GE") in connection
with financing currently being negotiated by the Company and GE but not
yet agreed upon or finalized or (ii) securities to be issued by the
Company or selling stockholders in connection with a public offering by
the Company; PROVIDED, HOWEVER, that this Section 7(j) shall be null and
void if the conversion price of any other series of the Company's
preferred stock is reduced due to the occurrence of an event described in
Section 7(j)(i) or (ii).
(k) INCREASE IN CONVERSION PRICE. In no event shall any
provision in this Section 7 cause the Conversion Price to be greater than
the Conversion Price on the Issuance Date.
8. MAJOR ANNOUNCEMENT. If the Company (i) makes a public
announcement that it intends to enter into a Change of Control Transaction or
(ii) any person, group or entity (including the Company, but excluding a Holder
or any affiliate of a Holder) publicly announces a bona fide tender offer,
exchange offer or other transaction to purchase 50% or more of the Common Stock
(such announcement being referred to herein as a "MAJOR ANNOUNCEMENT" and the
date on which a Major Announcement is made, the "ANNOUNCEMENT DATE"), then, in
the event that a Holder seeks to convert shares of Preferred Stock on or
following the Announcement Date, the Conversion Price shall, effective upon the
Announcement Date and continuing through the
12
<PAGE>
earlier to occur of the consummation of the proposed transaction or tender
offer, exchange offer or other transaction and the Abandonment Date (as
defined below), be equal to the lesser of (A) the Conversion Price in effect
on the Trading Day immediately preceding the Announcement Date for such
Preferred Stock and (B) the Conversion Price on such Conversion Date.
"ABANDONMENT DATE" means with respect to any proposed transaction or tender
offer, exchange offer or other transaction for which a public announcement as
contemplated by this paragraph has been made, the date upon which the Company
(in the case of clause (i) above) or the person, group or entity (in the case
of clause (ii) above) publicly announces the termination or abandonment of
the proposed transaction or tender offer, exchange offer or another
transaction which caused this paragraph to become operative, in which case
the Conversion Price shall revert back to the Conversion Price in effect on
the Trading Day immediately preceding the Announcement Date.
9. MANDATORY REDEMPTION.
(a) All outstanding and unconverted shares of Preferred Stock, at the
Holder's option of October 23, 2000 or April 23, 2002 (the "Redemption Date")
shall be, at the Holders' option, converted pursuant to Section 5 or redeemed by
the Company pursuant to this Section 9, from funds legally available therefor at
a price per share equal to the product of (i) the average Per Share Market Value
for the five Trading Days immediately preceding (1) the Redemption Date or (2)
the date of payment in full by the Company of the redemption price hereunder,
whichever is greater, and (ii) the Conversion Ratio calculated on the Redemption
Date, plus any accrued but unpaid dividends on such shares. Thereafter, all
shares of Preferred Stock shall cease to be outstanding and shall have the
status of authorized but undesignated preferred stock. The entire redemption
price shall be paid in cash.
(b) If any portion of the applicable redemption price under Section
9(a) shall not be paid by the Company within seven (7) calendar days after the
date due, interest shall accrue thereon at the rate of 15% per annum until the
redemption price plus all such interest is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). In addition, if any portion of
such redemption price remains unpaid for more than seven (7) calendar days after
the date due, the Holder of the Preferred Stock subject to such redemption may
elect, by written notice to the Company given within 30 days after the date due,
to either (i) demand conversion in accordance with the formula and the time
frame therefor set forth in Section 5 of all of the shares of Preferred Stock
for which such redemption price, plus accrued liquidated damages thereof, has
not been paid in full (the "UNPAID REDEMPTION SHARES"), in which event the Per
Share Market Price for such shares shall be the lower of the Per Share Market
Price calculated on the date such redemption price was originally due and the
Per Share Market Price as of the Holder's written demand for conversion, or (ii)
invalidate AB INITIO such redemption, notwithstanding anything herein contained
to the contrary. If the Holder elects option (i) above, the Company shall within
five Trading Days of its receipt of such election deliver to the Holder the
shares of Common Stock issuable upon conversion of the Unpaid Redemption Shares
subject to such Holder conversion demand and otherwise perform its obligations
hereunder with respect thereto; or, if the Holder elects option (ii) above, the
Company shall promptly, and in any event not later than five Trading Days from
receipt of Holder's notice of such election, return to the Holder all of the
Unpaid Redemption Shares.
10. CONDITIONAL RESET. In the event that (i) the Company shall
fail to meet ninety percent (90%) of its projected proforma 1999 earnings
before interest, taxes, depreciation and
13
<PAGE>
amortization ("EBITDA"), as set forth on SCHEDULE I attached hereto, computed
in accordance with the customary financial practices of the Company and based
on financial statements prepared in accordance with GAAP and (ii) the closing
bid price of the Common Stock on the Trading Day immediately following the
day on which the Company releases its 1999 year end financial results is less
than the Conversion Price, then the Conversion Price shall be adjusted to the
lower of (a) the Conversion Price and (b) the average closing bid price for
the thirty (30) day period following the release of the Company's 1999 year
end financial results. Notwithstanding, the foregoing, the Conversion Price
shall not be adjusted pursuant to this Section to an amount less than $4.00
per share.
11. DEFINITIONS. For the purposes hereof, the following terms shall
have the following meanings:
"CHANGE OF CONTROL TRANSACTION" means the occurrence of any of (i) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Section 13(d)(3) of the Exchange Act), of in excess of 50% of
the voting securities of the Company, (ii) a replacement of more than one-half
of the members of the Company's board of directors which is not approved by a
majority of those individuals who are members of the board of directors on the
date hereof, or their duly elected successors who are directors immediately
prior to such transaction, in one or a series of related transactions, (iii) the
merger of the Company with or into another entity, unless following such
transaction, the Holders of the Company's securities continue to hold at least
50% of such securities following such transaction, (iv) consolidation or sale of
all or substantially all of the assets of the Company in one or a series of
related transactions, or (v) the execution by the Company of an agreement to
which the Company is a party or by which it is bound, providing for any of the
events set forth above in (i), (ii), (iii) or (iv).
"CLOSING DATE" means the date of the closing of the purchase and sale of
the Preferred Stock.
"COMMISSION" means the United States Securities and Exchange
Commission, or any successor to such agency.
"COMMON STOCK" means the Company's common stock, $.001 par value per
share, of the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"CONVERSION PRICE" shall have the meaning set forth in Section 5(d).
"CONVERSION RATIO" means, at any time, a fraction, the numerator of which
is the Liquidation Value and the denominator of which is the Conversion Price at
such time.
"ISSUANCE DATE" means the date of first issue of any shares of Preferred
Stock.
"JUNIOR SECURITIES" means the Common Stock and all other equity
securities of the Company which are junior in rights and liquidation preference
to the Preferred Stock.
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of any
shares of the Preferred Stock regardless of the number of transfers of any
particular shares of Preferred Stock
14
<PAGE>
and regardless of the number of certificates which may be issued to evidence
such Preferred Stock.
"OTCBB" means the OTC Bulletin Board of the National Association of
Securities Dealers, Inc.
"PER SHARE MARKET VALUE" means on any particular date (a) the closing bid
price per share of the Common Stock on such date on the OTCBB or other
registered national stock exchange on which the Common Stock is then listed or
if there is no such price on such date, then the closing bid price on such
exchange or quotation system on the date nearest preceding such date, or (b) if
the Common Stock is not then publicly traded the fair market value of a share of
Common Stock as determined by an Appraiser selected in good faith by the Holders
of a majority in interest of the shares of the Preferred Stock; PROVIDED,
HOWEVER, that the Company, after receipt of the determination by such Appraiser,
shall have the right to select in good faith an additional Appraiser, in which
case, the fair market value shall be equal to the average of the determinations
by each such Appraiser; and PROVIDED, FURTHER that all determinations of the Per
Share Market Value shall be appropriately adjusted for any stock dividends,
stock splits or other similar transactions during such period.
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"PURCHASE AGREEMENT" means the Securities Purchase Agreement, dated as of
the Original Issue Date, among the Company and the original Holders of the
Preferred Stock.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of the Original Issue Date, by and among the Company and the original
Holders.
"TRADING DAY" means (a) a day on which the Common Stock is traded on the
OTCBB or other registered national stock exchange on which the Common Stock has
been listed, or (b) if the Common Stock is not quoted on the OTCBB, a day on
which the Common Stock is quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, however, that in
the event that the Common Stock is not listed or quoted as set forth in (a), (b)
and (c) hereof, then Trading Day shall mean any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close.
"UNDERLYING SHARES" means the number of shares of Common Stock into which
the Shares are convertible in accordance with the terms hereof and the Purchase
Agreement.
12. NOTICES. Except as otherwise provided in the event of conversion
of shares of Preferred Stock, all notices or other communications required
hereunder shall be in writing and shall be deemed to have been received (a) upon
hand delivery (receipt acknowledged) or delivery by telex (with correct answer
back received) telecopy or facsimile (with transmission confirmation report) at
the address or number designated below (if received by 8:00 p.m. EST where such
notice is to be received), or the first business day following such delivery (if
received after 8:00 p.m. EST where such notice is to be received) or (b) on the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address,
15
<PAGE>
or upon actual receipt of such mailing, whichever shall first occur; and
shall be regarded as properly addressed if sent to the parties or their
representatives at the addresses given below:
To the Company: ThermoView Industries, Inc.
1101 Herr land
Louisville, KY 40222
Attn: Nelson E. Clemmens, President
Phone: (502) 412-5600
Fax: (502) 412-0301
With Copies to: Stites & Harbison
400 West Market Street
Suite 1800
Louisville, KY 40202-3352
Attn: Alex P. Herrington, Jr., Esq.
Phone: (502) 587-3400
Fax: (502) 587-6391
To the Holders: Brown Simpson Strategic Growth Fund, Ltd.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Phone: (212) 247-8200
Fax: (212) 247-1329
Brown Simpson Strategic Growth Fund, L.P.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Phone: (212) 247-8200
Fax: (212) 247-1329
with copies to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
Attn: James Kaye, Esq.
Phone: (212) 872-1000
Fax: (212) 872-1002
or such other address as any of the above may have furnished to the other
parties in writing by registered mail, return receipt requested.
13. LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of
evidence reasonably satisfactory to the Company (including any bond the
Company's transfer agent requires the Holders to post) of the loss, theft,
destruction or mutilation of any stock certificates
16
<PAGE>
representing Preferred Stock, and, in the case of loss, theft or destruction,
of any indemnification undertaking by the Holder to the Company in customary
form and, in the case of mutilation, upon surrender and cancellation of such
Series C Stock certificate(s), the Company shall execute and deliver new
preferred stock certificate(s) of like tenor and date; PROVIDED, HOWEVER, the
Company shall not be obligated to re-issue preferred stock certificates if
the Holder contemporaneously requests the Company to convert such Preferred
Stock into Common Stock.
14. REMEDIES CHARACTERIZED; OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE
RELIEF. The remedies provided in this Certificate of Designation shall be
cumulative and in addition to all other remedies available under this
Certificate of Designation, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a Holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designation. The Company covenants to each Holder of Preferred Stock that there
shall be no characterization concerning this instrument other than as expressly
provided herein. The Company further covenants that it will not take any action
which might materially and adversely affect the rights of the Holders of
Preferred Stock. Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the Holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holders of the
Preferred Stock and that the remedy at law in the event of any such breach may
be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the Holders of the Preferred Stock shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
15. SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION. No specific
provision contained in this Certificate of Designation shall limit or modify any
more general provision contained herein. This Certificate of Designation shall
be deemed to be jointly drafted by the Company and all Purchasers (as defined in
this Purchase Agreement) and shall not be construed against any person as the
drafter hereof.
16. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
of a Holder of Preferred Stock in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
17. FRACTIONAL SHARES. Upon a conversion hereunder, the Company shall
not be required to issue stock certificates representing fractions of shares of
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such time.
If the Company elects not, or is unable, to make such a cash payment, the Holder
of a share of Preferred Stock shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.
17
<PAGE>
18. PAYMENT OF TAX UPON ISSUE OF TRANSFER. The issuance of
certificates for shares of the Common Stock upon conversion of the Preferred
Shares shall be made without charge to the Holders thereof for any documentary
stamp or similar taxes that may be payable in respect of the issue or delivery
of such certificate, provided that the Company shall not be required to pay any
tax that may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate upon conversion in a name other than that of
the Holders so converted 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.
19. SHARES OWNED BY COMPANY DEEMED NOT OUTSTANDING. In determining
whether the holders of the outstanding shares of Preferred Stock have concurred
in any direction, consent or waiver under this Certificate of Designation,
shares of Preferred Stock which are owned by the Company or any other obligor on
the warrants or by any person directly or indirectly controlling or controlled
by or under direct or indirect common control with the Company or any other
obligor on such shares shall be disregarded and deemed not to be outstanding for
the purpose of any such determination; provided that any Preferred Stock owned
by the Purchasers (as defined in the Purchase Agreement) shall be deemed
outstanding for purposes of making such a determination. Preferred Stock so
owned which have been pledged in good faith may be regarded as outstanding if
the pledgee establishes to the satisfaction of the Company the pledgee's right
so to act with respect to such warrants and that the pledgee is not the Company
or any other obligor upon the securities or any person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company or any other obligor on the preferred stock.
20. EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not affect the construction hereof.
[SIGNATURE PAGES TO FOLLOW]
18
<PAGE>
IN WITNESS WHEREOF ThermoView Industries, Inc. has caused this Certificate to
be signed by its President on this 23rd day of April, 1999.
/s/ Nelson E. Clemmens
-------------------------------------
Name: Nelson E. Clemmens
Title: President
19
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(TO BE EXECUTED BY THE REGISTERED HOLDER IN
ORDER TO CONVERT SHARES OF SERIES C PREFERRED
STOCK)
The undersigned hereby elects to convert the number of shares of Series C
Convertible Preferred Stock indicated below, into shares of common stock, par
value $.001 per share (the "Common Stock"), of ThermoView Industries, Inc. (the
"COMPANY") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the Holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations:
____________________________________________
Date to Effect Conversion
____________________________________________
Number of shares of Series C Preferred Stock
to be Converted
____________________________________________
Number of shares of Common Stock to be Issued
____________________________________________
Applicable Conversion Price
____________________________________________
Signature
____________________________________________
Name
____________________________________________
Address
20
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATION
OF
CONVERTIBLE PREFERRED STOCK, SERIES C
OF
THERMOVIEW INDUSTRIES, INC.
-----------------------------------------------
PURSUANT TO SECTION 242 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
-----------------------------------------------
ThermoView Industries, Inc., a Delaware corporation (the "Company")
certifies that pursuant to the authority contained in Section 4.2 of Article
IV of its Restated Certificate of Incorporation, as amended, and in
accordance with the provisions of Section 242 of the General Corporation Law
of the State of Delaware, the Board of Directors of the Company, at a meeting
held on June 28, 1999, duly approved and adopted the following amendment (the
"Amendment") to the Certificate of Designation of Convertible Preferred
Stock, Series C (the "Certificate of Designation") and holders of all of the
outstanding $.001 par value Series C Convertible Preferred Stock approved
such Amendment by unanimous written consent in lieu of a meeting dated as of
July 6, 1999:
A. Section 2 of the Certificate of Designation is hereby
replaced in its entirety with the following:
"2. DIVIDENDS
(a) Holders of Preferred Stock shall be entitled to receive, out of
funds legally available therefor, and the Company shall pay, cumulative
dividends at the rate per share (as a percentage of the Liquidation Value per
share) equal to 0.8% per month, payable quarterly, commencing on May 1, 1999.
Each dividend payable after July 9, 1999 will be comprised of (i) 70% cash
and (ii) 30% Common Stock (as defined in Section 8), the number of shares of
which shall be equal to the quotient obtained by dividing (a) 30% of the cash
amount of the total dividend payable to such Holder on such dividend payment
date by (b) the Average Per Share Market Value. As used herein, the "AVERAGE
PER SHARE MARKET VALUE" means the average of the Per Share Market Value for
the five Trading Days prior to such dividend payment date. Dividends on the
Series C Preferred Stock shall be calculated on the basis of a 360-day year,
shall accrue daily commencing on the Issuance Date, and shall be deemed to
accrue from such date and be cumulative whether or not earned or declared and
whether or not there are profits, surplus or other funds of the Company
legally available for the payment of dividends. Accrued and unpaid dividends
of the Preferred Stock for any shares which are being converted shall be paid
on the date on which such Preferred Stock is converted. Except as otherwise
provided
<PAGE>
herein, if at any time the Company pays less than the total amount of
dividends then accrued on account of the Preferred Stock, such payment shall
be distributed ratably among the Holders based upon the number of shares held
by each Holder.
(b) [Reserved for future use.]
(c) So long as any Preferred Stock shall remain outstanding or
unconverted, except pursuant to existing agreements of the Company as of
April 23, 1999, neither the Company nor any subsidiary thereof shall redeem,
purchase or otherwise acquire directly or indirectly any Junior Securities,
nor shall the Company directly or indirectly pay or declare any dividend or
make any distribution (other than a dividend or distribution described
herein) upon, nor shall any distribution be made in respect of, any Junior
Securities, nor shall any monies be set aside for or applied to the purchase
or redemption (through a sinking fund or otherwise) of any Junior Securities."
B. A new section of the Certificate of Designation is added, as
follows:
"21. REDEMPTION DEMAND. Notwithstanding anything to the contrary
contained herein, the Company shall not be required to repurchase or redeem
any shares of Preferred Stock (or Common Stock issued upon conversion or
redemption of Preferred Stock) held by a Holder if such redemption would
result in the occurrence of a default or event of default under any of the
Company's respective loan documents (the "Loan Documents") with (i) PNC Bank,
N.A., (ii) any successor senior lender, or (iii) GE Capital Equity
Investments, Inc.; PROVIDED, HOWEVER, that in each such event: (a) the
Company shall give the Holder written notice (the "Violation Notice"), within
three (3) Business Days of such Holder's redemption demand (the "Redemption
Demand"), that such redemption would result in the occurrence of a default
or event of default under the Loan Documents, (b) Warrant No. W-1, issued by
the Company to Brown Simpson Strategic Growth Fund, Ltd., and Warrant No.
W-2, issued by the Company to Brown Simpson Strategic Growth Fund, L.P.
(collectively, the "WARRANTS") shall be amended, at the Holder's option, so
that the Exercise Price (as such term is defined therein) then in effect
shall be reduced to the Per Share Market Value for the five (5) Trading Days
immediately preceding the date the Redemption Demand was made or the date
that the Company delivered the Violation Notice and (c) the Company shall
deliver to the Holder the Officer's Certificate pursuant to Section 8 of the
Warrant setting forth the Exercise Price as reduced pursuant to the terms
hereof."
-2-
<PAGE>
IN WITNESS WHEREOF ThermoView Industries, Inc. has caused this
Certificate to be signed by its President on this 9th day of July, 1999.
/s/ Nelson E. Clemmens
-------------------------
Name: Nelson E. Clemmens
Title: President
-3-
<PAGE>
THERMOVIEW INDUSTRIES, INC.
* * * * *
AMENDED AND RESTATED BY-LAWS
* * * * *
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
Section 2. 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
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be in the City of Louisville, Commonwealth of Kentucky, at
such place as may be fixed from time to time by the board of directors, or at
such other place either within or without the State of Delaware as shall be
designated from time to time by the board of directors and stated in the
notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
Section 2. Annual meetings of stockholders, commencing with the
year 1999, shall be held on the fourth Tuesday of May of each year, if not a
legal holiday, and if a legal holiday, then on the next secular day
following, at 10:00 a.m. E.S.T. at 1101 Herr Lane, Louisville, Kentucky
40222, or at such other date and time as shall be designated from time to
time by the board of directors and stated in the notice of the meeting, at
which they shall elect by a plurality vote a board of directors, and transact
such other business as may properly be brought before the meeting.
Nominations of persons for election to the board of directors of
the corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders only (a)
pursuant to the corporation's notice of meeting, (b) by or at the direction
of the board of directors, or (c) by any stockholder of the corporation who
was a
<PAGE>
stockholder of record at the time of giving of notice provided for in this
Bylaw, who is entitled to vote at the meeting and who complies with the
notice procedures set forth in this Bylaw.
For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of the preceding
paragraph, the stockholder must have given timely notice thereof in writing
to the secretary of the corporation, and such other business must otherwise
be a proper matter for stockholder action. To be timely, a stockholder's
notice shall be delivered to the secretary at the principal executive offices
of the corporation not later than the close of business on the 60th day nor
earlier than the close of business on the 90th day prior to the first
anniversary of the preceding year's annual meeting; provided, however, that
in the event that the date of the annual meeting is more than 30 days before
or more than 60 days after such anniversary date, notice by the stockholder
to be timely must be so delivered not earlier than the close of business on
the 90th day prior to such annual meeting and not later than the close of
business on the later of the 60th day prior to such annual meeting or the
10th day following the day on which public announcement of the date of such
meeting is first made by the corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time
period for the giving of a stockholder's notice as described above. Such
stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director,
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or
is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
14a-11 thereunder (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected);
(b) as to any other business that the stockholder proposes to bring before
the meeting, a brief description of the business desired to be brought before
the meeting, the reasons for conducting such business at the meeting, and any
material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the corporation's books, and of such
beneficial owner and (ii) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to
vote at such meeting not less than ten nor more than sixty days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall 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 shall be specified in
the notice of the meeting, or, if not so specified, at the place where the
-2-
<PAGE>
meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected
by any stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose
or purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board
of directors, or at the request in writing of stockholders owning a majority
in amount of the entire capital stock of the corporation issued and
outstanding and entitled to vote.
If a special meeting is called by any person or persons other than
the president or the board of directors, the request shall be in writing to
the secretary of the corporation, and shall set forth (a) as to each person
whom such person or persons propose to nominate for election or reelection as
a director at such meeting all information relating to such proposed nominee
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Exchange Act and Rule 14a-11 thereunder
(including such proposed nominee's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); (b) as
to any other business to be taken at the meeting, a brief description of such
business, the reasons for conducting such business and any material interest
in such business of the person or persons calling such meeting and the
beneficial owners, if any, on whose behalf such meeting is called; and (c) as
to the person or persons calling such meeting and the beneficial owners, if
any, on whose behalf the meeting is called (i) the name and address of such
persons, as they appear on the corporation's books, and of such beneficial
owners, and (ii) the class and number of shares of the corporation that are
owned beneficially and of record by such persons and such beneficial owners.
No business may be transacted at such special meeting otherwise than
specified in such notice or by or at the direction of the corporation's board
of directors. The corporation's secretary shall cause notice to be promptly
given to the stockholders entitled to vote, in accordance with the provisions
of Sections 2 and 6 of this Article II, that a meeting will be held at the
time reasonably requested by the person or persons who called the meeting,
not less than 60 nor more than 90 days after the receipt of the request. If
the notice is not given within 20 days after the receipt of a valid request,
the person or persons requesting the meeting may give the notice. Nothing
contained in this Section 5 shall be construed as limiting, fixing or
affecting the time when a meeting of stockholders called by action of the
board of directors may be held.
Only such business shall be conducted at a special meeting of
stockholders called by action of the board of directors as shall have been
brought before the meeting pursuant to the corporation's notice of meeting.
Section 6. Written notice of a special meeting such meeting
stating the place, date and hour of the meeting and the purpose or purposes
for which the meeting is called, shall be given not less than ten nor more
than sixty days before the date of the meeting, to each stockholder entitled
to vote at such meeting.
-3-
<PAGE>
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present
or represented at any meeting of the stockholders, the stockholders entitled
to vote thereat, present in person or represented by proxy, shall have power
to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented.
At such adjourned meeting at which a quorum shall be present or represented
any business may be transacted which might have been transacted at the
meeting as originally notified. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person
or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of the
statutes or of the certificate of incorporation, a different vote is required
in which case such express provision shall govern and control the decision of
such question.
Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital
stock having voting power held by such stockholder, but no proxy shall be
voted on after three years from its date, unless the proxy provides for a
longer period.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special
meeting of stockholders of the corporation, or any action which may be taken
at any annual special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented
in writing.
Section 12. (1) Only such persons who are nominated in accordance
with the procedures set forth in this Bylaw shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Bylaw. Except as otherwise provided by law,
the chairman of the meeting shall have the power and duty to determine
whether a nomination or any other business proposed to be brought before the
meeting was made or
-4-
<PAGE>
proposed, as the case may be, in accordance with the procedures set forth in
this Bylaw and, if any proposed nomination or business is not in compliance
with this Bylaw, to declare that such defective proposal or nomination shall
be disregarded.
(2) For purposes of this Bylaw, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to
affect any rights (i) of stockholders to request inclusion of proposals in
the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange
Act or (ii) of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
directors under specified circumstances.
ARTICLE III
DIRECTORS
Section 1. The number of directors of the corporation shall be
fixed by resolution of the board of directors from time to time, but the
number of directors shall never be less than seven (7). No decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director. The directors shall be divided into three classes, each
class to consist, as nearly as may be, of one-third of the number of
directors constituting the whole board. The term of office of those of the
first class shall expire at the annual meeting of stockholders to be held in
2000. The term of office of those of the second class shall expire at the
annual meeting of stockholders to be held in 2001. The term of office of
those of the third class shall expire at the annual meeting of stockholders
to be held in 2002. At each annual meeting of stockholders following such
initial classification and election, directors elected to succeed those
directors whose terms have expired shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders following their
election. Each director shall be entitled to served for the term for which
he was elected or until his successor shall be elected and qualified,
whichever period is longer. Directors need not be residents of Kentucky nor
stockholders of the corporation.
Section 2. Vacancies may be filled by a majority of the directors
then in office, though less than a quorum, or by a sole remaining director,
and the directors so chosen shall hold office until the next annual election
and until their successors are duly elected and shall qualify, unless sooner
displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy, the directors then in office shall constitute less than
a majority of the whole board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon
-5-
<PAGE>
application of any stockholder or stockholders holding at least ten percent
of the total number of the shares at the time outstanding having the right to
vote for such directors, summarily order an election to be held to fill any
such vacancies, or to replace the directors chosen by the directors then in
office.
Section 3. The business of the corporation shall be managed by or
under the direction of its board of directors which may exercise all such
powers of the corporation and do all such lawful acts and things as are not
by statute or by the certificate of incorporation or by these by-laws
directed or required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected board of
directors shall be held at such time and place as shall be fixed by the vote
of the stockholders at the annual meeting and no notice of such meeting shall
be necessary to the newly elected directors in order legally to constitute
the meeting, provided a quorum shall be present. In the event of the failure
of the stockholders to fix the time or place of such first meeting of the
newly elected board of directors, or in the event such meeting is not held at
the time and place so fixed by the stockholders, the meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the
president on one days' notice to each director, either personally or by mail
or by telegram; special meetings shall be called by the president or
secretary in like manner and on like notice, on the written request of two
directors unless the board consists of only one director; in which case
special meetings shall be called by the president or secretary in like manner
and on like notice on the written request of the sole director.
Section 8. At all meetings of the board a majority of the
directors shall constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If
a quorum shall not be 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 shall be
present.
-6-
<PAGE>
Section 9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken
at any meeting of the board of directors or of any committee thereof may be
taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these by-laws, members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting
of the board of directors, or any committee, by means of conference telephone
or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee
to consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in the
place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise all the powers and authority
of the board of directors in the management of the business and affairs of
the corporation, and may authorize the seal of the corporation to be affixed
to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the certificate of incorporation,
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the
board of directors as provided in Section 151(a) fix any of the preferences
or rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any
other series of the same or any other class or classes of stock of the
corporation) adopting an agreement of merger or consolidation, recommending
to the stockholders the sale, lease or exchange of all or substantially all
of the corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending
the by-laws of the corporation; and, unless the resolution or the certificate
of incorporation expressly so provide, no such committee shall have the power
or authority to declare a dividend or to authorize the issuance of stock or
to adopt a certificate of ownership and merger. Such committee or committees
-7-
<PAGE>
shall have such name or names as may be determined from time to time by
resolution adopted by the board of directors.
Section 12. Each committee shall keep regular minutes of its
meetings and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these by-laws, the board of directors shall have the
authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the board of
directors and may be paid a fixed sum for attendance at each meeting of the
board of directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees
may be allowed like compensation for attending committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or by law, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of shares
entitled to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of
the certificate of incorporation or of these by-laws, notice is required to
be given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed
to such director or stockholder, at his address as it appears on the records
of the corporation, with postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall be deposited in the United
States mail. Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein,
shall be deemed equivalent thereto.
-8-
<PAGE>
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
board of directors and shall be a chief executive officer, a president, a
vice-president, a secretary and a treasurer. The board of directors may also
choose additional vice-presidents, and one or more assistant secretaries and
assistant treasurers. Any number of offices may be held by the same person,
unless the certificate of incorporation or these by-laws otherwise provide.
Section 2. The board of directors at its first meeting after each
annual meeting of stockholders shall choose a chief executive officer, a
president, one or more vice-presidents, a secretary and a treasurer.
Section 3. The board of directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 4. The salaries of all officers and agents of the
corporation shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by
the board of directors may be removed at any time by the affirmative vote of
a majority of the board of directors. Any vacancy occurring in any office of
the corporation shall be filled by the board of directors.
THE CHIEF EXECUTIVE OFFICER
Section 6. The chief executive officer of the corporation shall
preside at all meetings of the stockholders and the board of directors, shall
have general and active management of the business of the corporation and
shall see that all orders and resolutions of the board of directors are
carried into effect.
Section 7. He may execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
THE PRESIDENT
Section 8. The president shall have general and active management
of the business of the corporation and shall see that all orders and
resolutions of the board of directors are carried into effect.
-9-
<PAGE>
Section 9. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
THE VICE-PRESIDENTS
Section 10. In the absence of the president or in the event of his
inability or refusal to act, the vice-president (or in the event there be
more than one vice-president, the vice-presidents in the order designated by
the directors, or in the absence of any designation, then in the order of
their election) shall perform the duties of the president, and when so
acting, shall have all the powers of and be subject to all the restrictions
upon the president. The vice-presidents shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the board
of directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the board of directors
in a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the board
of directors, and shall perform such other duties as may be prescribed by the
board of directors or president, under whose supervision he shall be. He
shall have custody of the corporate seal of the corporation and he, or an
assistant secretary, shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by his signature or by
the signature of such assistant secretary. The board of directors may give
general authority to any other officer to affix the seal of the corporation
and to attest the affixing by his signature.
Section 12. The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board
of directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 13. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts
and disbursements in books
-10-
<PAGE>
belonging to the corporation and shall deposit 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.
Section 14. He shall disburse the funds of the corporation as may
be ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors,
at its regular meetings, or when the board of directors so requires, an
account of all his transactions as treasurer and of the financial condition
of the corporation.
Section 15. If required by the board of directors, he shall give
the corporation a bond (which shall be renewed every six years) in such sum
and with such surety or sureties as shall be satisfactory to the board of
directors for the faithful performance of the duties of his office and for
the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control
belonging to the corporation.
Section 16. The assistant treasurer, or if there shall be more
than one, the assistant treasurers in the order determined by the board of
directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of
the treasurer and shall perform such other duties and have such other powers
as the board of directors may from time to time prescribe.
ARTICLE VI
CERTIFICATES FOR SHARES
Section 1. The shares of the corporation shall be represented by a
certificate or shall be uncertificated. Certificates shall be signed by, or
in the name of the corporation by, the chairman or vice-chairman of the board
of directors, or the president or a vice-president and the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
corporation.
Within a reasonable time after the issuance or transfer of
uncertificated stock, the corporation shall send to the registered owner
thereof a written notice containing the information required to be set forth
or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a) or
a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and
relative participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights.
Section 2. Any of or all the signatures on a certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has
-11-
<PAGE>
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent
or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates or uncertificated shares to be issued in place of any
certificate or certificates theretofore issued by the corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates
or uncertificated shares, the board of directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum 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, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent
of the corporation of a certificate for shares duly endorsed or accompanied
by proper evidence of succession, assignation or authority to transfer, it
shall be the duty of the corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon
its books. Upon receipt of proper transfer instructions from the registered
owner of uncertificated shares such uncertificated shares shall be cancelled
and issuance of new equivalent uncertificated shares or certificated shares
shall be made to the person entitled thereto and the transaction shall be
recorded upon the books of the corporation.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice
of or to vote at a
-12-
<PAGE>
meeting of stockholders shall apply to any adjournment of the meeting:
provided, however, that the board of directors may fix a new record date for
the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls
and assessments a person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock 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,
pursuant to law. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the certificate of
incorporation.
Section 2. Before payment of any dividend, there may be set aside
out of any funds of the corporation available for dividends such sum or sums
as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation,
or for such other purpose as the directors shall think conducive to the
interest of the corporation, and the directors may modify or abolish any such
reserve in the manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual
meeting, and at any special meeting of the stockholders when called for by
vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
-13-
<PAGE>
CHECKS
Section 4. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person
or persons as the board of directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 7. The corporation shall indemnify to the fullest extent
authorized or permitted and in the manner provided by law, any person made,
or threatened to be made, a party to any action, suit, or proceeding (whether
civil, criminal, administrative, investigative or otherwise) by reason of the
fact that he or she or a person of whom he or she is the legal representative
is or was a director or officer of the corporation or by reason of the fact
that such director or officer, at the request of the corporation, is or was
serving any other corporation, partnership, joint venture, trust, employee
benefit plan, or other enterprise in any capacity. Nothing contained herein
shall affect any rights to indemnification to which employees and agents
other than directors and officers may be entitled by law, and the corporation
may indemnify such employees and agents to the fullest extent and in the
manner permitted by law. The rights to indemnification set forth in this
Section 7 shall not be exclusive of any other rights to which any person may
be entitled under any law, statute, regulation, provision of this
corporation's Certificate of Incorporation (as may be amended or restated
from time to time), Bylaws, agreement, contract, vote of stockholders or
disinterested directors, or otherwise. The corporation also is authorized to
enter into contracts of indemnification.
-14-
<PAGE>
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered, amended or repealed or
new by-laws may be adopted by the stockholders or by the board of directors,
when such power is conferred upon the board of directors by the certificate
of incorporation at any regular meeting of the stockholders or of the board
of directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
by-laws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal by-laws is conferred upon the board of directors by
the certificate of incorporation it shall not divest or limit the power of
the stockholders to adopt, amend or repeal by-laws.
-15-
<PAGE>
<TABLE>
COMMON STOCK [Corporate Logo] COMMON STOCK
<S> <C> <C>
NUMBER SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINITIONS
100,000,000 AUTHORIZED SHARES $.001 PAR VALUE
CUSIP 883671 10 9
THIS CERTIFIES THAT
Is The Owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF $.001 PAR VALUE COMMON STOCK OF
THERMOVIEW INDUSTRIES, INC.
transferable only on the books of the Company in person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate is not valid unless countersigned by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the said Company has caused this Certificate to be executed by the facsimile signatures of its duly
authorized officers and to be sealed with the facsimile seal of the Company.
Dated:
/s/ [Corporate Seal] /s/
Charlton C. Hundley, Secretary Nelson E. Clemmens, President
</TABLE>
COUNTERSIGNED AND REGISTERED:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
(P.O. Box 1596, Denver, Colorado 80201)
Transfer Agent and Registrar
Authorized Signature
<PAGE>
THERMOVIEW INDUSTRIES, INC.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
accordance to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -......Custodian......
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as Act.....................
tenants in common (State)
For Value Received, _____________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________
Shares of the Common Stock represented by the within Certificate and do
hereby irrevocably constitute and appoint ____________________________________
attorney-in-fact to transfer the said stock on the books of the within-named
Corporation, with full power of substitution in the premises.
Dated:__________________________
_______________________________________________________________________________
_______________________________________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
Signature(s) Guaranteed:
_______________________________________________________________________________
The signature(s) must be guaranteed by an eligible guarantor institution
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions with
membership in an approved signature guarantee Medallion Program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE>
THERMOVIEW INDUSTRIES, INC.
1998 EMPLOYEE STOCK OPTION PLAN
Section 1.
BACKGROUND AND PURPOSE
The purpose of this Plan is to promote the interest of ThermoView
through grants to Key Employees of Options to purchase Stock in order (1) to
attract Key Employees, (2) to provide an additional incentive to each Key
Employee to work to increase the value of Stock and (3) to provide each Key
Employee with a stake in the future of ThermoView which corresponds to the
stake of each of ThermoView's stockholders.
Section 2.
DEFINITIONS
Each term set forth in this Section 2. shall have the meaning set forth
opposite such term for purposes of this Plan and, for purposes of such
definitions, the singular shall include the plural and the plural shall
include the singular.
2.1. BOARD -- means the board of directors of ThermoView.
2.2. CHANGE IN CONTROL -- means (1) the individuals who, as of the date
this Plan is effective, constitute the Board cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date this Plan is effective
whose election or nomination for election by ThermoView's shareholders, was
approved by a vote of at least a majority of the directors then comprising
the Board shall be considered as though such individual were a
1
<PAGE>
member of the Board as of the date this Plan is effective, or (2) the
acquisition, directly or indirectly, of legal or beneficial ownership of or
the power to vote more than 25% of the outstanding Stock by any person or by
two or more persons acting together, except an acquisition from ThermoView or
by ThermoView, ThermoView's management or an ThermoView sponsored employee
benefit plan, where (3) the term "person" means a natural person,
corporation, partnership, joint venture, trust, government or instrumentality
of a government, and (4) customary agreements with or between underwriters
and selling group members with respect to a bona fide public offering of
Stock shall be disregarded for purposes of this definition.
2.3. CODE -- means the Internal Revenue Code of 1986, as amended.
2.4. COMMITTEE -- means the committee appointed by the Board to
administer this Plan which at all times shall consist of two or more members
of the Board. At such time as ThermoView becomes subject to the reporting
requirements under Section 16(b) of the Exchange Act, each member of the
Committee shall be a "Non-employee Director," as defined under Rule 16b-3.
2.5. EXCHANGE ACT -- means the Securities Exchange Act of 1934, as
amended.
2.6. FAIR MARKET VALUE -- means (1) the closing price on any date for a
share of Stock as reported by THE WALL STREET JOURNAL under the New York Stock
Exchange Composite Transactions quotation system (or under any successor
quotation system) or, if Stock is
2
<PAGE>
not traded on the New York Stock Exchange, under the quotation system under
which such closing price is reported or, if THE WALL STREET JOURNAL no longer
reports such closing price, such closing price as reported by a newspaper or
trade journal selected by the Committee or, if no such closing price is
available on such date, (2) such closing price as so reported or so quoted in
accordance with Section 2.5(l) for the immediately preceding business day,
or, if no newspaper or trade journal reports such closing price or if no such
price quotation is available, (3) the price which the Committee, acting in
good faith determines through any reasonable valuation method that a share of
Stock might change hands between a willing buyer and a willing seller,
neither being under any compulsion to buy or to sell and both having
reasonable knowledge of the relevant facts.
2.7. INSIDER -- means any individual who is subject to Section 16(a) of
the Exchange Act.
2.8. ISO -- means an option granted under this Plan to purchase Stock
which is intended to satisfy the requirements of Section 422 of the Code.
2.9. KEY EMPLOYEE -- means a full time employee of ThermoView or any
Subsidiary or any affiliate of ThermoView designated by the Committee who, in
the judgment of the Committee, acting in its absolute discretion, is key,
directly or indirectly, to the success of ThermoView.
2.10. NQO-- means an option granted under this Plan to purchase Stock
which is intended to fail to satisfy the
3
<PAGE>
requirements of Section 422 of the Code.
2.11. OPTION -- means an ISO or a NQO.
2.12. OPTION CERTIFICATE -- means the written certificate which sets
forth the terms of an Option granted to a Key Employee under Section 7 of
this Plan.
2.13. OPTION PRICE -- means the price which shall be paid to purchase
one share of Stock upon the exercise of an option granted under this Plan.
2.14. PARENT CORPORATION -- means any corporation which is a parent of
ThermoView within the meaning of Section 424(e) of the Code.
2.15. PLAN -- means this ThermoView Industries, Inc. 1998 Employee
Stock Option Plan, as amended from time to time.
2.16. RULE 16b-3 -- means Rule 16b-3 as promulgated pursuant to Section
16(b) of the Exchange Act or any successor to such rule.
2.17. STOCK -- means $.001 par value common stock of ThermoView.
2.18. SUBSIDIARY -- means a corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code) of ThermoView.
2.19. SURRENDERED SHARES -- means the shares of Stock described in
Section 11 which (in lieu of being purchased) are surrendered for cash or
Stock, or for a combination of cash and Stock, in accordance with Section 11.
2.20. TEN PERCENT SHAREHOLDER -- means a person who owns (after taking
into account the attribution rules of Section 424(d) of the Code) more than
ten percent of the total combined voting power of
4
<PAGE>
all classes of stock of either ThermoView, a Subsidiary or a Parent
Corporation.
2.21. THERMOVIEW -- means ThermoView Industries, Inc., a Nevada
corporation, and any successor to such corporation.
Section 3.
SHARES RESERVED UNDER PLAN
There shall be 1,500,000 shares of Stock reserved for use under this
Plan. All such shares of Stock shall be reserved to the extent that
ThermoView deems appropriate from authorized but unissued shares of Stock and
from shares of Stock which have been reacquired by ThermoView. Furthermore,
any shares of Stock subject to an Option which remain unissued after the
cancellation, expiration or exchange of such Option thereafter shall again
become available for use under this Plan, but any Surrendered Shares which
remain unissued after the surrender of an Option under Section 11 and any
shares of Stock used to satisfy the Option Price or a withholding obligation
under Section 17.3 shall not again become available for use under this Plan.
5
<PAGE>
Section 4.
EFFECTIVE DATE
The effective date of this Plan shall be the date of its adoption by the
Board, provided the shareholders of ThermoView (acting at a duly called
meeting of such shareholders) approve such adoption within twelve (12) months
of such effective date and such approval satisfies the requirements for
shareholder approval under Rule 16b-3. If any Options are granted under this
Plan before the date of such shareholder approval, such Options automatically
shall be granted subject to such approval.
Section 5.
COMMITTEE
This Plan shall be administered by the Committee. The Board may from
time to time remove members from, or add members to, the Committee.
Vacancies on the Committee shall be filled by the Board. The Committee shall
select one of its members as Chairman and shall hold meetings at such times
and places as it shall determine. The Committee acting in its absolute
discretion shall exercise such powers and take such action as expressly
called for under this Plan and, further, the Committee shall have the power
to interpret this Plan and (subject to Section 14, Section 15 and Section 16
of this Plan and, if applicable, Rule 16b-3) to take such other action in the
administration and operation of this Plan as the Committee deems equitable
under the circumstances, which action shall be binding on ThermoView, on each
affected Key Employee and on each other person
6
<PAGE>
directly or indirectly affected by such action.
Section 6.
ELIGIBILITY
Eligibility for the grant of NQOs shall be limited to Key Employees.
Eligibility for the grant of ISOs shall be limited to Key Employees who are
employed by ThermoView or a Parent Corporation or a Subsidiary.
Section 7.
OPTIONS
7.1. COMMITTEE ACTION. The Committee acting in its absolute discretion
shall have the right to grant Options to Key Employees under this Plan from
time to time to purchase shares of Stock and, further, shall have the right
to grant new Options in exchange for outstanding Options which have a higher
or lower Option Price; provided, however, that no grants of ISOs shall be
made to Key Employees who are not employed by ThermoView or a Parent
Corporation or a Subsidiary. Each grant of an Option to a Key Employee shall
be evidenced by an Option Certificate, and each Option Certificate shall set
forth whether the Option is an ISO or a NQO and shall set forth such other
terms and conditions of such grant as the Committee acting in its absolute
discretion deems consistent with the terms of this Plan; however, if the
Committee grants an ISO and a NQO to a Key Employee on the same date, the
right of the Key Employee to exercise or surrender one such Option shall not
be conditioned on his or her failure to exercise or surrender the other such
Option.
7
<PAGE>
7.2. $100,000 LIMIT. To the extent that the aggregate Fair Market
Value of Stock (determined as of the date the ISO is granted) with respect to
which ISOs first become exercisable in any calendar year exceeds $100,000,
such Options shall be treated as NQOs. The Fair Market Value of Stock
subject to any other option (determined as the date such option was granted)
which (1) satisfies the requirements of Section 422 of the Code and (2) is
granted to a Key Employee under a plan maintained by ThermoView, a Subsidiary
or a Parent Corporation shall be treated (for purposes of this $100,000
limitation) as if granted under this Plan. The Committee shall interpret and
administer the limitation set forth in this Section 7.2 in accordance with
Section 422(d) of the Code.
Section 8.
OPTION PRICE
The Option Price for each share of Stock subject to an ISO which is
granted to a Key Employee shall be no less than the Fair Market Value of a
share of Stock on the date the ISO is granted; provided, however, if the
Option is an ISO granted to a Key Employee who is a Ten Percent Shareholder,
the Option Price for each share of Stock subject to such ISO shall be no less
than 110% of the Fair Market Value of a share of Stock on the date such ISO
is granted. The Option Price for each share of Stock subject to an NQO which
is granted to a Key Employee may (in the absolute discretion of the
Committee) be more or less than or equal to the Fair Market Value of a share
of Stock on the date the NQO is granted; however, that in no event shall the
Option
8
<PAGE>
Price be less than adequate consideration as determined by the Committee.
The Option Price shall be payable in full upon the exercise of any Option,
and at the discretion of the Committee, an Option Certificate can provide for
the payment of the Option Price either in cash, by check or in Stock
acceptable to the Committee, or in any combination of cash, check and Stock
acceptable to the Committee. Any payment made in Stock shall be treated as
equal to the Fair Market Value of such Stock on the date the properly
endorsed certificate for such Stock is delivered to the Committee or its
delegate. Any payment made in Stock shall be made either by tendering shares
of Stock held by the Key Employee or, to the extent allowed by the Committee,
in its sole discretion, by having ThermoView withhold Stock (that otherwise
would be transferred to the Key Employee upon the exercise of such Option).
Section 9.
EXERCISE PERIOD
Each Option granted under this Plan to a Key Employee shall be
exercisable in whole or in part at such time or times as set forth in the
related Option Certificate, but no Option Certificate shall make an Option
granted to a Key Employee exercisable after the earlier of
(1) the date such Option is exercised in full, or
(2) the date which is the fifth anniversary of the date the Option
is granted, if the Option is an ISO and the Key Employee is a
Ten Percent
9
<PAGE>
Shareholder on the date the Option is granted, or
(3) the date which is the tenth anniversary of the date the Option
is granted, if the Option is (a) an NQO or (b) an ISO which is
granted to a Key Employee who is not a Ten Percent Shareholder
on the date the Option is granted.
An Option Certificate may provide for the exercise of an Option after the
employment of a Key Employee has terminated for any reason whatsoever,
including death or disability.
Section 10.
NONTRANSFERABILITY
Neither an Option granted under this Plan nor any related surrender
rights under Section 11 shall be transferable by a Key Employee other than by
will or by the laws of descent and distribution, and any such Option and any
such surrender rights shall be exercisable during the lifetime of a Key
Employee only by such Key Employee. The person or persons to whom an Option
or any related surrender rights is transferred by will or by the laws of
descent and distribution thereafter shall be treated as the Key Employee
under this Plan.
10
<PAGE>
Section 11.
SURRENDER OF OPTIONS
11.1. GENERAL RULE. The Committee acting in its absolute discretion
may incorporate a provision in an Option Certificate to allow a Key Employee
to surrender his or her Option in whole or in part in lieu of the exercise in
whole or in part of that Option on any date that
(1) the Fair Market Value of the Stock subject to such Option
exceeds the Option Price for such Stock, and
(2) the Option to purchase such Stock is otherwise exercisable.
11.2. PROCEDURE. The surrender of an Option in whole or in part shall
be effected by the delivery of the Option Certificate to the Committee (or to
its delegate) together with a statement signed by the Key Employee which
specifies the number of shares of Stock as to which the Key Employee
surrenders his or her Option and (at the Key Employee's option) how he or she
desires payment be made for such Surrendered Shares.
11.3. PAYMENT. A Key Employee in exchange for his or her Surrendered
Shares shall (to the extent consistent with the exemption under Rule 16b-3,
if applicable) receive a payment in cash or in Stock, or in a combination of
cash and Stock, equal in amount on the date such surrender is effected to the
excess of the Fair Market Value of the Surrendered Shares on such date over
the Option Price for the Surrendered Shares. The Committee
11
<PAGE>
acting in its absolute discretion shall determine the form and timing of such
payment, and the Committee shall have the right (1) to take into account
whatever factors the Committee deems appropriate under the circumstances,
including any written request made by the Key Employee and delivered to the
Committee (or to its delegate) and (2) to forfeit a Key Employee's right to
payment of cash in lieu of a fractional share of stock if the Committee deems
such forfeiture necessary in order for the surrender of his or her Option
under this Section 11 to come within the exemption under Rule 16b-3.
11.4. RESTRICTIONS. At such time as ThermoView becomes subject to the
reporting requirements under Section 16(b) of the Exchange Act, any Option
Certificate which incorporates a provision to allow a Key Employee to
surrender his or her Option in whole or in part also shall incorporate such
additional restrictions, if any, as the Committee deems necessary to satisfy
the conditions to the exemption under Rule 16b-3.
Section 12.
SECURITIES REGISTRATION
Each Option Certificate shall provide that, upon the receipt of shares
of Stock as a result of the surrender or exercise of an Option, the Key
Employee shall, if so requested by ThermoView, hold such shares of Stock for
investment and not with a view of resale or distribution to the public and,
if so requested by ThermoView, shall deliver to ThermoView a written
statement satisfactory to ThermoView to that effect. ThermoView shall not
12
<PAGE>
have any obligation to take any action to register the Plan or the issuance
of Stock pursuant to this Plan under the Securities Act of 1933, as amended,
or under any other applicable securities laws or to qualify such Stock for an
exemption under any such laws. Each Option Certificate also shall provide
that, if so requested by ThermoView, the Key Employee shall make a written
representation to ThermoView that he or she will not sell or offer to sell
any of such Stock unless a registration statement shall be in effect with
respect to such Stock under the Securities Act of 1933, as amended, and the
applicable state securities laws, or unless he or she shall furnish to
ThermoView an opinion, in form and substance satisfactory to ThermoView, of
legal counsel acceptable to ThermoView, that such registration is not
required. Certificates representing the Stock transferred upon the exercise
of an Option under this Plan may at the discretion of ThermoView bear a
legend to the effect that such Stock has not been registered under the
Securities Act of 1933, as amended, or any applicable state securities law,
and that such Stock may not be sold or offered for sale in the absence of an
effective registration statement as to such Stock under such act and any
applicable state securities law or an opinion, in form and substance
satisfactory to ThermoView, of legal counsel acceptable to ThermoView, that
such registration is not required.
Section 13.
LIFE OF PLAN
No Option shall be granted under this Plan on or after the
13
<PAGE>
earlier of
(1) the tenth anniversary of the effective date of this Plan (as
determined under Section 4 of this Plan), in which event this Plan
shall continue in effect until all outstanding Options have been
surrendered or exercised in full or no longer are exercisable, or
(2) the date on which all of the Stock reserved under Section 3 of this
Plan has (as a result of the surrender or exercise of Options
granted under this Plan) been issued or no longer is available for
use under this Plan, in which event this Plan also shall terminate
on such date.
Section 14.
ADJUSTMENT
The number, kind or class (or any combination thereof) of shares of
Stock reserved under Section 3 of this Plan, and the number, kind or class
(or any combination thereof) of shares of Stock subject to Options granted
under this Plan and the Option Price of such options shall be adjusted by the
Board in an equitable manner to reflect any change in the capitalization of
ThermoView, including, but not limited to, such changes as stock dividends or
stock splits. Furthermore, the Board shall have the right to adjust (in a
manner which satisfies the requirements of Section 424(a) of the Code) the
number, kind or class (or any combination thereof) of shares of Stock
reserved under Section 3 of this Plan, and the number, kind or class (or any
combination thereof) of shares subject to Options granted under this Plan and
the Option Price
14
<PAGE>
of such Options in the event of any corporate transaction described in
Section 424(a) of the Code which provides for the substitution or assumption
of such Option grants in order to take into account on an equitable basis the
effect of such transaction. If any adjustment under this Section 14 would
create a fractional share of Stock or a right to acquire a fractional share
of Stock, such fractional share shall be disregarded and the number of shares
of Stock reserved under this Plan and the number subject to any Options
granted under this Plan shall be the next lower number of shares of Stock,
rounding all fractions downward. An adjustment made under this Section 14 by
the Board shall be conclusive and binding on all affected persons and,
further, shall not constitute an increase in "the number of shares reserved
under Section 3" within the meaning of Section 16(1)(a) of this Plan.
Section 15.
SALE OR MERGER OF THERMOVIEW; CHANGE IN CONTROL
15.1. SALE OR MERGER. If ThermoView agrees to sell all or
substantially all of its assets for cash or prshall noperty or for a
combination of cash and property or agrees to any merger, consolidation,
reorganization, division or other corporate transaction in which Stock is
converted into another security or into the right to receive securities or
property and such agreement does not provide for the assumption or
substitution of the Options granted under this Plan in accordance with
Section 14 on a basis that is fair and equitable to holders of such Options
as determined by the Board, each Option granted to a Key Employee at
15
<PAGE>
the direction and discretion of the Board (a) may (subject to such
conditions, if any, as the Board deems appropriate under the circumstances)
be cancelled unilaterally by ThermoView (i) in exchange for (A) a transfer to
such Key Employee of the number of whole shares of Stock, if any, which he or
she would have received if he or she had the right to surrender his or her
outstanding Option in full under Section 11 of this Plan and he or she
exercised that right on the date set by the Board exclusively for Stock or
(B) the right to exercise his or her outstanding Option in full on any date
before the date as of which the Board unilaterally cancels such Option in
full or, if the exchange described in this Section 15.1(i) would result in a
violation of Section 16 of the Exchange Act for a Key Employee, (ii) may be
cancelled unilaterally by ThermoView after advance written notice to such key
Employee or (b) may be cancelled unilaterally by ThermoView if the Option
Price equals or exceeds the Fair Market Value of a share of Stock on a date
set by the Board. The Board may exercise its discretion to vest an Option in
full upon a transaction described in this Section 15.1 either at the time the
Option is granted (by including such vesting provision in the Option
Certificate given to the affected Key Employee) or at the time such
transaction occurs.
15.2. CHANGE IN CONTROL. If there is a Change in Control of ThermoView
or a tender or exchange offer is made for Stock other than by ThermoView, the
Board thereafter shall have the right to take such action with respect to any
unexercised Options
16
<PAGE>
granted to Key Employees, or all such Options, as the Board deems appropriate
under the circumstances to protect the interest of ThermoView in maintaining
the integrity of such grants under this Plan, including following the
procedure set forth in Section 15.1 for a sale or merger of ThermoView with
respect to such Options. At the time an Option is granted, the Board may, in
its discretion, provide for full vesting of such Option upon a transaction
described in this Section 15.2 by including such a provision in the Option
Certificate given to the affected Key Employee. The Board shall have the
right to take different action under this Section 15.2 with respect to
different Key Employees or different groups of Key Employees, as the Board
deems appropriate under the circumstances.
17
<PAGE>
Section 16.
AMENDMENT OR TERMINATION
This Plan may be amended by the Board from time to time to the extent
that the Board deems necessary or appropriate; provided, however, no such
amendment shall be made absent the approval of the shareholders of ThermoView
required under Section 422 of the Code (a) to increase the number of shares
of stock reserved under Section 3, or (b) to change the class of employees
eligible for Options grants under Section 6. Any amendment which
specifically applies to NQOs shall not require shareholder approval unless
such approval is necessary to comply with Section 16 of the Exchange Act.
The Board also may suspend the granting of Options under this Plan at any
time and may terminate this Plan at any time; provided, however, the Board
shall not have the right unilaterally to modify, amend or cancel any Option
granted before such suspension or termination unless (1) the Key Employee
consents in writing to such modification, amendment or cancellation or (2)
there is a dissolution or liquidation of ThermoView or a transaction
described in Section 14 or Section 15 of this Plan.
Section 17.
MISCELLANEOUS
17.1. SHAREHOLDER RIGHTS. No Key Employee shall have any rights as a
shareholder of ThermoView as a result of the grant of an Option under this
Plan or his or her exercise or surrender of such Option pending the actual
delivery of the Stock subject to
18
<PAGE>
such Option to such Key Employee.
17.2. NO CONTRACT OF EMPLOYMENT. The grant of an Option to a Key
Employee under this Plan shall not constitute a contract of employment and
shall not confer on a Key Employee any rights upon his or her termination of
employment in addition to those rights, if any, expressly set forth in the
Option Certificate which evidences his or her Option.
17.3. WITHHOLDING. The exercise or surrender of any Option granted
under this Plan shall constitute a Key Employee's full and complete consent
to whatever action the Board or the Committee, as applicable, deems necessary
to satisfy the federal and state tax withholding requirements, if any, which
the Board or the Committee, as applicable, in its discretion deems applicable
to such exercise or surrender. The Board or the Committee, as applicable,
also shall have the right to provide in an Option Certificate that a Key
Employee may elect to satisfy federal and state tax withholding requirements
through a reduction in the number of shares of Stock actually transferred to
him or to her under this Plan, and if the Key Employee is subject to the
reporting requirements under Section 16 of the Exchange Act, any such
election shall be effected so as to satisfy the conditions to the exemption
under Rule 16b-3.
17.4. CONSTRUCTION. This Plan shall be construed under the laws of the
State of Nevada.
17.5. OTHER CONDITIONS. Each Option Certificate may require that a Key
Employee (as a condition to the exercise of an
19
<PAGE>
Option) enter into any agreement or make such representations prepared by
ThermoView, including any agreement which restricts the transfer of Stock
acquired pursuant to the exercise of an Option or provides for the repurchase
of such Stock by ThermoView under certain circumstances.
IN WITNESS WHEREOF, ThermoView, Inc. has caused its duly authorized
officer to execute this Plan this 15th day of April, 1998 to evidence its
adoption of this Plan.
THERMOVIEW INDUSTRIES, INC.
By: /s/ Stephen A. Hoffmann
---------------------------------
Title: Chairman of the Board,
President and
Chief Executive Officer
20
<PAGE>
THERMOVIEW INDUSTRIES, INC.
1999 STOCK OPTION PLAN
Section 1.
BACKGROUND AND PURPOSE
The purpose of this Plan is to promote the interest of ThermoView
through grants to Key Employees and Directors of Options to purchase Stock in
order (1) to attract Key Employees and Directors, (2) to provide an
additional incentive to each Key Employee and Director to work to increase
the value of Stock, and (3) to provide each Key Employee and Director with a
stake in the future of ThermoView which corresponds to the stake of each of
ThermoView's stockholders.
Section 2.
DEFINITIONS
Each term set forth in this Section 2 shall have the meaning set forth
opposite such term for purposes of this Plan and, for purposes of such
definitions, the singular shall include the plural and the plural shall
include the singular.
2.1. BOARD -- means the board of directors of ThermoView.
2.2. CHANGE IN CONTROL -- means (1) the individuals who, as of the date
this Plan is effective, constitute the Board cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date this Plan is effective
whose election or nomination for election by ThermoView's shareholders, was
approved by a vote of at least a majority of the directors then comprising
the Board shall be considered as though such individual were a member of the
Board as of the date this Plan is effective, or (2) the acquisition, directly
or indirectly, of legal or beneficial ownership of or the power to vote more
than 25% of the outstanding Stock by any person or by two or more persons
1
<PAGE>
acting together, except an acquisition from ThermoView or by ThermoView,
ThermoView's management or an ThermoView sponsored employee benefit plan,
where (3) the term "person" means a natural person, corporation, partnership,
joint venture, trust, government or instrumentality of a government, and (4)
customary agreements with or between underwriters and selling group members
with respect to a bona fide public offering of Stock shall be disregarded for
purposes of this definition.
2.3. CODE -- means the Internal Revenue Code of 1986, as amended.
2.4. COMMITTEE -- means the committee appointed by the Board to
administer this Plan which at all times shall consist of two or more members
of the Board. At such time as ThermoView becomes subject to the reporting
requirements under Section 16(b) of the Exchange Act, each member of the
Committee shall be a "Non-employee Director," as defined under Rule 16b-3.
2.5. DIRECTOR -- means any member of the Board who is not an employee of
ThermoView or a Subsidiary or any affiliate of ThermoView and who is
designated in writing by the Board as eligible to receive an Option under
this Plan.
2.6. EXCHANGE ACT -- means the Securities Exchange Act of 1934, as
amended.
2.7. FAIR MARKET VALUE -- means (1) the closing price on any date for a
share of Stock as reported by THE WALL STREET JOURNAL under the New York
Stock Exchange Composite Transactions quotation system (or under any
successor quotation system) or, if Stock is not traded on the New York Stock
Exchange, under the quotation system under which such closing price is
reported or, if THE WALL STREET JOURNAL no longer reports such closing price,
such closing price as reported by a newspaper or trade journal selected by
the Committee or, if no such closing price is available on such date, (2)
such closing price as so reported or so quoted in
2
<PAGE>
accordance with Section 2.5(l) for the immediately preceding business day,
or, if no newspaper or trade journal reports such closing price or if no such
price quotation is available, (3) the price which the Committee, acting in
good faith determines through any reasonable valuation method that a share of
Stock might change hands between a willing buyer and a willing seller,
neither being under any compulsion to buy or to sell and both having
reasonable knowledge of the relevant facts.
2.8. INSIDER -- means any individual who is subject to Section
16(a) of the Exchange Act.
2.9. ISO -- means an option granted under this Plan to purchase
Stock which is intended to satisfy the requirements of Section 422 of the
Code.
2.10. KEY EMPLOYEE -- means a full time employee of ThermoView or
any Subsidiary or any affiliate of ThermoView designated by the Committee
who, in the judgment of the Committee, acting in its absolute discretion, is
key, directly or indirectly, to the success of ThermoView.
2.11. NQO-- means an option granted under this Plan to purchase
Stock which is intended to fail to satisfy the requirements of Section 422 of
the Code.
2.12. OPTION -- means an ISO or a NQO.
2.13. OPTION CERTIFICATE -- means the written certificate which sets
forth the terms of an Option granted to a Key Employee or Director under
Section 7 of this Plan.
2.14. OPTION PRICE -- means the price which shall be paid to
purchase one share of Stock upon the exercise of an option granted under this
Plan.
2.15. PARENT CORPORATION -- means any corporation which is a parent
of ThermoView within the meaning of Section 424(e) of the Code.
3
<PAGE>
2.16. PLAN -- means this ThermoView Industries, Inc. 1999 Stock
Option Plan, as amended from time to time.
2.17. RULE 16b-3 -- means Rule 16b-3 as promulgated pursuant to
Section 16(b) of the Exchange Act or any successor to such rule.
2.18. STOCK -- means $.001 par value common stock of ThermoView.
2.19. SUBSIDIARY -- means a corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code) of ThermoView.
2.20. SURRENDERED SHARES -- means the shares of Stock described in
Section 11 which (in lieu of being purchased) are surrendered for cash or
Stock, or for a combination of cash and Stock, in accordance with Section 11.
2.21. TEN PERCENT SHAREHOLDER -- means a person who owns (after
taking into account the attribution rules of Section 424(d) of the Code) more
than ten percent of the total combined voting power of all classes of stock
of either ThermoView, a Subsidiary or a Parent Corporation.
2.22. THERMOVIEW -- means ThermoView Industries, Inc., a Delaware
corporation, and any successor to such corporation.
4
<PAGE>
Section 3.
SHARES RESERVED UNDER PLAN
There shall be 2,500,000 shares of Stock reserved for use under this
Plan; provided, however, that any shares of Stock reserved for issuance but
not granted under the ThermoView Industries, Inc. 1998 Employee Stock Option
Plan as of the close of business on January 1, 1999 shall be available for
use under this Plan and shall be counted toward the total 2,500,000 shares of
Stock reserved for use under this Plan. All such shares of Stock shall be
reserved to the extent that ThermoView deems appropriate from authorized but
unissued shares of Stock and from shares of Stock which have been reacquired
by ThermoView. Furthermore, any shares of Stock subject to an Option which
remain unissued after the cancellation, expiration or exchange of such Option
thereafter shall again become available for use under this Plan, but any
Surrendered Shares which remain unissued after the surrender of an Option
under Section 11 and any shares of Stock used to satisfy the Option Price or
a withholding obligation under Section 17.3 shall not again become available
for use under this Plan.
Section 4.
EFFECTIVE DATE
The effective date of this Plan shall be January 1, 1999, provided the
Board has adopted the Plan as of such date and provided the shareholders of
ThermoView (acting at a duly called meeting of such shareholders) approve
such adoption within twelve (12) months of such effective date and such
approval satisfies the requirements for shareholder approval under Rule
16b-3. If any Options are granted under this Plan before the date of such
shareholder approval, such Options automatically shall be granted subject to
such approval.
5
<PAGE>
Section 5.
COMMITTEE
This Plan shall be administered by the Committee. The Board may from
time to time remove members from, or add members to, the Committee.
Vacancies on the Committee shall be filled by the Board. The Committee shall
select one of its members as Chairman and shall hold meetings at such times
and places as it shall determine. The Committee acting in its absolute
discretion shall exercise such powers and take such action as expressly
called for under this Plan and, further, the Committee shall have the power
to interpret this Plan and (subject to Section 14, Section 15 and Section 16
of this Plan and, if applicable, Rule 16b-3) to take such other action in the
administration and operation of this Plan as the Committee deems equitable
under the circumstances, which action shall be binding on ThermoView, on each
affected Key Employee, on each affected Director and on each other person
directly or indirectly affected by such action.
Section 6.
ELIGIBILITY
Eligibility for the grant of NQOs shall be limited to Key Employees and
Directors. Eligibility for the grant of ISOs shall be limited to Key
Employees who are employed by ThermoView or a Parent Corporation or a
Subsidiary.
Section 7.
OPTIONS
7.1. COMMITTEE ACTION. The Committee acting in its absolute discretion
shall have the right to grant Options to Key Employees and Directors under this
Plan from time to time to purchase shares of Stock and, further, shall have the
right to grant new Options in exchange for outstanding Options which have a
higher or lower Option Price; provided, however, that no grants of ISOs shall be
made to Key Employees who are not employed by ThermoView or a
6
<PAGE>
Parent Corporation or a Subsidiary. Each grant of an Option to a Key
Employee or Director shall be evidenced by an Option Certificate, and each
Option Certificate shall set forth whether the Option is an ISO or a NQO and
shall set forth such other terms and conditions of such grant as the
Committee acting in its absolute discretion deems consistent with the terms
of this Plan; however, if the Committee grants an ISO and a NQO to a Key
Employee on the same date, the right of the Key Employee to exercise or
surrender one such Option shall not be conditioned on his or her failure to
exercise or surrender the other such Option.
7.2. $100,000 LIMIT. To the extent that the aggregate Fair Market Value
of Stock (determined as of the date the ISO is granted) with respect to which
ISOs first become exercisable in any calendar year exceeds $100,000, such
Options shall be treated as NQOs. The Fair Market Value of Stock subject to
any other option (determined as the date such option was granted) which (1)
satisfies the requirements of Section 422 of the Code and (2) is granted to a
Key Employee under a plan maintained by ThermoView, a Subsidiary or a Parent
Corporation shall be treated (for purposes of this $100,000 limitation) as if
granted under this Plan. The Committee shall interpret and administer the
limitation set forth in this Section 7.2 in accordance with Section 422(d) of
the Code.
Section 8.
OPTION PRICE
The Option Price for each share of Stock subject to an ISO which is granted
to a Key Employee shall be no less than the Fair Market Value of a share of
Stock on the date the ISO is granted; provided, however, if the Option is an ISO
granted to a Key Employee who is a Ten Percent Shareholder, the Option Price for
each share of Stock subject to such ISO shall be no less than 110% of the Fair
Market Value of a share of Stock on the date such ISO is granted. The Option
Price for each share of Stock subject to an NQO which is granted to a Key
Employee or
7
<PAGE>
Director may (in the absolute discretion of the Committee) be more or less
than or equal to the Fair Market Value of a share of Stock on the date the
NQO is granted; however, that in no event shall the Option Price be less than
adequate consideration as determined by the Committee. The Option Price
shall be payable in full upon the exercise of any Option, and at the
discretion of the Committee, an Option Certificate can provide for the
payment of the Option Price either in cash, by check or in Stock acceptable
to the Committee, or in any combination of cash, check and Stock acceptable
to the Committee. Any payment made in Stock shall be treated as equal to the
Fair Market Value of such Stock on the date the properly endorsed certificate
for such Stock is delivered to the Committee or its delegate. Any payment
made in Stock shall be made either by tendering shares of Stock held by the
Key Employee or Director or, to the extent allowed by the Committee, in its
sole discretion, by having ThermoView withhold Stock (that otherwise would be
transferred to the Key Employee or Director upon the exercise of such
Option).
Section 9.
EXERCISE PERIOD
Each Option granted under this Plan to a Key Employee or Director shall
be exercisable in whole or in part at such time or times as set forth in the
related Option Certificate, but no Option Certificate shall make an Option
granted to a Key Employee or Director exercisable after the earlier of
(1) the date such Option is exercised in full;
(2) the date which is the fifth anniversary of the date the Option
is granted, if the Option is an ISO and the Key Employee is a Ten Percent
Shareholder on the date the Option is granted, or
8
<PAGE>
(3) the date which is the tenth anniversary of the date the Option
is granted, if the Option is (a) an NQO or (b) an ISO which is granted to a
Key Employee who is not a Ten Percent Shareholder on the date the Option is
granted.
An Option Certificate may provide for the exercise of an Option after the
employment of a Key Employee has terminated for any reason whatsoever,
including death or disability. Also, an Option Certificate may provide for
the exercise of an Option after a Director has ceased to serve as such (or
has ceased to serve in the same capacity on the Board as when the Option was
granted) for any reason whatsoever, including death or disability.
Section 10.
NONTRANSFERABILITY
Neither an Option granted under this Plan nor any related surrender
rights under Section 11 shall be transferable by a Key Employee or Director
other than by will or by the laws of descent and distribution, and any such
Option and any such surrender rights shall be exercisable during the lifetime
of a Key Employee or Director only by such Key Employee or Director. The
person or persons to whom an Option or any related surrender rights is
transferred by will or by the laws of descent and distribution thereafter
shall be treated as the Key Employee or Director under this Plan.
Section 11.
SURRENDER OF OPTIONS
11.1. GENERAL RULE. The Committee acting in its absolute discretion
may incorporate a provision in an Option Certificate to allow a Key Employee
or Director to surrender his or her Option in whole or in part in lieu of the
exercise in whole or in part of that Option on any date that
9
<PAGE>
(1) the Fair Market Value of the Stock subject to such Option
exceeds the Option Price for such Stock, and
(2) the Option to purchase such Stock is otherwise exercisable.
11.2. PROCEDURE. The surrender of an Option in whole or in part
shall be effected by the delivery of the Option Certificate to the Committee
(or to its delegate) together with a statement signed by the Key Employee or
Director which specifies the number of shares of Stock as to which the Key
Employee or Director surrenders his or her Option and (at the Key Employee's
or Director's option) how he or she desires payment be made for such
Surrendered Shares.
11.3. PAYMENT. A Key Employee or Director in exchange for his or
her Surrendered Shares shall (to the extent consistent with the exemption
under Rule 16b-3, if applicable) receive a payment in cash or in Stock, or in
a combination of cash and Stock, equal in amount on the date such surrender
is effected to the excess of the Fair Market Value of the Surrendered Shares
on such date over the Option Price for the Surrendered Shares. The Committee
acting in its absolute discretion shall determine the form and timing of such
payment, and the Committee shall have the right (1) to take into account
whatever factors the Committee deems appropriate under the circumstances,
including any written request made by the Key Employee or Director and
delivered to the Committee (or to its delegate) and (2) to forfeit a Key
Employee's or Director's right to payment of cash in lieu of a fractional
share of stock if the Committee deems such forfeiture necessary in order for
the surrender of his or her Option under this Section 11 to come within the
exemption under Rule 16b-3.
11.4. RESTRICTIONS. At such time as ThermoView becomes subject to
the reporting requirements under Section 16(b) of the Exchange Act, any
Option Certificate which incorporates a provision to allow a Key Employee or
Director to surrender his or her Option in
10
<PAGE>
whole or in part also shall incorporate such additional restrictions, if any,
as the Committee deems necessary to satisfy the conditions to the exemption
under Rule 16b-3.
Section 12.
SECURITIES REGISTRATION
Each Option Certificate shall provide that, upon the receipt of shares
of Stock as a result of the surrender or exercise of an Option, the Key
Employee or Director shall, if so requested by ThermoView, hold such shares
of Stock for investment and not with a view of resale or distribution to the
public and, if so requested by ThermoView, shall deliver to ThermoView a
written statement satisfactory to ThermoView to that effect. ThermoView
shall not have any obligation to take any action to register the Plan or the
issuance of Stock pursuant to this Plan under the Securities Act of 1933, as
amended, or under any other applicable securities laws or to qualify such
Stock for an exemption under any such laws. Each Option Certificate also
shall provide that, if so requested by ThermoView, the Key Employee or
Director shall make a written representation to ThermoView that he or she
will not sell or offer to sell any of such Stock unless a registration
statement shall be in effect with respect to such Stock under the Securities
Act of 1933, as amended, and the applicable state securities laws, or unless
he or she shall furnish to ThermoView an opinion, in form and substance
satisfactory to ThermoView, of legal counsel acceptable to ThermoView, that
such registration is not required. Certificates representing the Stock
transferred upon the exercise of an Option under this Plan may at the
discretion of ThermoView bear a legend to the effect that such Stock has not
been registered under the Securities Act of 1933, as amended, or any
applicable state securities law, and that such Stock may not be sold or
offered for sale in the absence of an effective registration statement as to
such Stock under such act and any applicable state securities law or an
opinion, in form and substance
11
<PAGE>
satisfactory to ThermoView, of legal counsel acceptable to ThermoView, that
such registration is not required.
Section 13.
LIFE OF PLAN
No Option shall be granted under this Plan on or after the earlier of
(1) the tenth anniversary of the effective date of this Plan (as
determined under Section 4 of this Plan), in which event this Plan shall
continue in effect until all outstanding Options have been surrendered or
exercised in full or no longer are exercisable, or
(2) the date on which all of the Stock reserved under Section 3 of this
Plan has (as a result of the surrender or exercise of Options granted under
this Plan) been issued or no longer is available for use under this Plan, in
which event this Plan also shall terminate on such date.
Section 14.
ADJUSTMENT
The number, kind or class (or any combination thereof) of shares of
Stock reserved under Section 3 of this Plan, and the number, kind or class
(or any combination thereof) of shares of Stock subject to Options granted
under this Plan and the Option Price of such options shall be adjusted by the
Board in an equitable manner to reflect any change in the capitalization of
ThermoView, including, but not limited to, such changes as stock dividends or
stock splits. Furthermore, the Board shall have the right to adjust (in a
manner which satisfies the requirements of Section 424(a) of the Code) the
number, kind or class (or any combination thereof) of shares of Stock
reserved under Section 3 of this Plan, and the number, kind or class (or any
combination thereof) of shares subject to Options granted under this Plan and
the Option Price of such Options in the event of any corporate transaction
described in Section 424(a) of the Code which provides for the substitution
or assumption of such Option grants in order to take into account on an
equitable basis the effect of
12
<PAGE>
such transaction. If any adjustment under this Section 14 would create a
fractional share of Stock or a right to acquire a fractional share of Stock,
such fractional share shall be disregarded and the number of shares of Stock
reserved under this Plan and the number subject to any Options granted under
this Plan shall be the next lower number of shares of Stock, rounding all
fractions downward. An adjustment made under this Section 14 by the Board
shall be conclusive and binding on all affected persons and, further, shall
not constitute an increase in "the number of shares reserved under Section 3"
within the meaning of Section 16(1)(a) of this Plan.
Section 15.
SALE OR MERGER OF THERMOVIEW; CHANGE IN CONTROL
15.1. SALE OR MERGER. If ThermoView agrees to sell all or
substantially all of its assets for cash or property or for a combination of
cash and property or agrees to any merger, consolidation, reorganization,
division or other corporate transaction in which Stock is converted into
another security or into the right to receive securities or property and such
agreement does not provide for the assumption or substitution of the Options
granted under this Plan in accordance with Section 14 on a basis that is fair
and equitable to holders of such Options as determined by the Board, each
Option granted to a Key Employee or Director at the direction and discretion
of the Board (a) may (subject to such conditions, if any, as the Board deems
appropriate under the circumstances) be cancelled unilaterally by ThermoView
(i) in exchange for (A) a transfer to such Key Employee or Director of the
number of whole shares of Stock, if any, which he or she would have received
if he or she had the right to surrender his or her outstanding Option in full
under Section 11 of this Plan and he or she exercised that right on the date
set by the Board exclusively for Stock or (B) the right to exercise his or
her outstanding Option in full on any date before the date as of which the
Board unilaterally cancels such Option in full or, if the exchange described
in this Section 15.1(i) would result in a violation of Section 16 of the
13
<PAGE>
Exchange Act for a Key Employee or Director, (ii) may be cancelled
unilaterally by ThermoView after advance written notice to such Key Employee
or Director or (b) may be cancelled unilaterally by ThermoView if the Option
Price equals or exceeds the Fair Market Value of a share of Stock on a date
set by the Board. The Board may exercise its discretion to vest an Option in
full upon a transaction described in this Section 15.1 either at the time the
Option is granted (by including such vesting provision in the Option
Certificate given to the affected Key Employee or Director) or at the time
such transaction occurs.
15.2. CHANGE IN CONTROL. If there is a Change in Control of
ThermoView or a tender or exchange offer is made for Stock other than by
ThermoView, the Board thereafter shall have the right to take such action
with respect to any unexercised Options granted to Key Employees or
Directors, or all such Options, as the Board deems appropriate under the
circumstances to protect the interest of ThermoView in maintaining the
integrity of such grants under this Plan, including following the procedure
set forth in Section 15.1 for a sale or merger of ThermoView with respect to
such Options. At the time an Option is granted, the Board may, in its
discretion, provide for full vesting of such Option upon a transaction
described in this Section 15.2 by including such a provision in the Option
Certificate given to the affected Key Employee or Director. The Board shall
have the right to take different action under this Section 15.2 with respect
to different Key Employees, different Directors or different groups of Key
Employees, as the Board deems appropriate under the circumstances. The Board
shall have the right to take different action under this Section 15.2 with
respect to Key Employees on the one hand and Directors on the other hand
and/or with respect to different Directors or different groups of Directors,
as the Board deems appropriate under the circumstances.
14
<PAGE>
Section 16.
AMENDMENT OR TERMINATION
This Plan may be amended by the Board from time to time to the extent
that the Board deems necessary or appropriate; provided, however, no such
amendment shall be made absent the approval of the shareholders of ThermoView
required under Section 422 of the Code (a) to increase the number of shares
of stock reserved under Section 3, or (b) to change the class of employees
eligible for Options grants under Section 6. Any amendment which
specifically applies to NQOs shall not require shareholder approval unless
such approval is necessary to comply with Section 16 of the Exchange Act.
The Board also may suspend the granting of Options under this Plan at any
time and may terminate this Plan at any time; provided, however, the Board
shall not have the right unilaterally to modify, amend or cancel any Option
granted before such suspension or termination unless (1) the Key Employee or
Director consents in writing to such modification, amendment or cancellation
or (2) there is a dissolution or liquidation of ThermoView or a transaction
described in Section 14 or Section 15 of this Plan.
Section 17.
MISCELLANEOUS
17.1. SHAREHOLDER RIGHTS. No Key Employee or Director shall have
any rights as a shareholder of ThermoView as a result of the grant of an
Option under this Plan or his or her exercise or surrender of such Option
pending the actual delivery of the Stock subject to such Option to such Key
Employee or Director.
17.2. NO CONTRACT OF EMPLOYMENT OR RIGHT TO SERVICE. The grant of an
Option to a Key Employee or Director under this Plan shall not constitute a
contract of employment or a right to continue to serve on the Board and shall
not confer on a Key Employee or Director any rights
15
<PAGE>
upon his or her termination of employment or service in addition to those
rights, if any, expressly set forth in the Option Certificate, which
evidences his or her Option.
17.3. WITHHOLDING. The exercise or surrender of any Option granted
under this Plan shall constitute a Key Employee's or Director's full and
complete consent to whatever action the Board or the Committee, as
applicable, deems necessary to satisfy the federal and state tax withholding
requirements, if any, which the Board or the Committee, as applicable, in its
discretion deems applicable to such exercise or surrender. The Board or the
Committee, as applicable, also shall have the right to provide in an Option
Certificate that a Key Employee or Director may elect to satisfy federal and
state tax withholding requirements through a reduction in the number of
shares of Stock actually transferred to him or to her under this Plan, and if
the Key Employee or Director is subject to the reporting requirements under
Section 16 of the Exchange Act, any such election shall be effected so as to
satisfy the conditions to the exemption under Rule 16b-3.
17.4. CONSTRUCTION. This Plan shall be construed under the laws of
the State of Delaware.
17.5. OTHER CONDITIONS. Each Option Certificate may require that a
Key Employee or Director (as a condition to the exercise of an Option) enter
into any agreement or make such representations prepared by ThermoView,
including any agreement which restricts the transfer of Stock acquired
pursuant to the exercise of an Option or provides for the repurchase of such
Stock by ThermoView under certain circumstances.
16
<PAGE>
IN WITNESS WHEREOF, ThermoView, Inc. has caused its duly authorized
officer to execute this Plan this 16th day of December, 1998 to evidence its
adoption of this Plan.
THERMOVIEW INDUSTRIES, INC.
By: /s/ Nelson E. Clemmens
---------------------------
Title: President
---------------------------
17
<PAGE>
850,000 SHARES EXERCISE PRICE: $.50
STOCK OPTION AGREEMENT - LD CAPITAL, INC.
THIS STOCK OPTION AGREEMENT - LD CAPITAL, INC. (the "Option Agreement") made
and effective as of the 22nd day of October, 1997 (the "Effective Date"),
between THERMO-TILT WINDOW COMPANY, herein referred to as the "CORPORATION",
being incorporated under the laws of the State of Delaware, maintaining its
principal place of business at 1101 Alsop Lane, Owensboro, Kentucky 42303;
and LD CAPITAL, INC., herein referred to as "CONSULTANT", of 133 South Third
Street, Louisville, Kentucky 40202.
WITNESSETH:
WHEREAS, the variety of services rendered by Consultant, including general
business, management and business opportunity evaluation, merger and
acquisition location and structuring services, represents an important and
valuable aid to the conduct of the Corporation's business enterprise, and as
such Corporation deems it to be in the best interests of the Corporation to
secure the services of Consultant; and
WHEREAS, the Corporation desires to enter into this Option Agreement with the
Consultant containing the terms and conditions hereinafter set forth, and to
grant to Consultant an option to purchase shares of the Common Stock of the
Corporation.
NOW, THEREFORE, in consideration of the promises and mutual agreements of the
parties herein contained, and for other good and valuable consideration, the
parties agree as follows:
1. GRANT OF OPTION. In consideration of the foregoing, the
Corporation hereby grants and issues to Consultant the right at the election
of the Consultant (hereinafter referred to as the "Option") to purchase up to
an aggregate of 850,000 Shares of Common Stock ($.001 par value) of the
Corporation at a price of $.50 per share all of which Options shall be
exercisable, in whole or in part, at any time from a period commencing twelve
months from the Effective Date hereof and ending sixty (60) months from the
Effective Date hereof (the "Expiration Date").
1.1 ANTI-DILUTION PROVISION. The number of shares underlying the
option shall be proportionately increased in the event that the Corporation
causes to be issued additional Shares in the form of a stock dividend, stock
splits, option exercise at less than book value (with the exception of the
exercise of options under (i) the Stock Option Agreement - Clemmens, dated
October 22, 1997, by and between the Corporation and Nelson E. Clemmens; (ii)
the Stock Option Agreement - Epelbaum, dated October 22, 1997, by and between
the Corporation and Roman Epelbaum, and (iii) the Stock Option Agreement
- -Hoffmann, dated October 22, 1997, by and between the Corporation and
Stephen A.
<PAGE>
Hoffmann) or other such reclassification; or conversely, proportionately
decreased in the event of a reverse split or reclassification. In the event
that stockholders of the Corporation are granted the right to purchase
additional shares from the proceeds of a cash dividend by the Corporation,
such event shall be treated as a stock dividend as relates to the option.
2. METHOD OF EXERCISING OPTION. The Option may be exercised, in
whole, or in part at any time prior to 3:00 p.m. Owensboro, Kentucky Time on
the Expiration Date, by giving written notice to the Corporation to that
effect. The Option evidenced hereby shall be exercisable by the delivery to
and receipt by the Corporation of (a) this original Option Agreement (b) a
written Notice of Election to Exercise (the "Notice of Election") in the form
set forth on the Schedule I to Option Agreement, to this option, attached
hereto and incorporated herein by reference, specifying the number of Shares
to be purchased in not less than one thousand (1,000) share denominations (c)
payment of the full purchase price, either by federal funds wire transfer to
the bank depository to be specified by the Corporation or by certified check,
U.S. funds, payable to the order of the Corporation, or on such other terms
as may be acceptable to the Corporation. If the Notice of Exercise is for
less than the total of 850,000 Shares, and the time for exercise has not
expired, the Corporation shall provide the Consultant with a new or revised
Option Agreement for the balance of the Shares then remaining unexercised,
upon the same terms and conditions as stated herein.
3. CORPORATION'S REPRESENTATION. The Corporation represents that it
will use its best efforts to prepare, file, and maintain with the appropriate
regulatory authorities an effective Registration Statement on Form S-8 (the
"Form S-8"), or other applicable form, for the shares of its Common Stock
underlying the Option granted by this Option Agreement, such Form S-8 to
allow for the immediate resale of the shares subject to the Option Agreement,
but only at such time as the Corporation is in compliance with the
requirements to use the Form S-8.
4. RESTRICTION AGAINST ASSIGNMENT. Except as otherwise expressly
provided above, Consultant agrees that this Option Agreement and the rights,
interests and benefits under it shall not be assigned, transferred, pledged,
or hypothecated in any way by Consultant or any other person claiming under
Consultant by virtue hereof. Such rights, interests or benefits shall not be
subject to execution, attachment, or similar process. Any attempted
assignment, transfer, pledge, or hypothecation, or other disposition of this
Option Agreement or of such rights, interests, and benefits contrary to the
preceding provisions, or the levy or any attachment or similar process
thereupon, shall be null and void and without any legal effect.
-2-
<PAGE>
5. NOTICES. All notices required to be given by either party shall be
in writing and delivered by registered, certified or overnight express mail,
return receipt requested, to the party being noticed at the address set forth
in the first paragraph of this Option Agreement. Any notice to the
Corporation shall be addressed to the attention of the President. Any notice
to the Consultant shall be addressed to the attention of the President.
Either party may effect a change in such address by a prior written notice.
6. BINDING ACCEPTANCE. By acceptance of this signed Option Agreement,
the Consultant does hereby agree to be bound by all of the terms and
conditions set forth herein.
7. GOVERNING LAW. This Option Agreement shall be construed under the
laws of the Commonwealth of Kentucky.
8. TOTAL AGREEMENT. This Option Agreement is the entire agreement
between the parties hereto relating to the subject matter hereof. This
Option Agreement rescinds any and all prior agreements and understandings
between the parties with respect to the subject matter covered in this Option
Agreement
IN WITNESS WHEREOF, the Corporation has executed this Option Agreement by its
duly authorized corporate officer as of the date set forth above.
"Corporation"
THERMO-TILT WINDOW COMPANY
By: /s/ Richard E. Bowlds
----------------------
Richard E. Bowlds,
President
Accepted by:
"Consultant"
LD CAPITAL, INC.
By: /s/ Douglas I. Maxwell, III
----------------------------
Douglas I. Maxwell, III,
President
-3-
<PAGE>
SCHEDULE I TO OPTION AGREEMENT
NOTICE OF ELECTION TO EXERCISE
TO: Thermo-Tilt Window Company
1101 Alsop Lane
Owensboro, KY 42303
The Undersigned Purchaser hereby elects to purchase ____ shares (the
"Shares") of the Common Stock ($.001 par value) of Thermo-Tilt Window Company
(the "Corporation") pursuant to the terms of the Stock Option Agreement - LD
Capital, Inc. (the "Option"), dated as of October 22, 1997, by and between
the undersigned and the Corporation, (which Option must be surrendered with
this Notice of Election To Exercise).
Payment In Full (U.S. Funds) is hereby tendered in the aggregate sum of
$______________, which sum represents Shares (maximum 850,000) times the per
Share purchase price of $.50 by:
( ) Certified Check or ( ) Federal Funds Wire Transfer to the
Corporation's depository bank in accordance with your prior written
instructions.
( ) By Delivery vs Payment at:__________________________________________
or Account #:__________________________________________
You are hereby requested to issue a certificate representing the Shares in
the name(s), and to the address(es) as specified below:
Name:_________________________________________________________________________
Street:______________________________________ Number of Shares:______________
City:____________________________ State:_______________ Zip:________________
Social Security or Tax I.D. Number:______________________________________
Purchaser acknowledges that no formal memorandum, prospectus or offering
document of any kind has been delivered by the Corporation with specific
regard to this Option exercise. However, by virtue of the Purchaser's
consulting relationship with, and activities on behalf of the Corporation,
sufficient business and other information has been made available by the
Corporation to enable Purchaser to fully evaluate the investment potential of
the Shares being acquired. The Corporation's representatives have provided
information and answered all material questions.
Date:____________________________ , _____ ___________________________________
-4-
<PAGE>
If no registration statement as to the Option and the Shares is effective as
of the date of exercise, include the following paragraph:
The purchaser represents and warrants that it is purchasing the Shares
for investment and not with a view to distribution thereof and understands
and acknowledges that the Stock Certificate(s) representing the Shares shall
bear the following legend:
The shares represented by this certificate have not been
registered or qualified for sale under the Securities Act
of 1933, as amended (the "Act"), or any state securities
or blue sky laws, and may not be sold, transferred or
otherwise disposed of except pursuant to an exemption from
registration or qualification thereunder. The Corporation
may require, as a condition to transfer of this certificate,
an opinion of counsel satisfactory to the Corporation to the
effect that such transfer will not be in violation of the Act
or any such laws.
-5-
<PAGE>
21,742 SHARES EXERCISE PRICE: $0.29
STOCK OPTION AGREEMENT - STEPHEN A. HOFFMANN
- --------------------------------------------------------------------------------
THIS STOCK OPTION AGREEMENT - STEPHEN A. HOFFMANN (the "Option Agreement") made
and effective as of the 22nd day of October, 1997 (the "Effective Date"),
between THERMOVIEW INDUSTRIES, INC., herein referred to as the "CORPORATION",
being incorporated under the laws of the State of Nevada, maintaining its
principal place of business at 1101 Herr Lane, Louisville, Kentucky 40222; and
STEPHEN A. HOFFMANN, herein referred to as "CONSULTANT", of 2408 Greten Lane,
Anchorage, Kentucky 40223.
WITNESSETH:
WHEREAS, the variety of services rendered by Consultant, including general
business, management and business opportunity evaluation, merger and acquisition
location and structuring services, represents an important and valuable aid to
the conduct of the Corporation's business enterprise, and as such Corporation
deems it to be in the best interests of the Corporation to secure the services
of Consultant; and
WHEREAS, the Corporation desires to enter into this Option Agreement with the
Consultant containing the terms and conditions hereinafter set forth, and to
grant to Consultant an option to purchase shares of the Common Stock of the
Corporation.
NOW, THEREFORE, in consideration of the promises and mutual agreements of the
parties herein contained, and for other good and valuable consideration, the
parties agree as follows:
1. GRANT OF OPTION. In consideration of the foregoing, the Corporation
hereby grants and issues to Consultant the right at the election of the
Consultant (hereinafter referred to as the "Option") to purchase up to an
aggregate of 21,742 Shares of Common Stock ($.001 par value) of the Corporation
at a price of $0.29 per share all of which Options shall be exercisable, in
whole or in part, at any time from a period commencing twelve months from the
Effective Date hereof and ending sixty (60) months from the Effective Date
hereof (the "Expiration Date").
1.1 ANTI-DILUTION PROVISION. The number of shares underlying the
option shall be proportionately increased in the event that the Corporation
causes to be issued additional Shares in the form of a stock dividend, stock
splits, option exercise at less than book value (with the exception of the
exercise of options under (i) the Stock Option Agreement - Clemmens, dated
October 22, 1997, by and between the Corporation and Nelson E. Clemmens; (ii)
the Stock Option Agreement - Epelbaum, dated October 22, 1997, by and between
the Corporation and Roman Epelbaum, and (iii) the Stock Option Agreement - LD
Capital, Inc., dated October 22, 1997, by and between the Corporation and LD
Capital, Inc.) or other such reclassification; or conversely, proportionately
decreased in the event of a reverse split or reclassification. In the event
that stockholders of the Corporation
<PAGE>
are granted the right to purchase additional shares from the proceeds of a
cash dividend by the Corporation, such event shall be treated as a stock
dividend as relates to the option.
2. METHOD OF EXERCISING OPTION. The Option may be exercised, in whole,
or in part at any time prior to 3:00 p.m. Louisville, Kentucky Time on the
Expiration Date, by giving written notice to the Corporation to that effect.
The Option evidenced hereby shall be exercisable by the delivery to and receipt
by the Corporation of (a) this original Option Agreement (b) a written Notice of
Election to Exercise (the "Notice of Election") in the form set forth on the
Schedule I to Option Agreement, to this Option, attached hereto and incorporated
herein by reference, specifying the number of Shares to be purchased in not less
than one thousand (1,000) share denominations (c) payment of the full purchase
price, either by federal funds wire transfer to the bank depository to be
specified by the Corporation or by certified check, U.S. funds, payable to the
order of the Corporation, or on such other terms as may be acceptable to the
Corporation. If the Notice of Exercise is for less than the total of 21,742
Shares, and the time for exercise has not expired, the Corporation shall provide
the Consultant with a new or revised Option Agreement for the balance of the
Shares then remaining unexercised, upon the same terms and conditions as stated
herein.
3. CORPORATION'S REPRESENTATION. The Corporation represents that it will
use its best efforts to prepare, file, and maintain with the appropriate
regulatory authorities an effective Registration Statement on Form S-8 (the
"Form S-8"), or other applicable form, for the shares of its Common Stock
underlying the Option granted by this Option Agreement, such Form S-8 to allow
for the immediate resale of the shares subject to the Option Agreement, but only
at such time as the Corporation is in compliance with the requirements to use
the Form S-8.
4. RESTRICTION AGAINST ASSIGNMENT. Except as otherwise expressly
provided above, Consultant agrees that this Option Agreement and the rights,
interests and benefits under it shall not be assigned, transferred, pledged, or
hypothecated in any way by Consultant or any other person claiming under
Consultant by virtue hereof. Such rights, interests or benefits shall not be
subject to execution, attachment, or similar process. Any attempted assignment,
transfer, pledge, or hypothecation, or other disposition of this Option
Agreement or of such rights, interests, and benefits contrary to the preceding
provisions, or the levy or any attachment or similar process thereupon, shall be
null and void and without any legal effect.
5. NOTICES. All notices required to be given by either party shall be in
writing and delivered by registered, certified or overnight express mail, return
receipt requested, to the party being noticed at the address set forth in the
first paragraph of this Option Agreement. Any notice to the Corporation shall
be addressed to the attention of the President. Either party may effect a
change in such address by a prior written notice.
6. BINDING ACCEPTANCE. By acceptance of this signed Option Agreement,
the Consultant does hereby agree to be bound by all of the terms and conditions
set forth herein.
-2-
<PAGE>
7. GOVERNING LAW. This Option Agreement shall be construed under the
laws of the Commonwealth of Kentucky.
8. TOTAL AGREEMENT. This Option Agreement is the entire agreement
between the parties hereto relating to the subject matter hereof. This Option
Agreement rescinds any and all prior agreements and understandings between the
parties with respect to the subject matter covered in this Option Agreement.
IN WITNESS WHEREOF, the Corporation has executed this Option Agreement by its
duly authorized corporate officer as of the date set forth above.
"Corporation"
THERMOVIEW INDUSTRIES, INC.
By: /s/ Richard E. Bowlds
------------------------------------
Richard E. Bowlds
Chief Operating Officer
Accepted by:
"Consultant"
/s/ Stephen A. Hoffmann
---------------------------------------
STEPHEN A. HOFFMANN
-3-
<PAGE>
SCHEDULE I TO OPTION AGREEMENT
- -------------------------------------------------------------------------------
NOTICE OF ELECTION TO EXERCISE
TO: ThermoView Industries, Inc.
1101 Herr Lane
Louisville, KY 40222
The Undersigned Purchaser hereby elects to purchase ____ shares (the "Shares")
of the Common Stock ($.001 par value) of ThermoView Industries, Inc. (the
"Corporation") pursuant to the terms of the Stock Option Agreement - Stephen A.
Hoffmann (the "Option"), dated as of October 22, 1997, by and between the
undersigned and the Corporation, (which Option must be surrendered with this
Notice of Election To Exercise).
Payment In Full (U.S. Funds) is hereby tendered in the aggregate sum of
$______________, which sum represents Shares (maximum 21,742) times the per
Share purchase price of $0.29 by:
( ) Certified Check or ( ) Federal Funds Wire Transfer to the
Corporation's depository bank in accordance with your prior written
instructions.
( ) By Delivery vs Payment at:_________________________________________
or Account #:_______________________________________
You are hereby requested to issue a certificate representing the Shares in the
name(s), and to the address(es) as specified below:
Name:________________________________________________________________________
Street:________________________________________Number of Shares:_____________
City:_______________________________State:_________Zip:______________________
Social Security or Tax I.D. Number:_____________________________________
Purchaser acknowledges that no formal memorandum, prospectus or offering
document of any kind has been delivered by the Corporation with specific regard
to this Option exercise. However, by virtue of the Purchaser's consulting
relationship with, and activities on behalf of the Corporation, sufficient
business and other information has been made available by the Corporation to
enable Purchaser to fully evaluate the investment potential of the Shares being
acquired. The Corporation's representatives have provided information and
answered all material questions.
Date:_________________________, _____ _______________________________________
- -------------------------------------------------------------------------------
-4-
<PAGE>
If no registration statement as to the Option and the Shares is effective as of
the date of exercise, include the following paragraph:
The purchaser represents and warrants that it is purchasing the Shares for
investment and not with a view to distribution thereof and understands and
acknowledges that the Stock Certificate(s) representing the Shares shall bear
the following legend:
The shares represented by this certificate have not
been registered or qualified for sale under the
Securities Act of 1933, as amended (the "Act"), or
any state securities or blue sky laws, and may not
be sold, transferred or otherwise disposed of except
pursuant to an exemption from registration or
qualification thereunder. The Corporation may require,
as a condition to transfer of this certificate, an
opinion of counsel satisfactory to the Corporation to
the effect that such transfer will not be in violation
of the Act or any such laws.
-5-
<PAGE>
25,000 SHARES EXERCISE PRICE: $.50
STOCK OPTION AGREEMENT - CLEMMENS
THIS STOCK OPTION AGREEMENT - CLEMMENS (the "Option Agreement") made and
effective as of the 22nd day of October, 1997 (the "Effective Date"), between
THERMO-TILT WINDOW COMPANY, herein referred to as the "CORPORATION", being
incorporated under the laws of the State of Delaware, maintaining its principal
place of business at 1101 Alsop Lane, Owensboro, Kentucky 42303; and NELSON E.
CLEMMENS, herein referred to as "CONSULTANT", of c/o Pine South Capital, 713
East Market Street, Louisville, Kentucky 40202.
WITNESSETH:
WHEREAS, the variety of services rendered by Consultant, including general
business, management and business opportunity evaluation, merger and acquisition
location and structuring services, represents an important and valuable aid to
the conduct of the Corporation's business enterprise, and as such Corporation
deems it to be in the best interests of the Corporation to secure the services
of Consultant; and
WHEREAS, the Corporation desires to enter into this Option Agreement with the
Consultant containing the terms and conditions hereinafter set forth, and to
grant to Consultant an option to purchase shares of the Common Stock of the
Corporation.
NOW, THEREFORE, in consideration of the promises and mutual agreements of the
parties herein contained, and for other good and valuable consideration, the
parties agree as follows:
1. GRANT OF OPTION. In consideration of the foregoing, the Corporation
hereby grants and issues to Consultant the right at the election of the
Consultant (hereinafter referred to as the "Option") to purchase up to an
aggregate of 25,000 Shares of Common Stock ($.001 par value) of the Corporation
at a price of $.50 per share all of which Options shall be exercisable, in whole
or in part, at any time from a period commencing twelve months from the
Effective Date hereof and ending sixty (60) months from the Effective Date
hereof (the "Expiration Date").
1.1 ANTI-DILUTION PROVISION. The number of shares underlying the
option shall be proportionately increased in the event that the Corporation
causes to be issued additional Shares in the form of a stock dividend, stock
splits, option exercise at less than book value (with the exception of the
exercise of options under (i) the Stock Option Agreement - Hoffmann, dated
October 22, 1997, by and between the Corporation and Stephen A. Hoffmann, (ii)
the Stock Option Agreement - Epelbaum, dated October 22, 1997, by and between
the Corporation and Roman Epelbaum, and (iii) the Stock Option Agreement - LD
Capital,
<PAGE>
Inc., dated October 22, 1997, by and between the Corporation and LD Capital,
Inc.) or other such reclassification; or conversely, proportionately
decreased in the event of a reverse split or reclassification. In the event
that stockholders of the Corporation are granted the right to purchase
additional shares from the proceeds of a cash dividend by the Corporation,
such event shall be treated as a stock dividend as relates to the option.
2. METHOD OF EXERCISING OPTION. The Option may be exercised, in whole,
or in part at any time prior to 3:00 p.m. Owensboro, Kentucky Time on the
Expiration Date, by giving written notice to the Corporation to that effect.
The Option evidenced hereby shall be exercisable by the delivery to and receipt
by the Corporation of (a) this original Option Agreement (b) a written Notice of
Election to Exercise (the "Notice of Election") in the form set forth on the
Schedule I to Option Agreement, to this option, attached hereto and incorporated
herein by reference, specifying the number of Shares to be purchased in not less
than one thousand (1,000) share denominations (c) payment of the full purchase
price, either by federal funds wire transfer to the bank depository to be
specified by the Corporation or by certified check, U.S. funds, payable to the
order of the Corporation, or on such other terms as may be acceptable to the
Corporation. If the Notice of Exercise is for less than the total of 25,000
Shares, and the time for exercise has not expired, the Corporation shall provide
the Consultant with a new or revised Option Agreement for the balance of the
Shares then remaining unexercised, upon the same terms and conditions as stated
herein.
3. CORPORATION'S REPRESENTATION. The Corporation represents that it will
use its best efforts to prepare, file, and maintain with the appropriate
regulatory authorities an effective Registration Statement on Form S-8 (the
"Form S-8"), or other applicable form, for the shares of its Common Stock
underlying the Option granted by this Option Agreement, such Form S-8 to allow
for the immediate resale of the shares subject to the Option Agreement, but only
at such time as the Corporation is in compliance with the requirements to use
the Form S-8.
4. RESTRICTION AGAINST ASSIGNMENT. Except as otherwise expressly
provided above, Consultant agrees that this Option Agreement and the rights,
interests and benefits under it shall not be assigned, transferred, pledged, or
hypothecated in any way by Consultant or any other person claiming under
Consultant by virtue hereof. Such rights, interests or benefits shall not be
subject to execution, attachment, or similar process. Any attempted assignment,
transfer, pledge, or hypothecation, or other disposition of this Option
Agreement or of such rights, interests, and benefits contrary to the preceding
provisions, or
-2-
<PAGE>
the levy or any attachment or similar process thereupon, shall be null and
void and without any legal effect.
5. NOTICES. All notices required to be given by either party shall be in
writing and delivered by registered, certified or overnight express mail, return
receipt requested, to the party being noticed at the address set forth in the
first paragraph of this Option Agreement. Any notice to the Corporation shall
be addressed to the attention of the President. Either party may effect a
change in such address by a prior written notice.
6. BINDING ACCEPTANCE. By acceptance of this signed Option Agreement,
the Consultant does hereby agree to be bound by all of the terms and conditions
set forth herein.
7. GOVERNING LAW. This Option Agreement shall be construed under the
laws of the Commonwealth of Kentucky.
8. TOTAL AGREEMENT. This Option Agreement is the entire agreement
between the parties hereto relating to the subject matter hereof. This Option
Agreement rescinds any and all prior agreements and understandings between the
parties with respect to the subject matter covered in this Option Agreement
IN WITNESS WHEREOF, the Corporation has executed this Option Agreement by its
duly authorized corporate officer as of the date set forth above.
"Corporation"
THERMO-TILT WINDOW COMPANY
By: /s/ Richard E. Bowlds
------------------------------------
Richard E. Bowlds,
President
Accepted by:
"Consultant"
/s/ Nelson E. Clemmens
---------------------------------------
NELSON E. CLEMMENS
-3-
<PAGE>
SCHEDULE I TO OPTION AGREEMENT
NOTICE OF ELECTION TO EXERCISE
TO: Thermo-Tilt Window Company
1101 Alsop Lane
Owensboro, KY 42303
The Undersigned Purchaser hereby elects to purchase ____ shares (the "Shares")
of the Common Stock ($.001 par value) of Thermo-Tilt Window Company (the
"Corporation") pursuant to the terms of the Stock Option Agreement - Clemmens
(the "Option"), dated as of October 22, 1997, by and between the undersigned and
the Corporation, (which Option must be surrendered with this Notice of Election
To Exercise).
Payment In Full (U.S. Funds) is hereby tendered in the aggregate sum of
$______________, which sum represents Shares (maximum 25,000) times the per
Share purchase price of $.50 by:
( ) Certified Check or ( ) Federal Funds Wire Transfer to the
Corporation's depository bank in accordance with your prior written
instructions.
( ) By Delivery vs Payment at:_________________________________________
or Account #:_______________________________________
You are hereby requested to issue a certificate representing the Shares in the
name(s), and to the address(es) as specified below:
Name:________________________________________________________________________
Street:________________________________________Number of Shares:_____________
City:_______________________________State:_________Zip:______________________
Social Security or Tax I.D. Number:_____________________________________
Purchaser acknowledges that no formal memorandum, prospectus or offering
document of any kind has been delivered by the Corporation with specific regard
to this Option exercise. However, by virtue of the Purchaser's consulting
relationship with, and activities on behalf of the Corporation, sufficient
business and other information has been made available by the Corporation to
enable Purchaser to fully evaluate the investment potential of the Shares being
acquired. The Corporation's representatives have provided information and
answered all material questions.
Date:_________________________, _____ _______________________________________
-4-
<PAGE>
If no registration statement as to the Option and the Shares is effective as of
the date of exercise, include the following paragraph:
The purchaser represents and warrants that it is purchasing the Shares for
investment and not with a view to distribution thereof and understands and
acknowledges that the Stock Certificate(s) representing the Shares shall bear
the following legend:
The shares represented by this certificate have
not been registered or qualified for sale under
the Securities Act of 1933, as amended (the "Act"),
or any state securities or blue sky laws, and may
not be sold, transferred or otherwise disposed of
except pursuant to an exemption from registration
or qualification thereunder. The Corporation may
require, as a condition to transfer of this
certificate, an opinion of counsel satisfactory to
the Corporation to the effect that such transfer
will not be in violation of the Act or any such laws.
-5-
<PAGE>
EMPLOYMENT AND NONCOMPETITION AGREEMENT - HOFFMANN
THIS AGREEMENT (the "Agreement") is made and entered into this 13th day of
January, 1998, by and between STEPHEN A. HOFFMANN ("Employee"), and THERMO-TILT
WINDOW COMPANY, a Delaware corporation (the "Company").
PRELIMINARY STATEMENTS
Prior to the execution of this Agreement the Employee entered into a
Consulting Services Agreement - Hoffmann dated October 22, 1997 (the "Consulting
Agreement") whereby he agreed, among other things, to provide consulting
services to the Company in connection with general business analysis, management
and marketing, business opportunity evaluation and merger/acquisition location
and structuring services.
Prior to the execution of this Agreement the Employee entered into a Stock
Option Agreement - Hoffmann dated October 22, 1997 (the "Consulting Option
Agreement") whereby he was granted nonqualified stock options (the "Consulting
Options") to purchase 25,000 shares of the Company's .001 par value common stock
("Common Stock"). The Consulting Options vest in whole on October 22, 1998, are
exercisable thereafter in whole or in part at an exercise price of $.50 per
share and expire on October 22, 2002. The Consulting Options were granted to
Employee in exchange for services to be rendered by him under the Consulting
Agreement.
Contemporaneously with the execution of this Agreement, the Company will
cause the Employee to be elected a director of the Company, appointed an officer
of the Company with the title of Vice President-Acquisitions and hired as an
employee of the Company.
Contemporaneously with the execution of this Agreement, in accordance with
Section 2 of the Consulting Agreement, Employee and the Company mutually agree
to terminate the Consulting Agreement; provided, however, the Consulting
Options under the Consulting Option Agreement, which previously served as
compensation under the Consulting Agreement, shall be reclassified and shall
serve as partial compensation under this Agreement. The Company agrees that the
Consulting Option Agreement is modified to allow Employee to put the Consulting
Options back to the Company at a put price of $1.00 per share at any time after
October 22, 1998, and prior to October 22, 2002. Employee agrees that the
Consulting Options shall continue to be governed by the Consulting Option
Agreement, as modified by this Agreement.
The Company has agreed to employ Employee on the terms and conditions
hereinafter set forth.
<PAGE>
NOW THEREFORE, in consideration of the premises and mutual promises and
agreements contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
SECTION 1. EMPLOYMENT.
Subject to the terms hereof, Company hereby agrees to employ Employee, and
Employee hereby accepts such employment. Employee shall serve the Company
during the Term (as defined in Section 2.1) of this Agreement, subject to the
direction of the Company's Board of Directors. Employee shall devote his best
efforts and such business time as may be necessary or appropriate to complete
twenty (20) acquisitions on behalf of the Company. Specifically, Employee shall
devote his business time and best efforts:
(i) To assist the Company in evaluating potential merger or
acquisition opportunities, including merger and acquisition structuring,
negotiation and closing services.
(ii) To provide the Company with a variety of general business
analyses, marketing and management services.
SECTION 2. TERM.
2.1. The term of Employee's employment hereunder shall be from December
15, 1997, through and including December 14, 1999, or the completion of twenty
(20) acquisitions by the Company, which ever shall first occur (the "Term"),
unless terminated prior thereto upon the occurrence of any of the following:
(i) The death or total disability of Employee. As used herein,
"total disability" means any physical or mental condition rendering the Employee
unable, for a total of six (6) months during any twelve month period, to perform
the duties and bear the responsibilities incident to the position referred to in
Section 1 hereof as determined by a physician acceptable to Employee and
Company; or
(ii) Company's termination of Employee's employment hereunder, upon
prior written notice to Employee, for "good cause." For the purposes of this
Agreement, "good cause" for termination of Employee's employment shall exist
only if (a) Employee is convicted of, pleads guilty to, or confesses to any act
of fraud, misappropriation or embezzlement or to any felony, (b) Employee has
engaged in a dishonest or disloyal act resulting in material damage or prejudice
to the Company, (c) Employee has engaged in conduct or activities materially
damaging or prejudicial to the property, business or reputation of the Company,
or (d) Employee otherwise fails to comply with the material terms of this
Agreement; or
2
<PAGE>
(iii) By the Employee at any time during the Term.
In the event that the Company should elect to terminate Employee for "good
cause" within the meaning of sub-Section (ii)(b), (c) or (d) above, Employee
shall have a period of twenty (20) days after the written notice to cure any
non-compliance set forth therein prior to the time such termination would become
effective.
2.2. If Employee's employment herein is terminated prior to the end of the
Term by the Company for "good cause" pursuant to Section 2.1(ii) or by Employee
pursuant to Section 2.1(iii), Employee's compensation shall be terminated in
accordance with Section 3.5 below.
SECTION 3. COMPENSATION.
3.1. COMPENSATION. Employee agrees that as sole compensation under this
Agreement, he shall retain the Consulting Stock Options mentioned above and he
shall be granted the stock options referred to in Section 3.2 below. Employee
agrees to forfeit a salary and all fringe benefits, perquisites, and other
benefits of employment which other employees may receive as a condition of their
employment. Employee shall be paid or reimbursed for all reasonable expenses
incurred in the performance of his duties hereunder.
3.2. OPTIONS. Simultaneously upon execution of this Agreement, the
Company shall grant Employee nonqualified stock options to purchase 500,000
shares of Common Stock (the "Employment Stock Options") at an exercise price of
$2.00 per share, pursuant to a Stock Option Agreement - Hoffmann dated December
15, 1997 (the "Employment Stock Option Agreement").
3.3. OPTION VESTING. The Employment Stock Options shall vest as
follows:
(i) One-half of the Employment Stock Options, representing 250,000
shares of Common Stock, shall vest upon the execution of this Agreement.
(ii) One-half of the Employment Stock Options, representing
250,000 shares of Common Stock, shall vest ratably on a monthly basis commencing
on February 1, 1998, and the first day of each month thereafter through November
1, 1998, so that options representing 25,000 whole shares of Common Stock shall
vest at the beginning of each such calendar month.
3.4 OPTION EXERCISEABILITY/EXPIRATION. Once vested, the Employment
Stock Options shall be exercisable in whole or in part at an exercise price of
$2.00 per share and shall expire on December 15, 2002.
3
<PAGE>
3.5 TERMINATION OF OPTIONS. In the event Employee's employment is
terminated by the Company for "good cause" pursuant to Section 2.1(ii) or by
Employee pursuant to Section 2.1(iii), any and all Employee Stock Options and
Consulting Stock Options which have not vested as of the termination date shall
immediately terminate and Employee shall lose all rights to such options,
subject to applicable law. Such Employee Stock Options and Consulting Stock
Options which have vested as of the termination date shall be exercisable in
accordance with provisions of the Employee Option Agreement and the Consulting
Option Agreement, as amended, respectively.
SECTION 4. CONFIDENTIAL INFORMATION AND NONCOMPETITION COVENANT.
4.1. CONFIDENTIAL INFORMATION AND TRADE SECRETS. Employee hereby agrees
that he shall hold in confidence all customer lists, supplier lists, price
lists, financial information, operating manual and forms, plans, notes, computer
programs, systems and software (including, without limitation, documentation and
related source and object codes), and all other knowledge or information of a
confidential or proprietary nature with respect to the business of the Company
(the "Proprietary Information"), and Employee will not disclose, publish or make
use of such knowledge or information during his employment hereunder, except for
purposes of his employment hereunder or as required by law, or upon expiration
of the Term or early termination pursuant to Section 2.1. Upon the expiration
of the Term or early termination pursuant to Section 2.1, Employee shall return
and deliver forthwith to the Company any and all Proprietary Information,
including all copies thereof and shall not retain or remove any secret or
confidential information of any type or description without the express written
consent of the Company.
4.2. NONCOMPETITION. The Company is engaged in the business of
designing, selling and installing state of the art custom vinyl new and
replacement thermal paned windows for the existing home market in the
following geographic areas: Alabama, Illinois, Indiana, Kentucky, Missouri
and Tennessee. The Company's operations and offices are located at 1101 Alsop
Lane and 2800 Warehouse Road, both in Owensboro, Kentucky (the "Owensboro
Addresses"). The geographic area within a 100-mile radius of (i) the
Owensboro Addresses and (ii) all other Company office addresses existing at
the time of Employee's termination shall hereinafter be referred to as the
"Territory." Employee acknowledges that the goodwill of the Company and
marketing and support of services and products of the Company extends
throughout the Territory. In consideration of the rights granted to Employee
hereunder, Employee hereby agrees that for the period commencing on the date
hereof and ending AT THE LATER OF (i) two (2) years from the date hereof or
(ii) one (1) year after
4
<PAGE>
Employee ceases to be employed by the Company (the "Noncompete Period"),
Employee shall not (without the prior written consent of the Company), in any
manner, directly or indirectly,
(i) engage in, have any equity or profit interest in, make any
loan to or for the benefit of, guaranty the repayment of any funds by, or render
services of any executive, advertising, marketing, sales, administrative,
supervisory, engineering, computer program or system development, maintenance,
manufacturing or consulting nature to any business conducting operations in the
Territory which are competitive with the business activities being directly
engaged in by the Company as of the date on which Employee's employment is
terminated; or
(ii) solicit, divert or appropriate, or attempt to solicit, divert
or appropriate, any customer of the Company (including current customers and
those which become customers during the term of the Employment Agreement) for
the purpose of providing services competitive with the Business; or
(iii) solicit to employ, on his own behalf or on behalf of any
other person, firm or corporation, any person who was employed during the Term
or any extended Term hereof and who has not thereafter ceased to be employed by
the Company for a period of at least one year.
Notwithstanding anything contained herein to the contrary, Employee shall
not be prohibited from owning, directly or indirectly, up to 5% of the
outstanding equity interest of any company, which is in competition with the
Company or a Related Company and the stock of which is publicly traded.
4.3. SEVERABILITY. If a judicial determination is made that any of the
provisions of this Section 4 constitutes an unreasonable or otherwise
unenforceable restriction against Employee, the provisions of this Section 4
shall be rendered void only to the extent that such judicial determination finds
such provisions to be unreasonable or otherwise unenforceable. In this regard,
the parties hereto hereby agree that any judicial authority construing this
Agreement shall be empowered to sever any portion of the Territory or any
prohibited business activity from the coverage of this Section 4, and to reduce
the duration of the Noncompete Period and to apply the provisions of this
Section 4 to the remaining portion of the Territory or the remaining business
activities not to be severed by such judicial authority and to the duration of
the Noncompete Period as reduced by judicial determination.
4.4. INJUNCTIVE RELIEF. Employee hereby agrees that any breach or
threatened breach by Employee of Sections 4.1 or 4.2 of this Agreement will
irreparably injure the Company and that any remedy at law for any breach or
threatened breach by Employee of
5
<PAGE>
the provisions contained in Sections 4.1 and 4.2 hereof shall be inadequate,
and that the Company shall be entitled to injunctive relief in addition to
any other remedy it might have under this Agreement or at law or in equity.
Employee further agrees that the grant of such injunctive relief and the
enforcement of the terms of this Agreement shall not deprive him of his
ability to earn a living.
SECTION 5. MISCELLANEOUS.
5.1. BINDING EFFECT. This Agreement shall inure to the benefit of and
shall be binding upon Employee and his executor, administrator, heirs, personal
representative and assigns, and Company and its successors and assigns;
provided, however, that Employee shall not be entitled to assign or delegate any
of his rights or obligations hereunder, other than the Employment Stock Options,
without the prior written consent of Company.
5.2. GOVERNING LAW. This Agreement shall be deemed to be made in, and
in all respects shall be interpreted, construed and governed by and in
accordance with, the laws of the Commonwealth of Kentucky, without regard to
conflicts of laws principles.
5.3. HEADINGS. The section and paragraph heading contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
5.4. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, shall be addressed to the receiving party's
address set forth below or to such other address as a party may designate by
notice hereunder, and shall be either (i) delivered by hand, (ii) sent by
recognized overnight courier, or (iii) sent by registered or certified mail,
return receipt requested, postage prepaid.
If to the Company:
Thermo-Tilt Window Company
2800 Warehouse Road
Owensboro, Kentucky 42301
Attn: Richard E. Bowlds, President
With a copy to:
Stites & Harbison
400 West Market Street, Suite 1800
Louisville, KY 40202
Attn: Alex P. Herrington, Jr., Esq. (Mike)
6
<PAGE>
If to the Employee:
Stephen A. Hoffmann
492 Mariner Drive
Jupiter, FL 33477
With a copy to:
Stites & Harbison
400 W. Market Street, Suite 1800
Louisville, KY 40202
Attn: Ralston W. Steenrod, Esq.
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof to
the receiving party at the address of such party set forth above, (ii) if sent
by overnight courier, on the next business day following the day such notice is
delivered to the courier service, or (iii) if sent by registered or certified
mail, on the fifth business day following the day such mailing is sent.
Any party to this Agreement may change his or its address upon written
notice delivered pursuant to this Section.
5.5. ENTIRE AGREEMENT. This Agreement is intended by the parties hereto
to be the final expression of their agreement with respect to the subject matter
hereof and is the complete and exclusive statement of the terms thereof
notwithstanding any representations, statements or agreements to the contrary
heretofore made. This Agreement may be modified only by a written instrument
signed by each of the parties hereto.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Agreement and the Employee has executed this Agreement as of the
date first above written.
EMPLOYEE: /s/ Stephen A. Hoffmann
----------------------------
Stephen A. Hoffmann
COMPANY: THERMO-TILT WINDOW COMPANY
By: /s/ Richard E. Bowlds
------------------------
Richard E. Bowlds
Title: President
7
<PAGE>
FIRST AMENDMENT TO EMPLOYMENT AND
NONCOMPETITION AGREEMENT - HOFFMANN
This First Amendment (this "Amendment") to Employment and Noncompetition
Agreement - Hoffmann made and effective as of the 15th day of April, 1998, among
THERMO-TILT WINDOW COMPANY, a Delaware corporation (the "Company") and Stephen
A. Hoffmann ("Employee").
WITNESSETH:
WHEREAS the Company and Employee entered into that certain Employment and
Noncompetition Agreement - Hoffmann, dated as of January 13, 1998 (the
"Employment Agreement"), whereby Employee, among other things agreed to serve as
Vice President - Acquisitions; and
WHEREAS under the Employment Agreement both the Company and Employee desire
to amend the Employment Agreement whereby Employee will cease to serve as Vice
President - Acquisitions of the Company and instead will serve as President and
Chief Executive Officer of the Company in accordance with the terms of the
Employment Agreement, as amended;
NOW THEREFORE in consideration of the above recitals and the mutual
agreements herein contained and for other good and valuable consideration, the
parties hereby agree as follows:
1. Section 1 of the Employment Agreement is hereby amended to read in its
entirety as follows:
SECTION I. EMPLOYMENT.
Subject to the terms hereof, Company hereby agrees to employ Employee, and
Employee hereby accepts such employment as President and Chief Executive
Officer. Employee shall serve the Company during the Term (as defined in
Section 2.1) of this Agreement, subject to the direction of the Company's Board
of Directors. As President and Chief Executive Officer, Employee shall devote
his best efforts and such business time as may be necessary or appropriate on
behalf of the Company:
(i) To serve as the President and Chief Executive Officer of the
Company, whereby Employee shall preside at all meetings of the stockholders and
the Board of Directors and shall have general and active management of the
business of the Company.
1
<PAGE>
(ii) To assist the Company in evaluating potential corporate
opportunities, including merger and acquisition structuring, negotiation and
closing services.
(iii) To provide the Company with a variety of general business
analyses, marketing and management services.
(iv) To conduct such other duties as the Board of Directors may
prescribe from time to time.
2. Section 2.1 of the Employment Agreement is hereby amended to read in
its entirety:
2.1. The term of Employee's employment hereunder shall be from December
15, 1997, through and including April 15, 2000, unless terminated prior thereto
upon the occurrence of any of the following:
(i) The death or total disability of Employee. As used herein,
"total disability" means any physical or mental condition rendering the Employee
unable, for a total of six (6) months during any twelve month period, to perform
the duties and bear the responsibilities incident to the position referred to in
Section 1 hereof as determined by a physician acceptable to Employee and
Company; or
(ii) Company's termination of Employee's employment hereunder, upon
prior written notice to Employee, for "good cause." For the purposes of this
Agreement, "good cause" for termination of Employee's employment shall exist
only if (a) Employee is convicted of, pleads guilty to, or confesses to any act
of fraud, misappropriation or embezzlement or to any felony, (b) Employee has
engaged in a dishonest or disloyal act resulting in material damage or prejudice
to the Company, (c) Employee has engaged in conduct or activities materially
damaging or prejudicial to the property, business or reputation of the Company,
or (d) Employee otherwise fails to comply with the material terms of this
Agreement; or
2
<PAGE>
(iii) By the Employee at any time during the Term.
In the event that the Company should elect to terminate Employee for "good
cause" within the meaning of sub-Section (ii)(b), (c) or (d) above, Employee
shall have a period of twenty (20) days after the written notice to cure any
non-compliance set forth therein prior to the time such termination would become
effective.
3. Other than is set forth in this Amendment, all the terms, conditions,
rights, duties, responsibilities and obligations set forth in the Employment
Agreement remain in full force and effect.
IN WITNESS WHEREOF, the Company has executed this Amendment by its duly
authorized corporate officer as of the date set forth above.
"Company"
THERMO-TILT WINDOW COMPANY
By: /s/ Nelson E. Clemmens
------------------------------------
Nelson E. Clemmens
Vice President - Finance and
Administration
Accepted by:
"Employee"
/s/ Stephen A. Hoffmann
---------------------------------------
STEPHEN A. HOFFMANN
3
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 15th day of April, 1998,
by and between THERMOVIEW INDUSTRIES, INC. a Nevada corporation ("Employer") and
STEPHEN A. HOFFMANN, a resident of the State of Florida ("Executive").
In consideration of the mutual promises, agreements and covenants, and
subject to the terms and conditions contained in this Agreement, the Employer
and Executive, intending to be legally bound, hereby agree as follows:
1. EMPLOYMENT. Employer hereby employs Executive as President and Chief
Executive Officer, and Executive hereby accepts employment by Employer, in
accordance with and subject to the terms and conditions of this Agreement. The
person holding the office of president and chief executive officer on the date
hereof shall resign effective April 15, 1998.
2. DUTIES AND AUTHORITY. During the Employment Period (as hereafter
defined), Executive will occupy the position of President, Chief Executive
Officer, and member of the Board of Directors of Employer. As President and
Chief Executive Officer, Executive shall be in charge of the operations of
Employer and shall have full authority and responsibility, subject to the
general direction and control of Employer's Board of Directors, for formulating
policies and administering the affairs of Employer in all respects, and
otherwise performing such duties as are customarily performed by the President,
Chief Executive Officer and member of the board of directors of a company of
similar size and structure to Employer. In the absence of the Chairman of the
Board, Executive will preside over meetings of the shareholders and Board of
Directors of Employer. Executive agrees to devote his full time, attention and
best efforts to the performance of his duties hereunder.
3. INITIAL TERM; EMPLOYMENT PERIOD. The initial term of employment shall
begin on April 15, 1998 and end on April 15, 2000 (the "Initial Term"), and
Executive's employment shall thereafter be automatically extended for successive
periods of one year each upon the same terms and conditions as set forth herein,
unless this Agreement is sooner terminated as provided herein. For purposes of
this Agreement, the period beginning on April 15, 1998, and ending on the Date
of Termination (as hereafter defined) shall be referred to herein as the
"Employment Period."
<PAGE>
4. COMPENSATION. During the Employment Period, Executive will receive
the following compensation:
A. BASE SALARY. A base annual salary of $150,000, payable either
bi-monthly or monthly at the discretion of the Executive.
B. INCENTIVE COMPENSATION. Additional compensation (the "Incentive
Compensation") equal to two percent (2%) of growth (increase) in net income
(before state and federal income and franchise taxes) of Employer (on a
consolidated basis) for each fiscal year (or part thereof) of Employer
during the Employment Period. Net income shall be determined in accordance
with generally accepted accounting principles consistently applied as
determined by the Employer's independent auditors, whose determination of
net income shall be final and binding upon Executive and Employer.
Compensation under this subparagraph shall not be limited as to amount.
The initial Incentive Compensation payment shall be due on March 31, 1999,
and shall be calculated based on the growth in Employer's net income from
April 15, 1998, to December 31, 1998, divided by twelve, multiplied by the
number of months or part thereof from April 15, 1998 through December 31,
1998 (or an earlier Date of Termination). Thereafter, the Incentive
Compensation payment shall be made on March 31 of the year following the
fiscal year for which the growth in net income is being calculated, and for
any fiscal year of Employer in which the Date of Termination occurs prior
to December 31, shall be calculated based on the growth in net income
during the year in which the Date of Termination occurs, divided by twelve,
multiplied by the number of months or part thereof from January 1 of such
year to the Date of Termination. Nothing herein shall be construed as
requiring Executive to make any payment to Employer in the event of a
decrease in net income.
5. STOCK RIGHTS. The Executive shall receive common stock, or rights to
acquire common stock, of Employer as follows:
A. STOCK OPTIONS. Employer shall grant to Executive a stock option
which to the extent permitted under applicable provisions of the Internal
Revenue Code of 1986, as amended (the "Code") shall be an incentive stock
option ("ISO"), within the meaning of Section 422 of the Code, to purchase
800,000 shares of the common stock of Employer at an option price of $1.15
per share. The right to acquire up to 400,000 shares pursuant to the
option shall vest six (6) months after the date hereof, and the right to
acquire up to an additional 200,000 shares shall vest on each of twelve
(12) and eighteen (18) months after the date hereof. Executive shall be
eligible for additional stock options during the term hereof
-2-
<PAGE>
at the discretion of the Board of Directors of Employer. It is the
intent of Employer and Executive that the option granted hereby is
intended to the extent possible under Section 422 of the Code to be an
incentive stock option for purposes of the Code, and the option price
and other aspects of the grant are structured to effectuate that intent.
Employer agrees to establish a stock option plan to effectuate the ISO
provisions described herein; provided, however, if for any reason the
option granted hereby is determined in whole or in part not to be an
ISO, Executive shall have the right to acquire the shares upon the price
and terms set forth herein as a non-qualified option. The option shall
be subject to the terms and conditions of the stock option plan.
B. EXERCISE. The stock option granted under subparagraph B. above
shall be exercisable during the Employment Period and for 90 days
thereafter (or such longer period as Employer may allow). In the event of
termination for Cause or without Good Reason (both as defined hereafter),
the option may be exercised only to the extent vested on the Date of
Termination. In the event of termination for any other reason, and in the
event of a "Change in Control" (as defined in the Employee's stock option
plan), any portion of the option which has not then vested under the
vesting schedule set forth in subparagraph A. above shall immediately and
fully vest, and shall be exercisable for a period of six months beginning
on the Date of Termination or date of the Change in Control.
6. BENEFITS. During the term of this Agreement, Executive shall receive
the following additional benefits at no cost to the Executive:
A. LIFE INSURANCE. Employer shall use its best effort to obtain and
pay for a whole life insurance policy insuring the life of Executive in the
amount of $150,000, the beneficiary or beneficiaries of which shall be
designated by Executive, and which shall be transferable to Executive
without cost upon the termination of Executive's employment hereunder and
upon Executive's assumption of the obligation to make future premium
payments with respect thereto. Executive represents to Employer that
Executive does not know of any reason why such policy would be rated with a
higher premium than normal based on Executive's age.
B. DISABILITY INSURANCE. Employer shall use its best efforts to
obtain and pay for disability insurance for Executive in the maximum
available amount (but not more than sixty percent (60%) of the Base
Salary), with a maximum monthly benefit payable for life and with a waiting
period of no more than six (6) months, the beneficiary or beneficiaries
-3-
<PAGE>
of which shall be designated by Executive, and which policy shall, at
Executive's option, be transferred to Executive upon the termination of his
employment hereunder and upon his assumption of the obligation to make
premium payments with respect thereto. Employer shall pay 100% of Base
Salary for each month during the disability waiting period, but in no event
for more than six (6) months.
C. MEDICAL AND GROUP INSURANCE. Employer shall include Executive
and his dependents in any group medical, dental and hospital or similar
plan of Employer in existence from time to time, is subject to all the
terms and conditions of such plan. Employer will use its best efforts to
obtain individual medical, dental and hospital insurance for Executive if
group coverage is not in existence or unavailable.
D. VACATION. Executive shall be entitled to three (3) weeks of paid
vacation during each year of employment.
E. AUTOMOBILE. Executive shall receive an automobile allowance of
$600 per month.
F. CLUB DUES. Employer shall pay Executive's membership dues for
the Hurstbourne Country Club. Employer shall pay for such other club dues
and membership fees for Executive as are reasonable and customary from time
to time.
G. COMMUNICATIONS AND OTHER EQUIPMENT. Employer shall provide
Executive with, and shall pay all costs of operating and maintaining, a
cellular telephone, notebook and desk top computer facsimile machine, and
such other equipment necessary for Executive to perform his duties.
H. EXPENSE REIMBURSEMENT. Executive shall be entitled to
reimbursement for all reasonable expenses, including travel and
entertainment, incurred by Executive in the performance of his duties.
Executive will maintain records and written receipts as required by federal
and state tax authorities to substantiate expenses as an income tax
deduction for Employer and shall submit vouchers for expenses for which
reimbursement is made.
I. OTHER BENEFITS. Employer shall also provide Executive with no
less than the same type and level of other benefits provided by the
Employer from time to time to its other executive officers, senior
management personnel and board members. These include, but are not limited
to, pension and profit sharing plans, life and health insurance benefits,
stock option and stock purchase plans, stock appreciation rights, and stock
warrants.
-4-
<PAGE>
7. NON-COMPETE; CONFIDENTIALITY. In consideration of the employment of
Executive by Employer, Executive agrees as follows:
A. NON-COMPETE. During the Employment Period and for a period of
two years after the Date of Termination, Executive will not, directly or
indirectly, within a fifty mile radius of any office of Employer (or a
consolidated subsidiary) in existence on the Date of Termination, own,
manage, be employed by, work for, consult for, be an officer or director
of, advise, represent, engage in or carry on any business which competes
with the business of the Employer at that time. Nothing herein shall be
construed to prohibit Executive from vesting in not more than five percent
(5%) of the equity securities of a competing business. Provided, however,
that if Executive's employment is terminated without Cause or with Good
Reason, the restrictions contained in this subparagraph A. shall expire one
year from the Date of Termination.
B. NON-DISCLOSURE OF INFORMATION. Executive will not at any time,
during or after the term of this Agreement in any fashion, form, or manner,
either directly or indirectly, divulge, disclose, or communicate to any
person, firm, or corporation, in any manner whatsoever, any information of
any kind, nature, or description concerning any matters affecting or
relating to the business of the Employer, including, but not limited to,
the names of any of its customers or prospective customers or any other
information concerning the business of the Employer, its manner of
operation, its plans, its vendors, its suppliers, its advertising, its
marketing, its methods, its practices, or any other information of any
kind, nature, or description, without regard to whether any or all of the
foregoing matters would otherwise be deemed confidential, material, or
important; provided, however, that this provision shall not prevent
disclosures by Executive to the extent such disclosures are believed by the
Executive, in good faith and acting reasonably, to be in the best interest
of the Employer.
8. TERMINATION OF EMPLOYMENT.
A. DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period.
Additionally, if the Employer determines in good faith that the Disability
of the Executive has occurred, it may give the Executive written notice of
its intention to terminate the Executive's employment. In the event, the
Executive's employment with the Employer shall terminate effective on the
30th day after receipt of such notice by the Executive (the "Disability
Effective Date"), provided that, within the 30 days after such receipt, the
Executive shall not have returned to full-time performance of
-5-
<PAGE>
the Executive's duties. For purposes of this Agreement, "Disability"
shall mean the absence of the Executive from the Executive's duties as a
result of incapacity due to mental or physical illness which is
determined to be total and permanent by a physician selected by the
Employer or its insurers and acceptable to the Executive or the
Executive's legal representative (such agreement as to acceptability not
to be withheld unreasonably).
B. CAUSE. The Employer may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement,
"Cause" shall mean (i) a material breach by the Executive of the
Executive's obligations under paragraph 2 above (other than as a result of
temporary incapacity due to physical or mental illness, or Disability)
which is demonstrably willful and deliberate on the Executive's part, which
is committed in bad faith or without reasonable belief that such breach is
in the best interests of the Employer and which is not remedied in a
reasonable period of time after receipt of written notice from the Employer
specifying such breach or (ii) the conviction of the Executive of a felony;
or (iii) a breach of the Executive's fiduciary duty to the Employer or
willful violation in the course of performing his duties for the Employer
of any law, rule or regulation (other than traffic violation or other minor
offenses) (No act or failure to act on the Executive's part shall be
considered wilful unless done or omitted to be done in bad faith and
without reasonable belief that the action or omission was in the best
interest of the Employer).
C. GOOD REASON. The Executive's employment may be terminated by the
Executive at any time for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean:
(i) the assignment of the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices,
titles and reporting requirement), authority, duties or
responsibilities as contemplated by paragraph 2 or any other action by
the Employer which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose an
isolated, unsubstantial and inadvertent action not taken in bad faith
and which is remedied by the Employer promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Employer to comply with any of the provisions
of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied
by the
-6-
<PAGE>
Employer promptly after receipt of notice thereof given by the
Executive;
(iii) the Employer's requiring the Executive to be based at any
office or location other than Palm Beach, Florida or Louisville,
Kentucky; or
(iv) a Change in Control.
For purposes of this subparagraph C, any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
D. WITHOUT CAUSE. Either Employer or Executive may terminate this
Agreement without cause or reason upon not less than 30. days written
notice to the other, setting forth the effective date of termination.
E. NOTICE OF TERMINATION. Any termination by the Employer for
Cause, or by the Executive for Good Reason, shall be communicated to the
other party by Notice of Termination. For purposes of this Agreement, a
"Notice of Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) to the
extent applicable sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment and (iii) specifies the Date of Termination (as defined below).
The failure by the Executive or the Employer to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Employer
hereunder or preclude the Executive or the Employer from asserting such
fact or circumstance in enforcing the Executive's or the Employer's rights
hereunder.
F. DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date specified in the Notice of Termination
as the Date of Termination (ii) if the Executive's employment is terminated
by reason of death or Disability, the Date of Termination shall be date of
death of the Executive or the Disability Effective Date, as the case may
be; and (iii) if Executive's employment is terminated by either party other
than for death, Disability, Cause or Good Reason, the date set forth in the
notice required under subparagraph D. above as the date of termination is
to be effective.
-7-
<PAGE>
9. OBLIGATIONS OF THE EMPLOYER UPON TERMINATION. Upon the termination of
the Executive's employment for any reason, Executive shall be entitled to Base
Salary and all benefits through the Date of Termination, and to exercise then
vested stock options in accordance with paragraph 5.C. above. Upon the
termination of the Executive's employment other than by the Executive without
Good Reason, or by the Employer with Cause, Executive shall in addition be
entitled to exercise the option granted pursuant to paragraph 5.B. above, with
respect to the remaining shares in the manner provided by paragraph 5.C., and to
receive a lump sum payment equal to the greater of: (i) the present value of
Executive's Base Salary for a period of time measured from the Date of
Termination to the end of the Initial Term; or (ii) the present value of two
times the Executive's Base Salary as of the Date of Termination. For purposes
of this Agreement, "present value" shall be determined by using the "Applicable
Federal Rate" for the period corresponding with that period over which the
present value is being determined. If on the Date of Termination the Employer's
stock is not publicly traded, Employer shall repurchase from Executive and
Executive shall sell to Employer all of the stock of Employer then owned by
Executive (whether acquired pursuant to this Agreement or otherwise), or
thereafter acquired in accordance with paragraph 5.C. above, at the fair market
value thereof as of the Date of Termination as determined by independent
appraisal. If the Employer and the Executive cannot agree upon a single
appraiser to conduct the appraisal required hereby, each shall appoint an
appraiser, who shall appoint a third appraiser, and the average of the three
appraisals shall be deemed to be the appraisal value of the stock for purposes
of this paragraph. The appraisal process shall be completed no later than three
months from the Date of Termination. The lump sum payment shall be paid no
later than thirty days after the Date of Termination, and the purchase price for
the Executive's stock shall be paid no later than thirty days after the date the
appraisal is completed, in each case in immediately available United States
funds.
10. MITIGATION OF DAMAGES. Executive shall not be required to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment
provided for under this Agreement be reduced by any compensation earned by the
Executive as the result of self-employment or employment by another employer or
otherwise.
11. TAX EFFECT. If the severance compensation payable under this
Agreement, either alone or together with other payments to the Executive from
the Employer or one of its subsidiaries would constitute a "parachute payment"
(as defined in Section 28OG of the Code), such severance compensation may be
reduced to the largest amount as will result in no portion of the severance
compensation payments hereunder being subject to the excise tax
-8-
<PAGE>
imposed by Section 4999 of the Code or being disallowed as deductions to the
Employer under Section 28OG of the Code. The determination of whether any
reduction shall be made in the severance compensation payments hereunder
pursuant to the foregoing provision shall be made by Executive after
consultation with the Employer. The Executive shall be liable for the
payment of income and excise taxes, if any, applicable to him on such
severance compensation.
12. MANDATORY DEDUCTIONS. Any amounts to which Executive is entitled as
compensation, bonus, merit bonus, or any other form of compensation subject to
withholding, shall be subject to usual deduction for appropriate federal, state,
and local income tax obligations of Executive.
13. NOTICES. Any notice provided for in this Agreement shall be given in
writing. Notices shall be effective from the date of receipt, if delivered
personally to the party to whom notice is to be given, or on the second day
after mailing, if mailed by first class mail, postage prepaid. Notices shall be
properly addressed to the parties at their respective addresses set forth below
or to such other address as either party may later specify by notice to the
other:
If to Employer:
Nelson E. Clemmens
ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
If to Executive:
Stephen A. Hoffmann
14700 Alexis Cove West
Prospect, Kentucky 40059
14. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
supersedes all prior agreements and understandings, oral or written, with
respect to the subject matter hereof. This Agreement may be changed only by an
agreement in writing signed by the party against whom any waiver, change,
amendment or modification is sought.
15. WAIVER. The waiver by one party of a breach of any of the provisions
of this Agreement by the other shall not be construed as a waiver of any
subsequent breach.
-9-
<PAGE>
16. ATTORNEY'S FEES. In the event of litigation or other dispute
resolution proceeding involving the interpretation or enforcement of this
Agreement, the prevailing party shall be entitled to recover from the other all
fees, costs and expenses incurred in connection therewith, including attorney, s
fees through appeal.
17. GOVERNING LAW; VENUE. The Agreement shall be construed and enforced
in accordance with the laws of the Commonwealth of Kentucky. Jefferson County,
Kentucky, shall be proper venue for any litigation arising out of this
Agreement.
18. PARAGRAPH HEADINGS. Paragraph headings are for convenience only and
are not intended to expand or restrict the scope or substance of the provisions
of this Agreement.
19. ASSIGNABILITY. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Employer. This Agreement is a personal employment agreement
and the rights, obligations and interests of the Executive hereunder may not be
sold, assigned, transferred, pledged or hypothecated.
20. SEVERABILITY. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid or unenforceable, the remainder of the
Agreement shall remain in full force and shall in no way be impaired.
21. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to account for more than one such
counterpart.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the 15th
day of April, 1998.
EXECUTIVE: /s/ Stephen A. Hoffmann
----------------------------------
Stephen A. Hoffmann
THERMOVIEW INDUSTRIES, INC.
By: /s/ Nelson E. Clemmens
----------------------------------
Nelson E. Clemmens
Vice President - Finance and
Administration
-10-
<PAGE>
315,248 SHARES EXERCISE PRICE: $1.15
- -------------- ---------------------
AMENDED AND RESTATED STOCK OPTION AGREEMENT -
STEPHEN A. HOFFMANN
THIS AMENDED AND RESTATED STOCK OPTION AGREEMENT - STEPHEN A. HOFFMANN (the
"Amended and Restated Option Agreement") made and effective as of the 13th day
of January, 1998, between THERMOVIEW INDUSTRIES, INC., herein referred to as the
"CORPORATION", being incorporated under the laws of the State of Nevada,
maintaining its principal place of business at 1101 Herr Lane, Louisville,
Kentucky 40222; and STEPHEN A. HOFFMANN, herein referred to as "EMPLOYEE", of
492 Mariner Drive, Jupiter, Florida 33477.
WITNESSETH:
WHEREAS, the Corporation and Employee mutually desire to amend and restate
that certain Stock Option Agreement - Hoffmann, dated as of January 13, 1998
(the "Original Option Agreement"), whereby the Original Option Agreement shall
be cancelled in its entirety and replaced by this Amended and Restated Option
Agreement;
WHEREAS, the Corporation desires to enter into this Amended and Restated
Option Agreement with the Employee containing the terms and conditions
hereinafter set forth, and to grant to Employee stock options to purchase shares
of the common stock of the Corporation.
NOW, THEREFORE, in consideration of the promises and mutual agreements of
the parties herein contained, and for other good and valuable consideration, the
parties agree as follows:
1. GRANT OF OPTIONS. In consideration of the foregoing, the Corporation
hereby grants and issues to Employee the rights at the election of the Employee
(hereinafter referred to as the "Options") to purchase up to an aggregate of
315,248 shares of Common Stock, $.001 par value, of the Corporation (the "Common
Stock") at a price of $1.15 per share.
1.1 ANTI-DILUTION PROVISION. The number of shares of Common Stock
underlying the Options shall be proportionately increased in the event that the
Corporation causes to be issued additional shares in the form of a stock
dividend, stock splits, option exercise at less than book value (with the
exception of the exercise of options under (i) the Stock Option Agreement -
Clemmens, dated October 22, 1997, by and between Thermo-Tilt Window Company, a
Delaware corporation ("Thermo-Tilt") and Nelson E. Clemmens; (ii) the Stock
Option Agreement - Epelbaum, dated October 22, 1997, by and between Thermo-Tilt
and Roman Epelbaum, (iii) the Stock Option
<PAGE>
Agreement - LD Capital, Inc., dated October 22, 1997, by and between
Thermo-Tilt and LD Capital, Inc. and (iv) the Stock Option Agreement -
Hoffmann, dated October 22, 1997, by and between Thermo-Tilt and Employee) or
other such reclassification; or conversely, proportionately decreased in the
event of a reverse split or reclassification. In the event that stockholders
of the Corporation are granted the right to purchase additional shares from
the proceeds of a cash dividend by the Corporation, such event shall be
treated as a stock dividend as relates to the option.
2. VESTING OF OPTIONS. The Options shall vest as follows: (i) options
representing 108,707 shares of Common Stock shall vest upon the effective date
of this Amended and Restated Option Agreement; (ii) options representing 10,872
shares of Common Stock shall vest on February 1, 1998 and (iii) the remainder of
the options, representing 195,669 shares of Common Stock, shall vest ratably on
a monthly basis commencing on March 1, 1998, and the first day of each month
thereafter through November 1, 1998, so that options representing 21,741 whole
shares of Common Stock shall vest at the beginning of each such calendar month.
3. EXCERCISEABILITY/EXPIRATION OF OPTIONS. Once vested, the Options
shall be exercisable, in whole or in part, at an exercise price of $1.15 per
share and shall expire at 3:00 p.m. Louisville, Kentucky time on January 13,
2003. The Options may be exercised by giving written notice to the Corporation
to that effect. The Options evidenced hereby shall be exercisable by the
delivery to and receipt by the Corporation of: (i) this original Amended and
Restated Option Agreement; (ii) a written Notice of Election to Exercise (the
"Notice of Election") in the form set forth on the Schedule I to Amended and
Restated Option Agreement, to this Amended and Restated Option Agreement,
attached hereto and incorporated herein by reference, specifying the number of
shares to be purchased in not less than one thousand (1,000) share
denominations; and (iii) payment of the full purchase price, either by federal
funds wire transfer to the bank depository to be specified by the Corporation or
by certified check, U.S. funds, payable to the order of the Corporation, or on
such other terms as may be acceptable to the Corporation. If the Notice of
Exercise is for less than the total of 315,248 shares, and the time for exercise
has not expired, the Corporation shall provide the Employee with a new or
revised Amended and Restated Option Agreement for the balance of the shares then
remaining unexercised, upon the same terms and conditions as stated herein.
4. TERMINATION OF OPTIONS. In the event Employee's employment is
terminated by the Company for "good cause" pursuant to Section 2.1(ii) or by
Employee pursuant to Section 2.1(iii), any and all Options which have not vested
as of the termination date shall immediately terminate and Employee shall lose
all rights to such options, subject to applicable law. Such Options which have
vested as of the termination date shall be exercisable in accordance with
Section 3 of this Amended and Restated Option Agreement.
-2-
<PAGE>
5. REGISTRATION RIGHT. The Corporation represents that upon delivery to
and receipt by the Corporation of a written notice from Employee to the effect
below, the Corporation will use its best efforts to prepare, file, and maintain
with the appropriate regulatory authorities an effective Registration Statement
on Form S-8 (the "Form S-8"), or other applicable form, for the shares of its
Common Stock underlying the Options granted by this Amended and Restated Option
Agreement, such Form S-8 to allow for the immediate resale of the shares subject
to the Amended and Restated Option Agreement, but only at such time as the
Corporation is in compliance with the requirements to use the Form S-8 or other
applicable form.
6. NOTICES. All notices required to be given by either party shall be in
writing and (i) delivered by hand, (ii) sent by recognized overnight courier, or
(iii) sent by registered or certified mail, return receipt requested, to the
party being noticed at the address set forth in the first paragraph of this
Amended and Restated Option Agreement. Any notice to the Corporation shall be
addressed to the attention of the President. Either party may effect a change
in such address by a prior written notice.
7. BINDING ACCEPTANCE. By acceptance of this signed Amended and Restated
Option Agreement, the Employee does hereby agree to be bound by all of the terms
and conditions set forth herein.
8. GOVERNING LAW. This Amended and Restated Option Agreement shall be
construed under the laws of the Commonwealth of Kentucky.
9. TOTAL AGREEMENT. This Amended and Restated Option Agreement is the
entire agreement between the parties hereto relating to the subject matter
hereof. This Amended and Restated Option Agreement rescinds any and all prior
agreements and understandings between the parties with respect to the subject
matter covered in this Amended and Restated Option Agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the Corporation has executed this Amended and Restated
Option Agreement by its duly authorized corporate officer as of the date set
forth above.
"Corporation"
THERMOVIEW INDUSTRIES, INC.
By: /s/ Richard E. Bowlds
------------------------------------
Richard E. Bowlds
Chief Operating Officer
Accepted by:
"Employee"
/s/ Stephen A. Hoffmann
----------------------------------------
STEPHEN A. HOFFMANN
-4-
<PAGE>
SCHEDULE I TO AMENDED AND RESTATED OPTION AGREEMENT
NOTICE OF ELECTION TO EXERCISE
TO: ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
The undersigned Purchaser hereby elects to purchase ____ shares (the "Shares")
of the common stock ($.001 par value) of ThermoView Industries, Inc. (the
"Corporation") pursuant to the terms of the Amended and Restated Stock Option
Agreement - Stephen A. Hoffmann (the "Options"), dated as of January 13, 1998,
by and between the undersigned and the Corporation, (which Options must be
surrendered with this Notice of Election To Exercise).
Payment in full (U.S. Funds) is hereby tendered in the aggregate sum of
$______________, which sum represents shares (315,248 maximum) times the per
share purchase price of $1.15 by:
( ) Certified Check or ( ) Federal Funds Wire Transfer to the
Corporation's depository bank in accordance with your prior written
instructions.
( ) By Delivery vs Payment at: ________________________________________
or Account #: ______________________________________
You are hereby requested to issue a certificate representing the shares in the
name(s), and to the address(es) as specified below:
Name: _______________________________________________________________________
Street:____________________________________ Number of Shares: _______________
City:__________________________________ State: _________ Zip: _______________
Social Security or Tax I.D. Number: ____________________________________
Purchaser acknowledges that no formal memorandum, prospectus or offering
document of any kind has been delivered by the Corporation with specific regard
to the exercise of these Options. However, by virtue of the Purchaser's
employment relationship with, and activities on behalf of the Corporation,
sufficient business and other information has been made available by the
Corporation to enable Purchaser to fully evaluate the investment potential of
the Shares being acquired. The Corporation's representatives have provided
information and answered all material questions.
Date: ___________________________, _____ ______________________
-5-
<PAGE>
If no registration statement as to the Options and the Shares is effective as of
the date of exercise, include the following paragraph:
The purchaser represents and warrants that it is purchasing the Shares for
investment and not with a view to distribution thereof and understands and
acknowledges that the Stock Certificate(s) representing the Shares shall bear
the following legend:
The shares represented by this certificate have
not been registered or qualified for sale under
the Securities Act of 1933, as amended (the
"Act"), or any state securities or blue sky laws,
and may not be sold, transferred or otherwise
disposed of except pursuant to an exemption from
registration or qualification thereunder. The
Corporation may require, as a condition to transfer
of this certificate, an opinion of counsel
satisfactory to the Corporation to the effect that
such transfer will not be in violation of the Act or
any such laws.
-6-
<PAGE>
THERMOVIEW INDUSTRIES, INC.
1998 EMPLOYEE STOCK OPTION PLAN
INCENTIVE STOCK OPTION
(NON-TRANSFERABLE)
OPTION CERTIFICATE
ThermoView Industries, Inc., a Delaware corporation ("Company"), pursuant to
action of the Board and in accordance with the ThermoView Industries, Inc. 1998
Employee Stock Option Plan ("Plan"), hereby grants an Incentive Stock Option
("Option") to Stephen A. Hoffmann ("Employee") to purchase from the Company
800,000 shares of Stock, at an Option Price of $1.15 per share, which Option is
subject to all of the terms and conditions set forth in this Option Certificate
and in the Plan. This Option is granted effective as of April 15, 1998 ("Option
Grant Date").
THERMOVIEW INDUSTRIES, INC.
By:/s/ Nelson E. Clemmens
--------------------------
TERMS AND CONDITIONS
Section 1. PLAN. This Option is subject to all the terms and
conditions set forth in the Plan and this Option Certificate, and all of the
terms defined in the Plan shall have the same meaning herein when such terms
start with a capital letter. This Option is intended to satisfy the
requirements of Section 422 of the Code. However, to the extent that this
Option, when aggregated with all other "incentive stock options" (within the
meaning of Section 422 of the Code) granted to Employee under stock option
plans maintained by ThermoView, a Subsidiary or Parent Corporation exceeds the
$100,000 limit in Section 7.2 of the Plan, this Option shall be treated as an
NQO to the extent required by law. A copy of the Plan will be made available to
Employee upon written request to the Chief Financial Officer of the Company.
Section 2. ORDER OF EXERCISE. The exercise of this Option shall not be
affected by the exercise or non-exercise of any other option (without regard to
whether such option constitutes an "incentive stock option" within the meaning
of Section 422 of the Code).
Section 3. DATE EXERCISABLE. This Option shall become exercisable in
accordance with the following schedule on any normal business day of the Company
occurring on or after the first date set forth below and before the date this
Option expires under Section 4.
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES FOR WHICH
ON OR AFTER OPTION FIRST BECOMES EXERCISABLE
----------- --------------------------------
<S> <C>
October 15, 1998 450,000
December 31, 1998 350,000
</TABLE>
The maximum number of shares of Stock which may be purchased by exercise of
this Option on any such day shall equal the excess, if any, of (a) the total
number of shares of Stock subject to this Option on the Option Grant Date, as
adjusted in accordance with Section 14 of the Plan, and with respect to which
this Option is vested, over (b) the number of shares of Stock which have
previously been purchased by exercise of this Option, as adjusted in a manner
consistent with Section 14 of the Plan.
If at the time Employee intends to exercise any rights under this Option,
Employee is an officer or is filing ownership reports with the Securities and
Exchange Commission under Section 16(a) of the Exchange Act then Employee should
consult with the Company before Employee exercises such rights because there may
be additional restrictions upon the exercise of such rights.
Section 4. LIFE OF OPTION. The Option shall expire when exercised in
full; provided, however, the Option (to the extent not exercised in full) also
shall expire immediately and automatically on the earlier of (a) the date which
is the tenth anniversary of the Option Grant Date, (b) the date which is the
fifth anniversary of the Option Grant Date, if Employee is a Ten Percent
Shareholder on the Option Grant Date, (c) the date which is the 180th day after
Employee resigns or is terminated for any reason, except death or Disability, or
(d) the one year anniversary of the date Employee's employment terminates due to
death or Disability. Employee shall be Disabled for purposes of the Plan if
Employee meets the definition of disability set forth under the Company's long
term disability plan, as amended from time to time. The Company shall determine
whether Employee's employment terminates due to Disability.
If Employee terminates employment other than due to death or Disability,
the tax treatment of this Option may be affected by whether Employee exercises
this Option within three months after his employment termination date and
Employee should consult with Employee's tax advisor regarding the timing of
exercise of this Option.
Section 5. METHOD OF EXERCISE OF OPTION. Employee may (subject to
Section 3, Section 4, Section 11, Section 12, Section 13 and Section 16)
exercise this Option in whole or in part (before the date this Option expires)
on any normal business day of the Company by (1) delivering the Option
Certificate to the Company at its principal place of business together with
written notice of the exercise of this Option and (2) simultaneously paying to
the Company the Option Price. The
-2-
<PAGE>
payment of such Option Price shall be made either in cash, by check
acceptable to the Company, or by delivery to the Company of certificates
(properly endorsed) for shares of Stock registered in Employee's name, or in
any combination of such cash, check, and Stock which results in payment in
full of the Option Price. Stock which is so tendered as payment (in whole or
in part) of the Option Price shall be valued at its Fair Market Value on the
date this Option is exercised.
Section 6. DELIVERY. The Company's delivery of Stock pursuant to the
exercise of this Option (as described in Section 5) shall discharge the Company
of all of its duties and responsibilities with respect to this Option.
Section 7. ADJUSTMENT. The Board shall have the right to make such
adjustments to this Option as described under Section 14 of the Plan.
Section 8. NONTRANSFERABLE. This Option shall not be transferable by
Employee except by his will or by the laws of descent and distribution, and
rights granted under this Option shall be exercisable during Employee's lifetime
only by Employee. If this Option is exercisable after the death of Employee,
the person or persons to whom this Option is transferred by will or by the laws
of descent and distribution shall be treated as the Employee under this Option
Certificate.
Section 9. TERMINATION OF EMPLOYMENT. Neither the Plan, this Option
nor any related material shall give Employee the right to continue in employment
with the Company or any affiliate of the Company or shall adversely affect the
right of the Company or affiliate terminate Employee's employment with or
without cause at any time.
Section 10. SHAREHOLDER STATUS. Employee shall have no rights as a
shareholder with respect to any shares of Stock under this Option until such
shares have been duly issued and delivered to Employee, and no adjustment shall
be made for dividends of any kind or description whatsoever or for distributions
of other rights of any kind or description whatsoever respecting such Stock
except as expressly set forth in the Plan.
Section 11. OTHER LAWS. The Company shall have the right to refuse to
issue or transfer any Stock under this Option if the Company acting in its
absolute discretion determines that the issuance or transfer of such Stock might
violate any applicable law or regulation, and any payment tendered in such event
to exercise this Option shall be promptly refunded to Employee.
Section 12. SECURITIES REGISTRATION. Employee may be requested by the
Company to hold any shares of Stock received upon the exercise of this Option
for personal investment and not for
-3-
<PAGE>
purposes of resale or distribution to the public and Employee shall, if so
requested by the Company, deliver a certified statement to that effect to the
Company as a condition to the transfer of such Stock to Employee.
Section 13. OTHER CONDITIONS. Employee shall (as a condition to the
exercise of this Option) enter into any agreement or make any representations
required by the Company related to the Stock to be acquired pursuant to the
exercise of this Option, including any agreement which restricts the transfer of
Stock acquired pursuant to the exercise of this Option and provides for the
repurchase of such Stock by the Company under certain circumstances.
Section 14. TAX WITHHOLDING. The Company shall have the right to
withhold or retain from any payment to Employee (whether or not such payment is
made pursuant to this Option) or take such other action as is permissible under
the Plan which the Company deems necessary or appropriate to satisfy any income
or other tax withholding requirements as a result of the exercise of this
Option.
Section 15. GOVERNING LAW. The Plan and this Option shall be governed
by the laws of the State of Delaware.
Section 16. MODIFICATION, AMENDMENT, AND CANCELLATION. The Company
shall have the right unilaterally to modify, amend, or cancel this Option in
accordance with the terms of the Plan, and, in particular, shall have the right
under Section 15 of the Plan to cancel this Option as of any date before the
effective date of a sale or other corporate transaction described in Section 15
of the Plan.
Section 17. SALE OR OTHER CORPORATE TRANSACTION. This Option shall no
longer be subject to the vesting schedule in Section 3 and shall (for purposes
of Section 15 of the Plan) be treated as exercisable in full if a sale or other
corporate transaction described in Section 15 of the Plan occurs; provided,
however, if the Board determines that such sale or other corporate transaction
is intended to be a pooling transaction and treating this Option as exercisable
in full adversely affects the Company's ability to structure the sale or other
transaction as a pooling transaction, Employee's rights with respect to this
Option shall be determined under Section 15 of the Plan without regard to this
Section 17.
Section 18. BINDING EFFECT. This Option shall be binding upon the
Company and Employee and their respective heirs, executors, administrators and
successors.
-4-
<PAGE>
OPTION EXERCISE FORM
(To be executed by Employee to
exercise the rights to purchase Stock
evidenced by the foregoing Option)
TO: THERMOVIEW INDUSTRIES, INC.
The undersigned hereby exercises the right to purchase _____ shares of
Stock covered by the attached Option in accordance with the terms and conditions
thereof, and herewith makes payment of the Option Price for such shares in full.
-----------------------------
Signature
-----------------------------
-----------------------------
Address
- -
-------- --------- ----------
Social Security Number
Dated:
-----------------
<PAGE>
EMPLOYMENT AND NONCOMPETITION AGREEMENT - CLEMMENS
THIS AGREEMENT (the "Agreement") is made and entered into this 19th day of
January, 1998, by and between NELSON E. CLEMMENS ("Employee"), and THERMO-TILT
WINDOW COMPANY, a Delaware corporation (the "Company").
PRELIMINARY STATEMENTS
Prior to the execution of this Agreement the Employee entered into a
Consulting Services Agreement - Clemmens dated October 22, 1997 (the "Consulting
Agreement") whereby he agreed, among other things, to provide consulting
services to the Company in connection with general business analysis, management
and marketing, business opportunity evaluation and merger/acquisition location
and structuring services.
Prior to the execution of this Agreement the Employee entered into a Stock
Option Agreement - Clemmens dated October 22, 1997 (the "Consulting Option
Agreement") whereby he was granted nonqualified stock options (the "Consulting
Options") to purchase 25,000 shares of the Company's .001 par value common stock
("Common Stock"). The Consulting Options vest in whole on October 22, 1998, are
exercisable thereafter in whole or in part at an exercise price of $.50 per
share and expire on October 22, 2002. The Consulting Options were granted to
Employee in exchange for services to be rendered by him under the Consulting
Agreement.
Contemporaneously with the execution of this Agreement, the Company will
cause the Employee to be elected a director of the Company, appointed an officer
of the Company with the title of President and hired as an employee of the
Company.
Contemporaneously with the execution of this Agreement, in accordance with
Section 2 of the Consulting Agreement, Employee and the Company mutually agree
to terminate the Consulting Agreement; provided, however, the Consulting
Options under the Consulting Option Agreement, which previously served as
compensation under the Consulting Agreement, shall be reclassified and shall
serve as partial compensation under this Agreement. Employee agrees that the
Consulting Options shall continue to be governed by the Consulting Option
Agreement, as modified by this Agreement.
The Company has agreed to employ Employee on the terms and conditions
hereinafter set forth.
NOW THEREFORE, in consideration of the premises and mutual promises and
agreements contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
1
<PAGE>
SECTION 1. EMPLOYMENT.
Subject to the terms hereof, Company hereby agrees to employ Employee, and
Employee hereby accepts such employment as President. Employee shall serve the
Company during the Term (as defined in Section 2.1) of this Agreement, subject
to the direction of the Company's Board of Directors. As President, Employee
shall devote his best efforts and such business time as may be necessary or
appropriate on behalf of the Company:
(i) To serve as the chief executive officer of the Corporation,
whereby Employee shall preside at all meetings of the stockholders and the Board
of Directors and shall have general and active management of the business of the
Company.
(ii) To assist the Company in evaluating potential corporate
opportunities, including merger and acquisition structuring, negotiation and
closing services.
(iii) To provide the Company with a variety of general business
analyses, marketing and management services.
SECTION 2. TERM.
2.1. The term of Employee's employment hereunder shall be from January 19,
1998, through and including January 19, 2000 (the "Term"), unless terminated
prior thereto upon the occurrence of any of the following:
(i) The death or total disability of Employee. As used herein, "total
disability" means any physical or mental condition rendering the Employee
unable, for a total of six (6) months during any twelve month period, to perform
the duties and bear the responsibilities incident to the position referred to in
Section 1 hereof as determined by a physician acceptable to Employee and
Company; or
(ii) Company's termination of Employee's employment hereunder, upon
prior written notice to Employee, for "good cause." For the purposes of this
Agreement, "good cause" for termination of Employee's employment shall exist
only if (a) Employee is convicted of, pleads guilty to, or confesses to any act
of fraud, misappropriation or embezzlement or to any felony, (b) Employee has
engaged in a dishonest or disloyal act resulting in material damage or prejudice
to the Company, (c) Employee has engaged in conduct or activities materially
damaging or prejudicial to the property, business or reputation of the Company,
or (d) Employee otherwise fails to comply with the material terms of this
Agreement; or
2
<PAGE>
(iii) By the Employee at any time during the Term.
In the event that the Company should elect to terminate Employee for "good
cause" within the meaning of sub-Section (ii)(b), (c) or (d) above, Employee
shall have a period of twenty (20) days after the written notice to cure any
non-compliance set forth therein prior to the time such termination would become
effective.
2.2. If Employee's employment herein is terminated prior to the end of the
Term by the Company for "good cause" pursuant to Section 2.1(ii) or by Employee
pursuant to Section 2.1(iii), Employee's compensation shall be terminated in
accordance with Section 3.5 below.
SECTION 3. COMPENSATION.
3.1. COMPENSATION. Employee agrees that as compensation under this
Agreement, he shall retain the Consulting Stock Options mentioned above and he
shall be granted the stock options referred to in Section 3.2 below. Employee
also agrees to forfeit a salary and all fringe benefits, perquisites, and other
benefits of employment which other employees may receive as a condition of their
employment in lieu of Pine South Capital, LLC, an investment advisory firm
controlled by Employee, receiving a monthly consulting fee of $2,500 per month
(to be reviewed monthly for prospective escalation) and customary financial
consulting fees. Employee shall be paid or reimbursed for all reasonable
expenses incurred in the performance of his duties hereunder.
3.2. OPTIONS. Simultaneously upon execution of this Agreement, the
Company shall grant Employee nonqualified stock options to purchase 50,000
shares of Common Stock (the "Employment Stock Options") at an exercise price of
$2.00 per share, pursuant to a Stock Option Agreement - Clemmens dated January
19, 1998 (the "Employment Stock Option Agreement").
3.3. OPTION VESTING. The Employment Stock Options shall vest as
follows:
(i) One-half of the Employment Stock Options, representing 25,000
shares of Common Stock, shall vest upon the execution of this Agreement.
(ii) One-half of the Employment Stock Options, representing 25,000
shares of Common Stock, shall vest ratably on a monthly basis commencing on
February 1, 1998, and the first day of each month thereafter through
September 1, 1999, so that options representing 1,250 whole shares of Common
Stock shall vest at the beginning of each such calendar month.
3
<PAGE>
3.4 OPTION EXERCISEABILITY/EXPIRATION. Once vested, the Employment Stock
Options shall be exercisable in whole or in part at an exercise price of $2.00
per share and shall expire on January 19, 2003.
3.5 TERMINATION OF OPTIONS. In the event Employee's employment is
terminated by the Company for "good cause" pursuant to Section 2.1(ii) or by
Employee pursuant to Section 2.1(iii), any and all Employee Stock Options and
Consulting Stock Options which have not vested as of the termination date shall
immediately terminate and Employee shall lose all rights to such options,
subject to applicable law. Such Employee Stock Options and Consulting Stock
Options which have vested as of the termination date shall be exercisable in
accordance with provisions of the Employee Option Agreement and the Consulting
Option Agreement, as amended, respectively.
SECTION 4. CONFIDENTIAL INFORMATION AND NONCOMPETITION
COVENANT.
4.1. CONFIDENTIAL INFORMATION AND TRADE SECRETS. Employee hereby agrees
that he shall hold in confidence all customer lists, supplier lists, price
lists, financial information, operating manual and forms, plans, notes, computer
programs, systems and software (including, without limitation, documentation and
related source and object codes), and all other knowledge or information of a
confidential or proprietary nature with respect to the business of the Company
(the "Proprietary Information"), and Employee will not disclose, publish or make
use of such knowledge or information during his employment hereunder, except for
purposes of his employment hereunder or as required by law, or upon expiration
of the Term or early termination pursuant to Section 2.1. Upon the expiration
of the Term or early termination pursuant to Section 2.1, Employee shall return
and deliver forthwith to the Company any and all Proprietary Information,
including all copies thereof and shall not retain or remove any secret or
confidential information of any type or description without the express written
consent of the Company.
4.2. NONCOMPETITION. The Company is engaged in the business of designing,
selling and installing state of the art custom vinyl new and replacement thermal
paned windows for the existing home market in the following geographic areas:
Alabama, Illinois, Indiana, Kentucky, Missouri and Tennessee. The Company's
operations and offices are located at 1101 Alsop Lane and 2800 Warehouse Road,
both in Owensboro, Kentucky (the "Owensboro Addresses"). The geographic area
within a 100-mile radius of (i) the Owensboro Addresses and (ii) all other
Company office addresses existing at the time of Employee's termination shall
hereinafter be referred to as the "Territory." Employee acknowledges that the
goodwill of the Company and marketing and support of services and products of
the Company extends throughout
4
<PAGE>
the Territory. In consideration of the rights granted to Employee hereunder,
Employee hereby agrees that for the period commencing on the date hereof and
ending AT THE LATER OF (i) two (2) years from the date hereof or (ii) one (1)
year after Employee ceases to be employed by the Company (the "Noncompete
Period"), Employee shall not (without the prior written consent of the
Company), in any manner, directly or indirectly,
(i) engage in, have any equity or profit interest in, make any
loan to or for the benefit of, guaranty the repayment of any funds by, or
render services of any executive, advertising, marketing, sales,
administrative, supervisory, engineering, computer program or system
development, maintenance, manufacturing or consulting nature to any business
conducting operations in the Territory which are competitive with the
business activities being directly engaged in by the Company as of the date
on which Employee's employment is terminated; or
(ii) solicit, divert or appropriate, or attempt to solicit, divert or
appropriate, any customer of the Company (including current customers and those
which become customers during the term of the Employment Agreement) for the
purpose of providing services competitive with the Business; or
(iii) solicit to employ, on his own behalf or on behalf of any other
person, firm or corporation, any person who was employed during the Term or any
extended Term hereof and who has not thereafter ceased to be employed by the
Company for a period of at least one year.
Notwithstanding anything contained herein to the contrary, Employee shall
not be prohibited from owning, directly or indirectly, up to 5% of the
outstanding equity interest of any company, which is in competition with the
Company or a Related Company and the stock of which is publicly traded.
4.3. SEVERABILITY. If a judicial determination is made that any of the
provisions of this Section 4 constitutes an unreasonable or otherwise
unenforceable restriction against Employee, the provisions of this Section 4
shall be rendered void only to the extent that such judicial determination finds
such provisions to be unreasonable or otherwise unenforceable. In this regard,
the parties hereto hereby agree that any judicial authority construing this
Agreement shall be empowered to sever any portion of the Territory or any
prohibited business activity from the coverage of this Section 4, and to reduce
the duration of the Noncompete Period and to apply the provisions of this
Section 4 to the remaining portion of the Territory or the remaining business
activities not to be severed by such judicial authority and to the duration of
the Noncompete Period as reduced by judicial determination.
5
<PAGE>
4.4. INJUNCTIVE RELIEF. Employee hereby agrees that any breach or
threatened breach by Employee of Sections 4.1 or 4.2 of this Agreement will
irreparably injure the Company and that any remedy at law for any breach or
threatened breach by Employee of the provisions contained in Sections 4.1 and
4.2 hereof shall be inadequate, and that the Company shall be entitled to
injunctive relief in addition to any other remedy it might have under this
Agreement or at law or in equity. Employee further agrees that the grant of
such injunctive relief and the enforcement of the terms of this Agreement shall
not deprive him of his ability to earn a living.
SECTION 5. MISCELLANEOUS.
5.1. BINDING EFFECT. This Agreement shall inure to the benefit of and
shall be binding upon Employee and his executor, administrator, heirs, personal
representative and assigns, and Company and its successors and assigns;
provided, however, that Employee shall not be entitled to assign or delegate any
of his rights or obligations hereunder, other than the Employment Stock Options,
without the prior written consent of Company.
5.2. GOVERNING LAW. This Agreement shall be deemed to be made in, and in
all respects shall be interpreted, construed and governed by and in accordance
with, the laws of the Commonwealth of Kentucky, without regard to conflicts of
laws principles.
5.3. HEADINGS. The section and paragraph heading contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
5.4. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, shall be addressed to the receiving party's
address set forth below or to such other address as a party may designate by
notice hereunder, and shall be either (i) delivered by hand, (ii) sent by
recognized overnight courier, or (iii) sent by registered or certified mail,
return receipt requested, postage prepaid.
If to the Company:
Thermo-Tilt Window Company
2800 Warehouse Road
Owensboro, Kentucky 42301
Attn: Richard E. Bowlds, President
With a copy to:
Stites & Harbison
400 West Market Street, Suite 1800
Louisville, KY 40202
Attn: Alex P. Herrington, Jr., Esq. (Mike)
6
<PAGE>
If to the Employee:
Nelson E. Clemmens
2003 Goshen Lane
Goshen, Kentucky 40026
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof
to the receiving party at the address of such party set forth above, (ii) if
sent by overnight courier, on the next business day following the day such
notice is delivered to the courier service, or (iii) if sent by registered or
certified mail, on the fifth business day following the day such mailing is
sent.
Any party to this Agreement may change his or its address upon written
notice delivered pursuant to this Section.
5.5. ENTIRE AGREEMENT. This Agreement is intended by the parties hereto
to be the final expression of their agreement with respect to the subject matter
hereof and is the complete and exclusive statement of the terms thereof
notwithstanding any representations, statements or agreements to the contrary
heretofore made. This Agreement may be modified only by a written instrument
signed by each of the parties hereto.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Agreement and the Employee has executed this Agreement as of the
date first above written.
EMPLOYEE: /s/ Nelson E. Clemmens
---------------------------------------
Nelson E. Clemmens
COMPANY: THERMO-TILT WINDOW COMPANY
By: /s/ Richard E. Bowlds
----------------------------------
Richard E. Bowlds
Title: President
7
<PAGE>
50,000 SHARES EXERCISE PRICE: $2.00
STOCK OPTION AGREEMENT - CLEMMENS
THIS STOCK OPTION AGREEMENT - CLEMMENS (the "Option Agreement")
effective as of the 19th day of January, 1998, between THERMO-TILT WINDOW
COMPANY, herein referred to as the "CORPORATION", being incorporated under
the laws of the State of Delaware, maintaining its principal place of
business at 2800 Warehouse Road, Owensboro, Kentucky 42301; and NELSON E.
CLEMMENS, herein referred to as "EMPLOYEE", of 713 E. Market Street,
Louisville, Kentucky 40202.
WITNESSETH:
WHEREAS, the variety of services to be rendered by Employee, including
merger and acquisition structuring, negotiation and closing services, shall
represent an important and valuable aid to the conduct of the Corporation's
business enterprise, and as such Corporation deems it to be in the best
interests of the Corporation to hire Employee;
WHEREAS, in connection with the hiring of Employee, the Corporation has
entered into an Employment and Noncompetition Agreement - Clemmens dated January
19, 1998 (the "Employment Agreement"); and
WHEREAS, the Corporation desires to enter into this Option Agreement with
the Employee containing the terms and conditions hereinafter set forth, and to
grant to Employee stock options to purchase shares of the common stock of the
Corporation.
NOW, THEREFORE, in consideration of the promises and mutual agreements of
the parties herein contained, and for other good and valuable consideration, the
parties agree as follows:
1. GRANT OF OPTIONS. In consideration of the foregoing, the Corporation
hereby grants and issues to Employee the rights at the election of the Employee
(hereinafter referred to as the "Options") to purchase up to an aggregate of
50,000 shares of Common Stock, $.001 par value, of the Corporation (the "Common
Stock") at a price of $2.00 per share.
1.1 ANTI-DILUTION PROVISION. The number of shares of Common Stock
underlying the Options shall be proportionately increased in the event that the
Corporation causes to be issued additional shares in the form of a stock
dividend, stock splits, option exercise at less than book value (with the
exception of the exercise of options under (i) the Stock Option Agreement -
Clemmens, dated October 22, 1997, by and between the Corporation
<PAGE>
and Employee; (ii) the Stock Option Agreement - Epelbaum, dated October 22,
1997, by and between the Corporation and Roman Epelbaum, (iii) the Stock Option
Agreement - LD Capital, Inc., dated October 22, 1997, by and between the
Corporation and LD Capital, Inc. and (iv) the Stock Option Agreement - Hoffmann,
dated October 22, 1997, by and between the Corporation and Stephen A. Hoffmann)
or other such reclassification; or conversely, proportionately decreased in the
event of a reverse split or reclassification. In the event that stockholders of
the Corporation are granted the right to purchase additional shares from the
proceeds of a cash dividend by the Corporation, such event shall be treated as a
stock dividend as relates to the option.
2. VESTING OF OPTIONS. The Options shall vest as follows: (i) one-half
of the Options, representing 25,000 shares of Common Stock, shall vest upon the
execution of this Agreement; and (ii) one-half of the Options, representing
25,000 shares of Common Stock, shall vest on December 31, 1998.
3. EXCERCISEABILITY/EXPIRATION OF OPTIONS. Once vested, the Options
shall be exercisable, in whole or in part, at an exercise price of $2.00 per
share and shall expire at 3:00 p.m. Owensboro, Kentucky time on January 19,
2003. The Options may be exercised by giving written notice to the Corporation
to that effect. The Options evidenced hereby shall be exercisable by the
delivery to and receipt by the Corporation of: (i) this original Option
Agreement; (ii) a written Notice of Election to Exercise (the "Notice of
Election") in the form set forth on the Schedule I to Option Agreement, to this
Option Agreement, attached hereto and incorporated herein by reference,
specifying the number of shares to be purchased in not less than one thousand
(1,000) share denominations; and (iii) payment of the full purchase price,
either by federal funds wire transfer to the bank depository to be specified by
the Corporation or by certified check, U.S. funds, payable to the order of the
Corporation, or on such other terms as may be acceptable to the Corporation. If
the Notice of Exercise is for less than the total of 50,000 shares, and the time
for exercise has not expired, the Corporation shall provide the
Employee with a new or revised Option Agreement for the balance of the shares
then remaining unexercised, upon the same terms and conditions as stated herein.
4. TERMINATION OF OPTIONS. In the event Employee's employment is
terminated by the Company for "good cause" pursuant to Section 2.1(ii) of the
Employment Agreement or by Employee pursuant to Section 2.1(iii) of the
Employment Agreement, any and all Options which have not vested as of the
termination date shall immediately terminate and Employee shall lose all rights
to such options, subject to applicable law. Such Options which have vested as
of the termination date shall be exercisable in accordance with Section 3 of
this Option Agreement.
-2-
<PAGE>
5. REGISTRATION RIGHT. The Corporation represents that upon delivery to
and receipt by the Corporation of a written notice from Employee to the effect
below, the Corporation will use its best efforts to prepare, file, and maintain
with the appropriate regulatory authorities an effective Registration Statement
on Form S-8 (the "Form S-8"), or other applicable form, for the shares of its
Common Stock underlying the Options granted by this Option Agreement, such Form
S-8 to allow for the immediate resale of the shares subject to the Option
Agreement, but only at such time as the Corporation is in compliance with the
requirements to use the Form S-8 or other applicable form.
6. NOTICES. All notices required to be given by either party shall be in
writing and (i) delivered by hand, (ii) sent by recognized overnight courier, or
(iii) sent by registered or certified mail, return receipt requested, to the
party being noticed at the address set forth in the first paragraph of this
Option Agreement. Any notice to the Corporation shall be addressed to the
attention of the President. Either party may effect a change in such address by
a prior written notice.
7. BINDING ACCEPTANCE. By acceptance of this signed Option Agreement,
the Employee does hereby agree to be bound by all of the terms and conditions
set forth herein.
8. GOVERNING LAW. This Option Agreement shall be construed under the
laws of the Commonwealth of Kentucky.
9. TOTAL AGREEMENT. This Option Agreement is the entire agreement
between the parties hereto relating to the subject matter hereof. This Option
Agreement rescinds any and all prior agreements and understandings between the
parties with respect to the subject matter covered in this Option Agreement.
10. ASSIGNABILITY. This Option Agreement is not assignable by Employee.
-3-
<PAGE>
IN WITNESS WHEREOF, the Corporation has executed this Option Agreement by
its duly authorized corporate officer as of the date set forth above.
"Corporation"
THERMO-TILT WINDOW COMPANY
By: /s/ Stephen A. Hoffmann
---------------------------------
Title: Chief Executive Officer
------------------------------
Accepted by:
"Employee"
/s/ Nelson E. Clemmens
------------------------------------
NELSON E. CLEMMENS
-4-
<PAGE>
SCHEDULE I TO OPTION AGREEMENT
- --------------------------------------------------------------------------------
NOTICE OF ELECTION TO EXERCISE
TO: Thermo-Tilt Window Company
2800 Warehouse Road
Owensboro, Kentucky 42301
The undersigned Purchaser hereby elects to purchase ____ shares (the "Shares")
of the common stock ($.001 par value) of Thermo-Tilt Window Company (the
"Corporation") pursuant to the terms of the Stock Option Agreement - Clemmens
(the "Options"), dated as of January 19, 1998, by and between the undersigned,
or his predecessor by assignment, and the Corporation, (which Options must be
surrendered with this Notice of Election To Exercise).
Payment in full (U.S. Funds) is hereby tendered in the aggregate sum of
$______________, which sum represents shares (maximum 50,000) times the per
share purchase price of $2.00 by:
( ) Certified Check or ( ) Federal Funds Wire Transfer to the
Corporation's depository bank in accordance with your prior written
instructions.
( ) By Delivery vs Payment at:
-------------------------------------
or Account #:
-----------------------------------
You are hereby requested to issue a certificate representing the shares in the
name(s), and to the address(es) as specified below:
Name:
--------------------------------------------------------------------
Street: Number of Shares:
---------------------------------- ---------
City: State: Zip:
---------------------------- -------- --------------
Social Security or Tax I.D. Number:
---------------------------------
Purchaser acknowledges that no formal memorandum, prospectus or offering
document of any kind has been delivered by the Corporation with specific regard
to the exercise of these Options. However, by virtue of the Purchaser's
employment relationship with, and activities on behalf of the Corporation,
sufficient business and other information has been made available by the
Corporation to enable Purchaser to fully evaluate the investment potential of
the Shares being acquired. The Corporation's representatives have provided
information and answered all material questions.
Date:
-------------------------, ------- --------------------------------
- --------------------------------------------------------------------------------
-5-
<PAGE>
If no registration statement as to the Options and the Shares is effective as of
the date of exercise, include the following paragraph:
The purchaser represents and warrants that it is purchasing the Shares for
investment and not with a view to distribution thereof and understands and
acknowledges that the Stock Certificate(s) representing the Shares shall bear
the following legend:
The shares represented by this certificate have
not been registered or qualified for sale under
the Securities Act of 1933, as amended (the "Act"),
or any state securities or blue sky laws, and may
not be sold, transferred or otherwise disposed of
except pursuant to an exemption from registration
or qualification thereunder. The Corporation may
require, as a condition to transfer of this
certificate, an opinion of counsel satisfactory to
the Corporation to the effect that such transfer
will not be in violation of the Act or any such laws.
-6-
<PAGE>
FIRST AMENDMENT TO EMPLOYMENT AND
NONCOMPETITION AGREEMENT - CLEMMENS
This First Amendment (this "Amendment") to Employment and Noncompetition
Agreement - Clemmens made and effective as of the 15th day of April, 1998, among
THERMO-TILT WINDOW COMPANY, a Delaware corporation (the "Company") and Nelson E.
Clemmens ("Employee").
WITNESSETH:
WHEREAS the Company and Employee entered into that certain Employment and
Noncompetition Agreement - Clemmens, dated as of January 19, 1998 (the
"Employment Agreement"), whereby Employee, among other things agreed to serve as
President of Thermo-Tilt; and
WHEREAS under the Employment Agreement both the Company and Employee desire
to amend the Employment Agreement whereby Employee will cease to serve as
President of the Company and instead will serve as Vice President - Finance and
Administration of the Company in accordance with the terms of the Employment
Agreement, as amended;
NOW THEREFORE in consideration of the above recitals and the mutual
agreements herein contained and for other good and valuable consideration, the
parties hereby agree as follows:
1. Section 1 of the Employment Agreement is hereby amended to read in its
entirety as follows:
SECTION 1. EMPLOYMENT.
Subject to the terms hereof, Company hereby agrees to employ Employee, and
Employee hereby accepts such employment as Vice President - Finance and
Administration. Employee shall serve the Company during the Term (as defined in
Section 2.1) of this Agreement, subject to the direction of the Company's Board
of Directors. As Vice President - Finance and Administration, Employee shall
devote his best efforts and such business time as may be necessary or
appropriate on behalf of the Company:
(i) To conduct general and active management of the business of the
Company subject to the direction of the President and the Board of Directors.
1
<PAGE>
(ii) To assist the Company in evaluating potential corporate
opportunities, including merger and acquisition structuring, negotiation and
closing services.
(iii) To provide the Company with a variety of general business
analyses, marketing and management services.
(iv) To conduct such other duties as the Board of Directors may
prescribe from time to time.
2. Other than is set forth in this Amendment, all the terms, conditions,
rights, duties, responsibilities and obligations set forth in the Employment
Agreement remain in full force and effect.
IN WITNESS WHEREOF, the Company has executed this Amendment by its duly
authorized corporate officer as of the date set forth above.
"Company"
THERMO-TILT WINDOW COMPANY
By: /s/ Stephen A. Hoffmann
--------------------------------
Stephen A. Hoffmann
Chairman of the Board, President
and Chief Executive Officer
Accepted by:
"Employee"
/s/ Nelson E. Clemmens
-----------------------------------
NELSON E. CLEMMENS
2
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AND
NONCOMPETITION AGREEMENT - CLEMMENS
THIS AMENDED AND RESTATED EMPLOYMENT AND NONCOMPETITION AGREEMENT -
CLEMMENS (this "Agreement") is made and entered into this 15th day of April,
1998, by and between NELSON E. CLEMMENS ("Employee"), and THERMOVIEW INDUSTRIES,
INC., a Nevada corporation (the "Company").
PRELIMINARY STATEMENTS
WHEREAS, the Corporation and Employee mutually desire to amend and restate
that certain Employment and Noncompetition Agreement - Clemmens, dated as of
April 15, 1998 (the "Original Employment Agreement"), whereby the Original
Employment Agreement shall be cancelled in its entirety and replaced by this
Agreement;
WHEREAS, the Company has agreed to employ Employee on the terms and
conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises and mutual promises and
agreements contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
SECTION 1. EMPLOYMENT.
Subject to the terms hereof, Company hereby agrees to employ Employee, and
Employee hereby accepts such employment as Vice President - Finance and
Administration. Employee shall serve the Company during the Term (as defined in
Section 2.1) of this Agreement, subject to the direction of the Company's Board
of Directors. As Vice President - Finance and Administration, Employee shall
devote his best efforts and such business time as may be necessary or
appropriate on behalf of the Company:
(i) To conduct general and active management of the business of the
Company subject to the direction of the President and the Board of Directors.
(ii) To assist the Company in evaluating potential corporate
opportunities, including merger and acquisition structuring, negotiation and
closing services.
(iii) To provide the Company with a variety of general business
analyses, marketing and management services.
(iv) To conduct such other duties as the Board of Directors may
prescribe from time to time.
1
<PAGE>
SECTION 2. TERM.
2.1. The term of Employee's employment hereunder shall be from April 15,
1998 through and including April 15, 2000 (the "Term"), unless terminated prior
thereto upon the occurrence of any of the following:
(i) The death or total disability of Employee. As used herein, "total
disability" means any physical or mental condition rendering the Employee
unable, for a total of six (6) months during any twelve month period, to perform
the duties and bear the responsibilities incident to the position referred to in
Section 1 hereof as determined by a physician acceptable to Employee and
Company; or
(ii) Company's termination of Employee's employment hereunder, upon
prior written notice to Employee, for "good cause." For the purposes of this
Agreement, "good cause" for termination of Employee's employment shall exist
only if (a) Employee is convicted of, pleads guilty to, or confesses to any act
of fraud, misappropriation or embezzlement or to any felony, (b) Employee has
engaged in a dishonest or disloyal act resulting in material damage or prejudice
to the Company, (c) Employee has engaged in conduct or activities materially
damaging or prejudicial to the property, business or reputation of the Company,
or (d) Employee otherwise fails to comply with the material terms of this
Agreement; or
(iii) By the Employee at any time during the Term.
In the event that the Company should elect to terminate Employee for "good
cause" within the meaning of sub-Section (ii)(b), (c) or (d) above, Employee
shall have a period of twenty (20) days after the written notice to cure any
non-compliance set forth therein prior to the time such termination would become
effective.
2.2. If Employee's employment herein is terminated prior to the end of the
Term by the Company for "good cause" pursuant to Section 2.1(ii) or by Employee
pursuant to Section 2.1(iii), Employee's compensation shall be terminated in
accordance with Section 3.5 below.
SECTION 3. COMPENSATION.
3.1. COMPENSATION. Employee agrees that as compensation under this
Agreement, Employee shall receive an annual salary of $125,000, to be reviewed
annually for escalation.
3.2 TERMINATION OF COMPENSATION. In the event Employee's employment is
terminated by the Company for "good cause" pursuant to Section 2.1(ii) or by
Employee pursuant to Section 2.1(iii),
2
<PAGE>
any and all unearned compensation as of the termination date provided
pursuant to Section 3.1 shall immediately terminate subject to applicable
law. Such compensation provided for under Section 3.1 which has been earned
by Employee as of the termination date but not paid by the Company as of the
termination date shall be paid by the Company within a reasonable time after
the termination date. In the event Employee's employment is otherwise
terminated by the Company, Employee shall receive the compensation provided
for under Section 3.1 for the remainder of the Term.
SECTION 4. CONFIDENTIAL INFORMATION AND NONCOMPETITION COVENANT.
4.1. CONFIDENTIAL INFORMATION AND TRADE SECRETS. Employee hereby agrees
that he shall hold in confidence all customer lists, supplier lists, price
lists, financial information, operating manual and forms, plans, notes, computer
programs, systems and software (including, without limitation, documentation and
related source and object codes), and all other knowledge or information of a
confidential or proprietary nature with respect to the business of the Company
(the "Proprietary Information"), and Employee will not disclose, publish or make
use of such knowledge or information during his employment hereunder, except for
purposes of his employment hereunder or as required by law, or upon expiration
of the Term or early termination pursuant to Section 2.1. Upon the expiration
of the Term or early termination pursuant to Section 2.1, Employee shall return
and deliver forthwith to the Company any and all Proprietary Information,
including all copies thereof and shall not retain or remove any secret or
confidential information of any type or description without the express written
consent of the Company.
4.2. NONCOMPETITION. The Company, through its wholly-owned subsidiary,
Thermo-Tilt Window Company, a Delaware corporation ("Thermo-Tilt") is engaged in
the business of designing, selling and installing state of the art custom vinyl
new and replacement thermal paned windows for the existing home market in the
following geographic areas: Alabama, Illinois, Indiana, Kentucky, Missouri and
Tennessee. Thermo-Tilt's operations and offices are located at 2800 Warehouse
Drive, Owensboro, Kentucky (the "Owensboro Address"). The geographic area
within a 100-mile radius of (i) the Owensboro Address and (ii) all other
addresses of the Company and its subsidiaries existing at the time of Employee's
termination shall hereinafter be referred to as the "Territory." Employee
acknowledges that the goodwill of the Company and its subsidiaries and marketing
and support of services and products of the Company and its subsidiaries extends
throughout the Territory. In consideration of the rights granted to Employee
hereunder, Employee hereby agrees that for the period commencing on the date
hereof and ending AT THE LATER OF (i) two
3
<PAGE>
(2) years from the date hereof or (ii) one (1) year after Employee ceases to
be employed by the Company (the "Noncompete Period"), Employee shall not
(without the prior written consent of the Company), in any manner, directly
or indirectly,
(i) engage in, have any equity or profit interest in, make any loan to
or for the benefit of, guaranty the repayment of any funds by, or render
services of any executive, advertising, marketing, sales, administrative,
supervisory, engineering, computer program or system development, maintenance,
manufacturing or consulting nature to any business conducting operations in the
Territory which are competitive with the business activities being directly
engaged in by the Company or its subsidiaries as of the date on which Employee's
employment is terminated; or
(ii) solicit, divert or appropriate, or attempt to solicit, divert or
appropriate, any customer of the Company or its subsidiaries (including current
customers and those which become customers during the term of the Employment
Agreement) for the purpose of providing services competitive with the Business;
or
(iii) solicit to employ, on his own behalf or on behalf of any other
person, firm or corporation, any person who was employed during the Term or any
extended Term hereof and who has not thereafter ceased to be employed by the
Company and its subsidiaries for a period of at least one year.
Notwithstanding anything contained herein to the contrary, Employee shall
not be prohibited from owning, directly or indirectly, up to 5% of the
outstanding equity interest of any company, which is in competition with the
Company, its subsidiaries or a Related Company and the stock of which is
publicly traded.
4.3. SEVERABILITY. If a judicial determination is made that any of the
provisions of this Section 4 constitutes an unreasonable or otherwise
unenforceable restriction against Employee, the provisions of this Section 4
shall be rendered void only to the extent that such judicial determination finds
such provisions to be unreasonable or otherwise unenforceable. In this regard,
the parties hereto hereby agree that any judicial authority construing this
Agreement shall be empowered to sever any portion of the Territory or any
prohibited business activity from the coverage of this Section 4, and to reduce
the duration of the Noncompete Period and to apply the provisions of this
Section 4 to the remaining portion of the Territory or the remaining business
activities not to be severed by such judicial authority and to the duration of
the Noncompete Period as reduced by judicial determination.
4
<PAGE>
4.4. INJUNCTIVE RELIEF. Employee hereby agrees that any breach or
threatened breach by Employee of Sections 4.1 or 4.2 of this Agreement will
irreparably injure the Company and that any remedy at law for any breach or
threatened breach by Employee of the provisions contained in Sections 4.1 and
4.2 hereof shall be inadequate, and that the Company shall be entitled to
injunctive relief in addition to any other remedy it might have under this
Agreement or at law or in equity. Employee further agrees that the grant of
such injunctive relief and the enforcement of the terms of this Agreement shall
not deprive him of his ability to earn a living.
SECTION 5. MISCELLANEOUS.
5.1. BINDING EFFECT. This Agreement shall inure to the benefit of and
shall be binding upon Employee and his executor, administrator, heirs, personal
representative and assigns, and Company and its successors and assigns;
provided, however, that Employee shall not be entitled to assign or delegate any
of his rights or obligations hereunder, other than the Employment Stock Options,
without the prior written consent of Company.
5.2. GOVERNING LAW. This Agreement shall be deemed to be made in, and in
all respects shall be interpreted, construed and governed by and in accordance
with, the laws of the Commonwealth of Kentucky, without regard to conflicts of
laws principles.
5.3. HEADINGS. The section and paragraph heading contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
5.4. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, shall be addressed to the receiving party's
address set forth below or to such other address as a party may designate by
notice hereunder, and shall be either (i) delivered by hand, (ii) sent by
recognized overnight courier, or (iii) sent by registered or certified mail,
return receipt requested, postage prepaid.
If to the Company:
ThermoView Industries, Inc.
1103 Herr Lane
Louisville, Kentucky 40222
Attn: Stephen A. Hoffmann
With a copy to:
Stites & Harbison
400 West Market Street, Suite 1800
Louisville, KY 40202
5
<PAGE>
Attn: Alex P. Herrington, Jr., Esq. (Mike)
If to the Employee:
Nelson E. Clemmens
2003 Goshen Lane
Goshen, Kentucky 40026
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof to
the receiving party at the address of such party set forth above, (ii) if sent
by overnight courier, on the next business day following the day such notice is
delivered to the courier service, or (iii) if sent by registered or certified
mail, on the fifth business day following the day such mailing is sent.
Any party to this Agreement may change his or its address upon written
notice delivered pursuant to this Section.
5.5. ENTIRE AGREEMENT. This Agreement is intended by the parties hereto
to be the final expression of their agreement with respect to the subject matter
hereof and is the complete and exclusive statement of the terms thereof
notwithstanding any representations, statements or agreements to the contrary
heretofore made. This Agreement may be modified only by a written instrument
signed by each of the parties hereto.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Agreement and the Employee has executed this Agreement as of the
date first above written.
EMPLOYEE: /s/ Nelson E. Clemmens
-------------------------------------
Nelson E. Clemmens
COMPANY: THERMOVIEW INDUSTRIES, INC.
By: /s/ Stephen A. Hoffmann
---------------------------
Stephen A. Hoffmann
Title: Chairman of the Board,
President and Chief
Executive Officer
6
<PAGE>
FIRST AMENDMENT TO AMENDED AND RESTATED
EMPLOYMENT AND NONCOMPETITION AGREEMENT - CLEMMENS
This First Amendment (this "Amendment") to Amended and Restated Employment
and Noncompetition Agreement - Clemmens made and effective as of the 1st day of
November, 1998, by and between THERMOVIEW INDUSTRIES, INC., a Delaware
corporation (the "Company") and Nelson E. Clemmens ("Employee").
WITNESSETH:
WHEREAS the Company and Employee entered into that certain Amended and
Restated Employment and Noncompetition Agreement - Clemmens, dated as of April
15, 1998 (the "Employment Agreement"), whereby Employee, among other things
agreed to serve as Vice President-Finance and Administration of the Company; and
WHEREAS under the Employment Agreement both the Company and Employee desire
to amend the Employment Agreement whereby (i) Employee will cease to serve as
Vice President-Finance and Administration and Secretary of the Company and
instead will serve as President of the Company in accordance with the terms of
the Employment Agreement, as amended; (ii) Employee's annual salary will be
increased from $125,000 to $150,000 and (iii) Employee will be awarded options
to purchase 200,000 shares of the Company's $.001 par value Common Stock.
NOW THEREFORE in consideration of the above recitals and the mutual
agreements herein contained and for other good and valuable consideration, the
parties hereby agree as follows:
1. Section 1 of the Employment Agreement is hereby amended to read in its
entirety as follows:
SECTION 1. EMPLOYMENT.
Subject to the terms hereof, Company hereby agrees to employ Employee, and
Employee hereby accepts such employment as President. Employee shall serve the
Company during the Term (as defined in Section 2.1) of this Agreement, subject
to the direction of the Company's Board of Directors. As President and
Secretary, Employee shall devote his best efforts and such business time as may
be necessary or appropriate on behalf of the Company:
(i) To conduct general and active management of the business of the
Company subject to the direction of the Chief Executive Officer and the Board of
Directors.
1
<PAGE>
(ii) To assist the Company in evaluating potential corporate
opportunities, including merger and acquisition structuring, negotiation and
closing services.
(iii) To provide the Company with a variety of general business
analyses, marketing and management services.
(iv) To conduct such other duties as the Board of Directors may
prescribe from time to time.
2. Section 3 of the Employment Agreement is hereby amended to read in its
entirety as follows:
SECTION 3. COMPENSATION.
3.1. COMPENSATION. Employee agrees that as sole compensation under this
Agreement, Employee (1) shall receive an annual salary of $150,000 to be
reviewed annually for escalation and (ii) he shall be granted the stock options
referred to in Sction 3.2 below.
3.2. OPTIONS. Simultaneously upon execution of this Agreement, the
Company shall grant Employee incentive stock options to purchase 200,000 shares
of the Company's $.001 par value Common Stock (the "Employment Stock Options")
at an exercise price of $2.30 per share, pursuant to a Stock Option Agreement -
Clemmens dated as of November 1, 1998 (the "Employment Stock Option Agreement").
3.3. OPTION VESTING. The Employment Stock Options shall vest as follows:
(i) One-half of the Employment Stock Options, representing 100,000
shares of Common Stock, shall vest upon the execution of this Agreement.
(ii) One-half of the Employment Stock Options, representing 100,000
shares of Common Stock, shall vest on September 1, 1999.
3.4. OPTION EXERCISEABILITY/EXPIRATION. Once vested, the Employment Stock
Options shall be exercisable in whole or in part at an exercise price of $2.00
per share and shall expire on November 1, 2002.
3.5. TERMINATION OF OPTIONS. In the event Employee's employment is
terminated by the Company for "good cause" pursuant to Section 2.1(ii) or by
Employee pursuant to Section 2.1(iii), any and all Employee Stock Options which
have not vested as of the termination date shall immediately terminate and
Employee shall lose all rights to such options, subject to applicable law. Such
Employee Stock Option which have vested as of the termination date
2
<PAGE>
shall be exercisable in accordance with provisions of the Employee Option
Agreement.
3. Other than is set forth in this Amendment, all the terms, conditions,
rights, duties, responsibilities and obligations set forth in the Employment
Agreement remain in full force and effect.
IN WITNESS WHEREOF, the Company has executed this Amendment by its duly
authorized corporate officer as of the date set forth above.
"Company"
THERMOVIEW INDUSTRIES, INC.
By: /s/ Stephen A. Hoffmann
-----------------------------------
Stephen A. Hoffmann
Chairman of the Board
and Chief Executive Officer
Accepted by:
"Employee"
/s/ Nelson E. Clemmens
--------------------------------------
NELSON E. CLEMMENS
3
<PAGE>
THERMOVIEW INDUSTRIES, INC.
1998 EMPLOYEE STOCK OPTION PLAN
INCENTIVE STOCK OPTION
(NON-TRANSFERABLE)
OPTION CERTIFICATE
ThermoView Industries, Inc., a Delaware corporation ("Company"), pursuant to
action of the Board and in accordance with the ThermoView Industries, Inc.
1998 Employee Stock Option Plan ("Plan"), hereby grants an Incentive Stock
Option ("Option") to Nelson E. Clemmens ("Employee") to purchase from the
Company 200,000 shares of Stock, at an Option Price of $2.30 per share, which
Option is subject to all of the terms and conditions set forth in this Option
Certificate and in the Plan. This Option is granted effective as of November
1, 1998 ("Option Grant Date").
THERMOVIEW INDUSTRIES, INC.
By: /s/ Stephen A. Hoffmann
------------------------------------------
Title: Chief Executive Officer
---------------------------------------
TERMS AND CONDITIONS
Section 1. PLAN. This Option is subject to all the terms and
conditions set forth in the Plan and this Option Certificate, and all of the
terms defined in the Plan shall have the same meaning herein when such terms
start with a capital letter. This Option is intended to satisfy the
requirements of Section 422 of the Code. However, to the extent that this
Option, when aggregated with all other "incentive stock options" (within the
meaning of Section 422 of the Code) granted to Employee under stock option
plans maintained by ThermoView, a Subsidiary or Parent Corporation exceeds
the $100,000 limit in Section 7.2 of the Plan, this Option shall be treated
as an NQO to the extent required by law. A copy of the Plan will be made
available to Employee upon written request to the Chief Financial Officer of
the Company.
Section 2. ORDER OF EXERCISE. The exercise of this Option shall not
be affected by the exercise or non-exercise of any other option (without
regard to whether such option constitutes an "incentive stock option" within
the meaning of Section 422 of the Code).
<PAGE>
Section 3. DATE EXERCISABLE. This Option shall become exercisable
in accordance with the following schedule on any normal business day of the
Company occurring on or after the first date set forth below and before the
date this Option expires under Section 4.
<TABLE>
<CAPTION>
NUMBER OF SHARES FOR WHICH
ON OR AFTER OPTION FIRST BECOMES EXERCISABLE
<S> <C>
November 1, 1998 100,000
December 31, 1998 100,000
</TABLE>
The maximum number of shares of Stock which may be purchased by exercise
of this Option on any such day shall equal the excess, if any, of (a) the
total number of shares of Stock subject to this Option on the Option Grant
Date, as adjusted in accordance with Section 14 of the Plan, and with respect
to which this Option is vested, over (b) the number of shares of Stock which
have previously been purchased by exercise of this Option, as adjusted in a
manner consistent with Section 14 of the Plan.
If at the time Employee intends to exercise any rights under this
Option, Employee is an officer or is filing ownership reports with the
Securities and Exchange Commission under Section 16(a) of the Exchange Act
then Employee should consult with the Company before Employee exercises such
rights because there may be additional restrictions upon the exercise of such
rights.
Section 4. LIFE OF OPTION. The Option shall expire when exercised
in full; provided, however, the Option (to the extent not exercised in full)
also shall expire immediately and automatically on the earlier of (a) the
date which is the tenth anniversary of the Option Grant Date, (b) the date
which is the fifth anniversary of the Option Grant Date, if Employee is a Ten
Percent Shareholder on the Option Grant Date and the Option is an "incentive
stock option" (within the meaning of Section 422 of the Code), (c) except in
the case of death or Disability of Employee, the date (i) which is the 90th
day after Employee is terminated at the initiative of the Company for any
reason except "good cause," as such term is defined in Section 4.1 below or
(ii) upon which Employee is terminated at the initiative of the Company for
"good cause" or resigns at Employee's own initiative for any reason or (d)
the one year anniversary of the date Employee's employment terminates due to
death or Disability. Employee shall be Disabled for purposes of the Plan if
Employee meets the definition of disability set forth under the Company's
long term disability plan, as amended from time to time. The Company shall
determine whether Employee's employment terminates due to Disability.
Section 4.1 For purposes of this Option, "good cause" for
termination of Employee's employment shall exist only if (a) Employee is
convicted of, pleads guilty to, or confesses to any act of fraud,
misappropriation or embezzlement or to any felony, (b) Employee has engaged
in a dishonest or disloyal act resulting in material damage or prejudice to
the Company or (c)
<PAGE>
Employee has engaged in conduct or activities materially damaging or
prejudicial to the property, business or reputation of the Company.
Section 5. METHOD OF EXERCISE OF OPTION. Employee may (subject to
Section 3, Section 4, Section 11, Section 12, Section 13 and Section 16)
exercise this Option in whole or in part (before the date this Option
expires) on any normal business day of the Company by (1) delivering the
Option Certificate to the Company at its principal place of business together
with written notice of the exercise of this Option and (2) simultaneously
paying to the Company the Option Price. The payment of such Option Price
shall be made either in cash, by check acceptable to the Company, or by
delivery to the Company of certificates (properly endorsed) for shares of
Stock registered in Employee's name, or in any combination of such cash,
check, and Stock which results in payment in full of the Option Price. Stock
which is so tendered as payment (in whole or in part) of the Option Price
shall be valued at its Fair Market Value on the date this Option is exercised.
Section 6. DELIVERY. The Company's delivery of Stock pursuant to
the exercise of this Option (as described in Section 5) shall discharge the
Company of all of its duties and responsibilities with respect to this Option.
Section 7. ADJUSTMENT. The Board shall have the right to make such
adjustments to this Option as described under Section 14 of the Plan.
Section 8. NONTRANSFERABLE. This Option shall not be transferable
by Employee except by his will or by the laws of descent and distribution,
and rights granted under this Option shall be exercisable during Employee's
lifetime only by Employee. If this Option is exercisable after the death of
Employee, the person or persons to whom this Option is transferred by will or
by the laws of descent and distribution shall be treated as the Employee
under this Option Certificate.
Section 9. TERMINATION OF EMPLOYMENT. Neither the Plan, this Option
nor any related material shall give Employee the right to continue in
employment with the Company or any affiliate of the Company or shall
adversely affect the right of the Company or affiliate terminate Employee's
employment with or without cause at any time.
Section 10. SHAREHOLDER STATUS. Employee shall have no rights as a
shareholder with respect to any shares of Stock under this Option until such
shares have been duly issued and delivered to Employee, and no adjustment
shall be made for dividends of any kind or description whatsoever or for
distributions of other rights of any kind or description whatsoever
respecting such Stock except as expressly set forth in the Plan.
Section 11. OTHER LAWS. The Company shall have the right to refuse to
issue or transfer any Stock under this Option if the Company acting in its
absolute discretion determines that the issuance or transfer of such Stock
might violate any applicable law or regulation, and any payment tendered in
such event to exercise this Option shall be promptly refunded to Employee.
<PAGE>
Section 12. SECURITIES REGISTRATION. Employee may be requested by the
Company to hold any shares of Stock received upon the exercise of this Option
for personal investment and not for purposes of resale or distribution to the
public and Employee shall, if so requested by the Company, deliver a
certified statement to that effect to the Company as a condition to the
transfer of such Stock to Employee. Employee may be requested by the Company
to deliver a certified statement to the Company that he or she will not sell
or offer to sell any shares of Stock received upon the exercise of this
Option unless a registration statement shall be in effect with respect to
such Stock under the Securities Act of 1933, as amended, and the applicable
state securities laws, or unless he or she shall furnish to the Company an
opinion, in form and substance satisfactory to the Company, of legal counsel
acceptable to the Company, that such registration is not required.
Certificates representing shares of Stock received upon the exercise of this
Option may bear an appropriate restrictive legend reflecting the foregoing.
Section 13. OTHER CONDITIONS. Employee shall (as a condition to the
exercise of this Option) enter into any agreement or make any representations
required by the Company related to the Stock to be acquired pursuant to the
exercise of this Option, including any agreement which restricts the transfer
of Stock acquired pursuant to the exercise of this Option and provides for
the repurchase of such Stock by the Company under certain circumstances.
Section 14. TAX WITHHOLDING. The Company shall have the right to
withhold or retain from any payment to Employee (whether or not such payment
is made pursuant to this Option) or take such other action as is permissible
under the Plan which the Company deems necessary or appropriate to satisfy
any income or other tax withholding requirements as a result of the exercise
of this Option.
Section 15. GOVERNING LAW. The Plan and this Option shall be governed
by the laws of the State of Nevada.
Section 16. MODIFICATION, AMENDMENT, AND CANCELLATION. The Company
shall have the right unilaterally to modify, amend, or cancel this Option in
accordance with the terms of the Plan, and, in particular, shall have the
right under Section 15 of the Plan to cancel this Option as of any date
before the effective date of a sale or other corporate transaction described
in Section 15 of the Plan.
Section 17. BINDING EFFECT. This Option shall be binding upon the
Company and Employee and their respective heirs, executors, administrators
and successors.
<PAGE>
OPTION EXERCISE FORM
(To be executed by Employee to
exercise the rights to purchase Stock
evidenced by the foregoing Option)
TO: THERMOVIEW INDUSTRIES, INC.
The undersigned hereby exercises the right to purchase ______ shares of
Stock covered by the attached Option in accordance with the terms and
conditions thereof, and herewith makes payment of the Option Price for such
shares in full.
---------------------------------------
Signature
---------------------------------------
---------------------------------------
Address
- -
------ -------- ------
Social Security Number
Dated:
------------------
<PAGE>
300,000 SHARES EXERCISE PRICE: $1.15
STOCK OPTION AGREEMENT - COLE
THIS STOCK OPTION AGREEMENT - COLE (the "Option Agreement") made and
effective as of the 15th day of April, 1998, between THERMOVIEW INDUSTRIES,
INC., herein referred to as the "CORPORATION", being incorporated under the
laws of the State of Nevada, maintaining its principal place of business at
1101 Herr Lane, Louisville, Kentucky 40222; and JOHN H. COLE, herein referred
to as "EMPLOYEE", of 8303 Croydon Circle, Louisville, Kentucky 40222.
WITNESSETH:
WHEREAS, the variety of services to be rendered by Employee shall
represent an important and valuable aid to the conduct of the Corporation's
business enterprise, and as such Corporation deems it to be in the best
interests of the Corporation to hire Employee;
WHEREAS, in connection with the hiring of Employee, the Corporation has
entered into an Employment and Noncompetition Agreement - Cole dated April
15, 1998 (the "Employment Agreement"); and
WHEREAS, the Corporation desires to enter into this Option Agreement
with the Employee containing the terms and conditions hereinafter set forth,
and to grant to Employee stock options to purchase shares of the common stock
of the Corporation.
NOW, THEREFORE, in consideration of the promises and mutual agreements
of the parties herein contained, and for other good and valuable
consideration, the parties agree as follows:
1. GRANT OF OPTIONS. In consideration of the foregoing, the
Corporation hereby grants and issues to Employee the rights at the election
of the Employee (hereinafter referred to as the "Options") to purchase up to
an aggregate of 300,000 shares of Common Stock, $.001 par value, of the
Corporation (the "Common Stock") at a price of $1.15 per share.
1.1 ANTI-DILUTION PROVISION. The number of shares of Common Stock
underlying the Options shall be proportionately increased in the event that
the Corporation causes to be issued additional shares in the form of a stock
dividend, stock splits, option exercise at less than book value (with the
exception of the exercise of options under (i) the Stock Option Agreement -
Clemmens, dated October 22, 1997, by and between Thermo-Tilt Window Company,
a Delaware corporation ("Thermo-Tilt") and Nelson E. Clemmens; (ii) the Stock
Option Agreement - Epelbaum, dated October 22, 1997, by and between
Thermo-Tilt and Roman Epelbaum, (iii) the Stock Option
<PAGE>
Agreement - LD Capital, Inc., dated October 22, 1997, by and between
Thermo-Tilt and LD Capital, Inc. and (iv) the Stock Option Agreement -
Hoffmann, dated October 22, 1997, by and between Thermo-Tilt and Stephen A.
Hoffmann) or other such reclassification; or conversely, proportionately
decreased in the event of a reverse split or reclassification. In the event
that stockholders of the Corporation are granted the right to purchase
additional shares from the proceeds of a cash dividend by the Corporation,
such event shall be treated as a stock dividend as relates to the option.
2. VESTING OF OPTIONS. The Options shall vest on the Commencement
Date of the Employment Agreement (as defined therein).
3. EXCERCISEABILITY/EXPIRATION OF OPTIONS. Once vested, the Options
shall be exercisable, in whole or in part, at an exercise price of $1.15 per
share and shall expire at 3:00 p.m. Louisville, Kentucky time on April 15,
2003. The Options may be exercised by giving written notice to the
Corporation to that effect. The Options evidenced hereby shall be
exercisable by the delivery to and receipt by the Corporation of: (i) this
original Option Agreement; (ii) a written Notice of Election to Exercise (the
"Notice of Election") in the form set forth on the Schedule I to Option
Agreement, to this Option Agreement, attached hereto and incorporated herein
by reference, specifying the number of shares to be purchased in not less
than one thousand (1,000) share denominations; and (iii) payment of the full
purchase price, either by federal funds wire transfer to the bank depository
to be specified by the Corporation or by certified check, U.S. funds, payable
to the order of the Corporation, or on such other terms as may be acceptable
to the Corporation. If the Notice of Exercise is for less than the total of
300,000 shares, and the time for exercise has not expired, the Corporation
shall provide the Employee with a new or revised Option Agreement for the
balance of the shares then remaining unexercised, upon the same terms and
conditions as stated herein.
4. TERMINATION OF OPTIONS. In the event Employee's employment does
not commence on the Commencement Date selected by the Company pursuant to
Section 2.1 of the Employment Agreement, any and all Options hereunder shall
immediately terminate and Employee shall lose all rights to such options,
subject to applicable law. Such Options which have vested as of such
Commencement Date shall be exercisable in accordance with Section 3 of this
Option Agreement.
5. REGISTRATION RIGHT. The Corporation represents that upon delivery
to and receipt by the Corporation of a written notice from Employee to the
effect below, the Corporation will use its best efforts to prepare, file, and
maintain with the appropriate regulatory authorities an effective
Registration Statement on Form S-8 (the "Form S-8"), or other applicable
form, for the shares of its Common Stock underlying the Options granted by
this Option Agreement, such Form S-8 to allow for the immediate resale of the
shares subject to the Option Agreement, but only at such time
-2-
<PAGE>
as the Corporation is in compliance with the requirements to use the Form S-8
or other applicable form.
6. NOTICES. All notices required to be given by either party shall be
in writing and (i) delivered by hand, (ii) sent by recognized overnight
courier, or (iii) sent by registered or certified mail, return receipt
requested, to the party being noticed at the address set forth in the first
paragraph of this Option Agreement. Any notice to the Corporation shall be
addressed to the attention of the Chairman of the Board, President and Chief
Executive Officer. Either party may effect a change in such address by a
prior written notice.
7. BINDING ACCEPTANCE. By acceptance of this signed Option Agreement,
the Employee does hereby agree to be bound by all of the terms and conditions
set forth herein.
8. GOVERNING LAW. This Option Agreement shall be construed under the
laws of the Commonwealth of Kentucky.
9. TOTAL AGREEMENT. This Option Agreement is the entire agreement
between the parties hereto relating to the subject matter hereof. This
Option Agreement rescinds any and all prior agreements and understandings
between the parties with respect to the subject matter covered in this Option
Agreement.
IN WITNESS WHEREOF, the Corporation has executed this Option Agreement
by its duly authorized corporate officer as of the date set forth above.
"Corporation"
THERMOVIEW INDUSTRIES, INC.
By: /s/ Stephen A. Hoffmann
----------------------------------------
Stephen A. Hoffmann,
Chairman of the Board,
President and Chief
Executive Officer
Accepted by:
"Employee"
/s/ John H. Cole
----------------------------------------
JOHN H. COLE
-3-
<PAGE>
SCHEDULE I TO OPTION AGREEMENT
- ------------------------------------------------------------------------------
NOTICE OF ELECTION TO EXERCISE
TO: ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
The undersigned Purchaser hereby elects to purchase _____ shares (the "Shares")
of the common stock ($.001 par value) of ThermoView Industries, Inc. (the
"Corporation") pursuant to the terms of the Stock Option Agreement - Cole
(the "Options"), dated as of April 15, 1998, by and between the undersigned
and the Corporation, (which Options must be surrendered with this Notice of
Election To Exercise).
Payment in full (U.S. Funds) is hereby tendered in the aggregate sum of
$_____________, which sum represents shares (maximum 300,000) times the per
share purchase price of $1.15 by:
( ) Certified Check or ( ) Federal Funds Wire Transfer to the
Corporation's depository bank in accordance with your prior written
instructions.
( ) By Delivery vs Payment at:
----------------------------------------
or Account #:
--------------------------------------
You are hereby requested to issue a certificate representing the shares in
the name(s), and to the address(es) as specified below:
Name:
-----------------------------------------------------------------------
Street: Number of Shares:
---------------------------------------- ------------
City: State: Zip:
------------------------------- --------- ---------------------
Social Security or Tax I.D. Number:
------------------------------------
Purchaser acknowledges that no formal memorandum, prospectus or offering
document of any kind has been delivered by the Corporation with specific
regard to the exercise of these Options. However, by virtue of the
Purchaser's employment relationship with, and activities on behalf of the
Corporation, sufficient business and other information has been made
available by the Corporation to enable Purchaser to fully evaluate the
investment potential of the Shares being acquired. The Corporation's
representatives have provided information and answered all material questions.
Date: ,
------------------------- ------ --------------------------------------
- ------------------------------------------------------------------------------
-4-
<PAGE>
If no registration statement as to the Options and the Shares is effective as
of the date of exercise, include the following paragraph:
The purchaser represents and warrants that it is purchasing the Shares
for investment and not with a view to distribution thereof and understands
and acknowledges that the Stock Certificate(s) representing the Shares shall
bear the following legend:
The shares represented by this certificate have
not been registered or qualified for sale under
the Securities Act of 1933, as amended (the "Act"),
or any state securities or blue sky laws, and may
not be sold, transferred or otherwise disposed of
except pursuant to an exemption from registration
or qualification thereunder. The Corporation may
require, as a condition to transfer of this
certificate, an opinion of counsel satisfactory to
the Corporation to the effect that such transfer
will not be in violation of the Act or any such laws.
-5-
<PAGE>
125,000 SHARES EXERCISE PRICE: $1.15
STOCK OPTION AGREEMENT - TERBEEST
THIS STOCK OPTION AGREEMENT - TERBEEST (the "Option Agreement") made and
effective as of the 20th day of April, 1998, between THERMOVIEW INDUSTRIES,
INC., herein referred to as the "CORPORATION", being incorporated under the laws
of the State of Nevada, maintaining its principal place of business at 1101 Herr
Lane, Louisville, Kentucky 40222; and JAMES J. TERBEEST, herein referred to as
"EMPLOYEE", of 800 North Arbor Drive, Louisville, Kentucky 40223.
WITNESSETH:
WHEREAS, the variety of services to be rendered by Employee shall represent
an important and valuable aid to the conduct of the Corporation's business
enterprise, and as such Corporation deems it to be in the best interests of the
Corporation to hire Employee;
WHEREAS, in connection with the hiring of Employee, the Corporation has
entered into an Employment and Noncompetition Agreement - TerBeest dated April
20, 1998 (the "Employment Agreement"); AND
WHEREAS, the Corporation desires to enter into this Option Agreement with
the Employee containing the terms and conditions hereinafter set forth, and to
grant to Employee stock options to purchase shares of the common stock of the
Corporation.
NOW, THEREFORE, in consideration of the promises and mutual agreements of
the parties herein contained, and for other good and valuable consideration, the
parties agree as follows:
1. GRANT OF OPTIONS. In consideration of the foregoing, the Corporation
hereby grants and issues to Employee the rights at the election of the Employee
(hereinafter referred to as the "Options") to purchase up to an aggregate of
125,000 shares of Common Stock, $.001 par value, of the Corporation (the "Common
Stock") at a price of $1.15 per share.
1.1 ANTI-DILUTION PROVISION. The number of shares of Common Stock
underlying the Options shall be proportionately increased in the event that the
Corporation causes to be issued additional shares in the form of a stock
dividend, stock splits, option exercise at less than book value (with the
exception of the exercise of options under (i) the Stock Option Agreement -
Clemmens, dated October 22, 1997, by and between Thermo-Tilt Window Company, a
Delaware corporation ("Thermo-Tilt") and Nelson E. Clemmens; (ii) the Stock
Option Agreement - Epelbaum, dated October 22, 1997, by and between Thermo-Tilt
and Roman Epelbaum, (iii) the Stock Option
<PAGE>
Agreement - LD Capital, Inc., dated October 22, 1997, by and between
Thermo-Tilt and LD Capital, Inc. and (iv) the Stock Option Agreement -
Hoffmann, dated October 22, 1997, by and between Thermo-Tilt and Stephen A.
Hoffmann) or other such reclassification; or conversely, proportionately
decreased in the event of a reverse split or reclassification. In the event
that stockholders of the Corporation are granted the right to purchase
additional shares from the proceeds of a cash dividend by the Corporation,
such event shall be treated as a stock dividend as relates to the option.
2. VESTING OF OPTIONS. The Options shall vest on December 31, 1998.
3. EXCERCISEABILITY/EXPIRATION OF OPTIONS. Once vested, the Options
shall be exercisable, in whole or in part, at an exercise price of $1.15 per
share and shall expire at 3:00 p.m. Louisville, Kentucky time on April 20, 2003.
The Options may be exercised by giving written notice to the Corporation to that
effect. The Options evidenced hereby shall be exercisable by the delivery to
and receipt by the Corporation of: (i) this original Option Agreement; (ii) a
written Notice of Election to Exercise (the "Notice of Election") in the form
set forth on the Schedule I to Option Agreement, to this Option Agreement,
attached hereto and incorporated herein by reference, specifying the number of
shares to be purchased in not less than one thousand (1,000) share
denominations; and (iii) payment of the full purchase price, either by federal
funds wire transfer to the bank depository to be specified by the Corporation or
by certified check, U.S. funds, payable to the order of the Corporation, or on
such other terms as may be acceptable to the Corporation. If the Notice of
Exercise is for less than the total of 125,000 shares, and the time for exercise
has not expired, the Corporation shall provide the Employee with a new or
revised Option Agreement for the balance of the shares then remaining
unexercised, upon the same terms and conditions as stated herein.
4. TERMINATION OF OPTIONS. In the event Employee's employment is
terminated by the Company for "good cause" pursuant to Section 2.1(ii) of the
Employment Agreement or by Employee pursuant to Section 2.1(iii) of the
Employment Agreement, any and all Options which have not vested as of the
termination date shall immediately terminate and Employee shall lose all rights
to such options, subject to applicable law. Such Options which have vested as
of the termination date shall be exercisable in accordance with Section 3 of
this Option Agreement.
5. REGISTRATION RIGHT. The Corporation represents that upon delivery to
and receipt by the Corporation of a written notice from Employee to the effect
below, the Corporation will use its best efforts to prepare, file, and maintain
with the appropriate regulatory authorities an effective Registration Statement
on Form S-8 (the "Form S-8"), or other applicable form, for the shares of its
Common Stock underlying the Options granted by this Option Agreement, such Form
S-8 to allow for the immediate resale of the shares subject to the Option
Agreement, but only at such time
-2-
<PAGE>
as the Corporation is in compliance with the requirements to use the Form S-8
or other applicable form.
6. NOTICES. All notices required to be given by either party shall be in
writing and (i) delivered by hand, (ii) sent by recognized overnight courier, or
(iii) sent by registered or certified mail, return receipt requested, to the
party being noticed at the address set forth in the first paragraph of this
Option Agreement. Any notice to the Corporation shall be addressed to the
attention of the Chairman of the Board, Chief Executive Officer and President.
Either party may effect a change in such address by a prior written notice.
7. BINDING ACCEPTANCE. By acceptance of this signed Option Agreement,
the Employee does hereby agree to be bound by all of the terms and conditions
set forth herein.
8. GOVERNING LAW. This Option Agreement shall be construed under the
laws of the Commonwealth of Kentucky.
9. TOTAL AGREEMENT. This Option Agreement is the entire agreement
between the parties hereto relating to the subject matter hereof. This Option
Agreement rescinds any and all prior agreements and understandings between the
parties with respect to the subject matter covered in this Option Agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the Corporation has executed this Option Agreement by
its duly authorized corporate officer as of the date set forth above.
"Corporation"
THERMOVIEW INDUSTRIES, INC.
By: /s/ Stephen A. Hoffmann
----------------------------------------
Stephen A. Hoffmann,
Chairman of the Board,
President and Chief
Executive Officer
Accepted by:
"Employee"
/s/ James J. Terbeest
-------------------------------------------
JAMES J. TERBEEST
-4-
<PAGE>
SCHEDULE I TO OPTION AGREEMENT
- -------------------------------------------------------------------------------
NOTICE OF ELECTION TO EXERCISE
TO: ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
The undersigned Purchaser hereby elects to purchase ____ shares (the "Shares")
of the common stock ($.001 par value) of ThermoView Industries, Inc. (the
"Corporation") pursuant to the terms of the Stock Option Agreement - TerBeest
(the "Options"), dated as of April 20, 1998, by and between the undersigned and
the Corporation, (which Options must be surrendered with this Notice of Election
To Exercise).
Payment in full (U.S. Funds) is hereby tendered in the aggregate sum of
$______________, which sum represents shares (maximum 125,000) times the per
share purchase price of $1.15 by:
( ) Certified Check or ( ) Federal Funds Wire Transfer to the
Corporation's depository bank in accordance with your prior written
instructions.
( ) By Delivery vs Payment at:
------------------------------------------
or Account #:
----------------------------------------
You are hereby requested to issue a certificate representing the shares in the
name(s), and to the address(es) as specified below:
Name:
-------------------------------------------------------------------------
Street: Number of Shares:
-------------------------------------- --------------
City: State: Zip:
------------------------------ ------- ----------------------
Social Security or Tax I.D. Number:
Purchaser acknowledges that no formal memorandum, prospectus or offering
document of any kind has been delivered by the Corporation with specific regard
to the exercise of these Options. However, by virtue of the Purchaser's
employment relationship with, and activities on behalf of the Corporation,
sufficient business and other information has been made available by the
Corporation to enable Purchaser to fully evaluate the investment potential of
the Shares being acquired. The Corporation's representatives have provided
information and answered all material questions.
Date:
------------------------, -----------------------------------------------
- -------------------------------------------------------------------------------
-5-
<PAGE>
If no registration statement as to the Options and the Shares is effective as of
the date of exercise, include the following paragraph:
The purchaser represents and warrants that it is purchasing the Shares for
investment and not with a view to distribution thereof and understands and
acknowledges that the Stock Certificate(s) representing the Shares shall bear
the following legend:
The shares represented by this certificate have
not been registered or qualified for sale under
the Securities Act of 1933, as amended (the "Act"),
or any state securities or blue sky laws, and may
not be sold, transferred or otherwise disposed of
except pursuant to an exemption from registration
or qualification thereunder. The Corporation may
require, as a condition to transfer of this
certificate, an opinion of counsel satisfactory to
the Corporation to the effect that such transfer
will not be in violation of the Act or any such laws.
-6-
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into April 29, 1998, by
and between Charles L. Smith ("Employee") and THERMOVIEW MERGER CORP., a
Kentucky corporation ("Company").
PRELIMINARY STATEMENTS
As of the date of this Agreement, ThermoView Industries, Inc. a Nevada
corporation ("ThermoView"), has acquired all of the outstanding shares of
capital stock of Primax Window, Co., a Kentucky corporation ("Primax") pursuant
to a certain Agreement and Plan of Merger (the "Merger Agreement"), among
ThermoView, the Company, Primax and the shareholders of Primax providing for the
merger of Primax into the Company.
Prior to the execution of the Merger Agreement, Employee, in addition to
being a shareholder of Primax was a director, officer and employee of Primax.
The Company desires to employ Employee on the terms and conditions
hereinafter set forth and Employee desires to be employed by the Company on such
terms and conditions.
NOW THEREFORE, in consideration of the premises and mutual promises and
agreements contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
SECTION 1. EMPLOYMENT.
Subject to the terms hereof, the Company hereby agrees to employ Employee
as Vice President, and Employee hereby accepts such employment. Employee shall
serve the Company during the Term (as defined in Section 2.1) of this Agreement,
subject to the direction of the Board of Directors of the Company. Employee
shall devote substantially all of his business time and best efforts to
rendering services on behalf of the Company and shall report to the Chief
Operating Officer of Thermoview.
SECTION 2. TERM AND TERMINATION.
2.1. The term of Employee's employment hereunder shall be from May 1, 1998
through and including April 30, 2001, (the "Term") including any renewal periods
hereof pursuant to Section 2.3 hereof, unless terminated prior thereto.
2.2.
(i) The Company may, at any time and in its sole discretion, terminate
the employment of Employee hereunder for Cause (as defined below), effective as
of the later of (i) the date of written notice to Employee specifying the nature
of such cause, or (ii) the expiration of the cure period, if applicable, (the
"Termination Date"). For purposes of this Agreement, "Cause" shall mean any of
the following: (a) fraud, commission or conviction of
<PAGE>
a felony, use of illegal drugs or controlled substances, misappropriation or
dishonesty by Employee, (b) repeated failure of the Employee to follow the
direction of Board of Directors of the Company or the President of ThermoView
or his designee regarding the material duties of his employment after written
notice of such failure, or (c) disloyalty or other acts of material
misconduct or any breach by the Employee of any material term of this
Agreement. If the employment of the Employee hereunder is terminated
pursuant to this paragraph (i), the Company shall have no further obligations
hereunder after the Termination Date other than the payment of accrued and
unpaid salary through the Termination Date. In the event that the Company
should elect to terminate Employee for "cause" within the meaning of Section
2.2(i)(c) above, Employee shall have a period of twenty (20) days after the
written notice to cure any non-compliance set forth therein.
(ii) The Company may, at any time and in its sole discretion,
terminate the employment of Employee hereunder for any or no reason, effective
as of the date of provision of written notice to Employee thereof. If the
employment of Employee hereunder is terminated pursuant to this paragraph (ii),
the Company shall have no further obligations hereunder after the Termination
Date other than the payment of salary for the remaining Term.
(iii) If, at any time during the Employment Term, Employee resigns
from the employ of the Company for any reason, the Company shall have no further
obligations hereunder after the date that he tenders his resignation other than
the payment of accrued and unpaid salary through the last date he provides
services hereunder.
(iv) If Employee dies during the Employment Term, the employment of
Employee hereunder shall terminate immediately upon the death of Employee, and
the Company shall have no further obligations hereunder after the date of death
other than the payment to Employee's estate, legal representatives, heirs,
successors, assigns or other beneficiaries of accrued and unpaid salary through
such date.
(v) If Employee becomes disabled during the Term, the employment of
Employee hereunder shall terminate effective as of the date of provision of
written notice to Employee thereof. For purposes of this Agreement, the term
"disability" shall be defined as defined by any applicable long-term disability
insurance policy held by the Company, or if the Company does not maintain such a
policy, the inability of Employee to perform his normal duties as a full-time
employee of the Company for a period of ninety (90) consecutive days by reason
of physical or mental illness or incapacity, or for periods of physical or
mental illness or incapacity aggregating one hundred twenty (120) days in any
consecutive six (6) month period.
2.3. The Term shall be automatically renewed for an additional year upon
the expiration of the initial Term, or any extended Term unless either party
should give notice to the other at least thirty (30) days prior to the
expiration of the initial Term, or any extended Term, that he or it elects not
to renew upon expiration of the Term, or any extended Term.
-2-
<PAGE>
SECTION 3. COMPENSATION AND BENEFITS.
3.1. SALARY. Employee shall be paid an annual salary of $125,000. Payment
of salary shall be payable in installments at such times as the Company
customarily pays its other employees.
3.2 OTHER BENEFITS. Employee shall be eligible to receive the fringe
benefits, perquisites, and other benefits of employment for which he is eligible
under the Company's policies and procedures which may be revised from time to
time at the discretion of the Board of Directors of the Company. In the event
Employee's employment is terminated early pursuant to Section 2.1 hereof,
benefits will likewise terminate prospectively subject to applicable law.
SECTION 4. MISCELLANEOUS.
4.1. BINDING EFFECT. This Agreement shall inure to the benefit of and
shall be binding upon Employee and his executor, administrator, heirs, personal
representative and assigns, and the Company and its successors and assigns;
provided, however, that Employee shall not be entitled to assign or delegate any
of his rights or obligations hereunder without the prior written consent of the
Company.
4.2. GOVERNING LAW. This Agreement shall be deemed to be made in, and in
all respects shall be interpreted, construed and governed by and in accordance
with, the laws of the Commonwealth of Kentucky, without regard to conflicts of
laws principles.
4.3. ARBITRATION. Any dispute or difference between the parties hereto
arising out of or relating to this Agreement shall be finally settled by
arbitration in accordance with the Commercial Rules of the American Arbitration
Association by a panel of three qualified arbitrators. Each party shall choose
an arbitrator and the third shall be chosen by the two so chosen. If either
party to the dispute or difference fails to choose an arbitrator within 30 days
after notice of commencement of arbitration or if the two arbitrators fail to
choose a third arbitrator within 30 days after their appointment, the American
Arbitration Association shall, upon the request of any party to the dispute or
difference, appoint the arbitrator or arbitrators to constitute or complete the
panel as the case may be. Arbitration proceedings hereunder may be initiated by
any party making a written request to the American Arbitration Association,
together with any appropriate filing fee, at the office of the American
Arbitration Association in Louisville, Kentucky. All arbitration proceedings
shall be held in Louisville, Kentucky. Any order or determination of the
arbitral tribunal shall be final and binding upon the parties to the arbitration
and may be entered in any court having jurisdiction.
4.4. HEADINGS. The section and paragraph heading contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
-3-
<PAGE>
4.5. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, shall be addressed to the receiving party's
address set forth below or to such other address as a party may designate by
notice hereunder, and shall be either (i) delivered by hand, (ii) sent by
recognized overnight courier, (iii) made by telecopy or facsimile transmission,
or (iv) sent by registered or certified mail, return receipt requested, postage
prepaid.
If to the Company:
c/o ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
Attn: Stephen A. Hoffmann, President
Fax No: (502) 425-5603
With a copy to:
Stites & Harbison
400 West Market Street, Suite 1800
Louisville, KY 40202
Attn: Ralston W. Steenrod, Esq.
Fax No: (502) 587-6391
If to the Employee:
Charles L. Smith
2819 Avenue of the Woods
Louisville, Kentucky 40241
With a copy to:
Greenbaum, Doll & McDonald
3300 National City Towers
Louisville, Kentucky 40202
Attn: Ivan Diamond, Esq.
Fax No: (502) 587-6391
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof to
the receiving party at the address of such party set forth above, (ii) if sent
by overnight courier, on the next business day following the day such notice is
delivered to the courier service, (iii) if made by telecopy or facsimile
transmission, at the time the receipt thereof has been acknowledged by
electronic
-4-
<PAGE>
confirmation or otherwise, or (iv) if sent by registered or certified mail,
on the fifth business day following the day such mailing is sent.
Any party to this Agreement may change his or its address upon written
notice delivered pursuant to this Section.
4.6. ENTIRE AGREEMENT. This Agreement is intended by the parties hereto
to be the final expression of their agreement with respect to the subject matter
hereof and is the complete and exclusive statement of the terms thereof
notwithstanding any representations, statements or agreements to the contrary
heretofore made. This Agreement may be modified only by a written instrument
signed by each of the parties hereto.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Agreement and the Employee has executed this Agreement as of the
date first above written.
EMPLOYEE:
/s/ Charles L. Smith
--------------------------------------
Charles L. Smith
COMPANY:
THERMOVIEW MERGER CORP.
By: /s/ Stephen A. Hoffmann
-----------------------------------
Stephen A. Hoffmann, President
-5-
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into January
5, 1999, by and between CHARLES L. SMITH ("Employee"), and PRECISION WINDOW
MFG., INC., a Missouri corporation ("Company").
PRELIMINARY STATEMENTS
As of the date of this Agreement, ThermoView Industries, Inc. a Delaware
corporation ("ThermoView"), has acquired all of the issued and outstanding
stock of the Company pursuant to a certain Stock Purchase Agreement, dated as
of the date hereof (the "Purchase Agreement"), by and among ThermoView and
the shareholders of the Company.
Prior to the execution of the Purchase Agreement, Employee, in addition
to being a shareholder, was a director, officer and employee of the Company.
The Company desires to employ Employee on the terms and conditions
hereinafter set forth and Employee desires to be employed by the Company on
such terms and conditions.
NOW THEREFORE, in consideration of the premises and mutual promises and
agreements contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
SECTION 1. EMPLOYMENT.
Subject to the terms hereof, the Company hereby agrees to employ
Employee, and Employee hereby accepts such employment. Employee shall serve
the Company during the Term (as defined in Section 2.1) of this Agreement,
subject to the direction of the Board of Directors of the Company. Employee
shall devote substantially all of his business time and best efforts to
rendering services on behalf of both the Company and Primax Window Co., a
subsidiary of ThermoView, as requested by the President of ThermoView.
SECTION 2. TERM AND TERMINATION.
2.1. The term of Employee's employment hereunder shall be from the date
hereof through and including January 5, 2002 (the "Term") including any
renewal periods hereof pursuant to Section 2.3 hereof, unless terminated
prior thereto.
2.2. (i) The Company may, at any time and in its sole discretion,
terminate the employment of Employee hereunder for Cause (as defined below),
effective as of the later of (i) the date of written notice to Employee
specifying the nature of such cause, or (ii) the expiration of the cure
period, if applicable, (the "Termination Date"). For purposes of this
Agreement, "Cause" shall mean any of the following: (a) fraud, commission or
conviction of a felony, use of illegal drugs or controlled substances,
misappropriation, dishonesty, embezzlement, disloyalty or other acts of
material misconduct by Employee, (b) repeated
<PAGE>
failure of the Employee to follow the direction of the Board of Directors of
the Company or the President of ThermoView or his designee regarding the
material duties of his employment after written notice of such failure, or
(c) any breach by the Employee of any material term of this Agreement or any
other agreement with the Company. If the employment of the Employee
hereunder is terminated pursuant to this paragraph (i), the Company shall
have no further obligations hereunder after the Termination Date other than
the payment of accrued and unpaid base salary through the Termination Date.
In the event that the Company should elect to terminate Employee for "cause"
within the meaning of Section 2.2 (i) (c) above, Employee shall have a period
of twenty (20) days after the written notice to cure any non-compliance set
forth therein.
(ii) The Company may, at any time and in its sole discretion,
terminate the employment of Employee hereunder for any or no reason,
effective as of the date of provision of written notice to Employee thereof.
If the employment of Employee hereunder is terminated pursuant to this
paragraph (ii), the Company shall have no further obligations hereunder after
the Termination Date other than the payment of base salary for the remaining
Term.
(iii) If, at any time during the Employment Term, Employee resigns
from the employ of the Company for any reason, the Company shall have no
further obligations hereunder after the date that he tenders his resignation
other than the payment of accrued and unpaid base salary through the last
date he provides services hereunder.
(iv) If Employee dies during the Employment Term, the employment of
Employee hereunder shall terminate immediately upon the death of Employee,
and the Company shall have no further obligations hereunder after the date of
death other than the payment to Employee's estate, legal representatives,
heirs, successors, assigns or other beneficiaries of accrued and unpaid
salary through such date.
(v) If Employee becomes disabled during the Term, the employment of
Employee hereunder shall terminate effective as of the date of provision of
written notice to Employee thereof. For purposes of this Agreement, the term
"disability" shall be defined as defined by any applicable long-term
disability insurance policy held by the Company, or if the Company does not
maintain such a policy, the inability of Employee to perform his normal
duties as a full-time employee of the Company for a period of ninety (90)
consecutive days by reason of physical or mental illness or incapacity, or
for periods of physical or mental illness or incapacity aggregating one
hundred twenty (120) days in any consecutive six (6) month period.
2.3. The Term shall be automatically renewed for an additional year upon
the expiration of the initial Term, or any extended Term unless either party
should give notice to the other at least thirty (30) days prior to the
expiration of the initial Term, or any extended Term, that he or it elects
not to renew upon expiration of the Term, or any extended Term.
-2-
<PAGE>
SECTION 3. COMPENSATION AND BENEFITS.
3.1. BASE SALARY. Employee shall be paid an annual base salary of
$60,000. Payment of base salary shall be payable in installments at such
times as the Company customarily pays its other employees.
3.2 OTHER BENEFITS. Employee shall be eligible to receive the fringe
benefits, perquisites, and other benefits of employment for which he is
eligible under the Company's policies and procedures which may be revised
from time to time at the discretion of the Board of Directors of the Company.
In the event Employee's employment is terminated early pursuant to Section
2.2(i) hereof, benefits will likewise terminate prospectively subject to
applicable law.
SECTION 4. MISCELLANEOUS.
4.1. BINDING EFFECT. This Agreement shall inure to the benefit of and
shall be binding upon Employee and his executor, administrator, heirs,
personal representative and assigns, and the Company and its successors and
assigns; provided, however, that Employee shall not be entitled to assign or
delegate any of his rights or obligations hereunder without the prior written
consent of the Company.
4.2. GOVERNING LAW. This Agreement shall be deemed to be made in, and
in all respects shall be interpreted, construed and governed by and in
accordance with, the laws of the Commonwealth of Kentucky, without regard to
conflicts of laws principles.
4.3. ARBITRATION. Any dispute or difference between the parties hereto
arising out of or relating to this Agreement shall be finally settled by
arbitration in accordance with the Commercial Rules of the American
Arbitration Association by a panel of three qualified arbitrators. Each
party shall choose an arbitrator and the third shall be chosen by the two so
chosen. If either party to the dispute or difference fails to choose an
arbitrator within 30 days after notice of commencement of arbitration or if
the two arbitrators fail to choose a third arbitrator within 30 days after
their appointment, the American Arbitration Association shall, upon the
request of any party to the dispute or difference, appoint the arbitrator or
arbitrators to constitute or complete the panel as the case may be.
Arbitration proceedings hereunder may be initiated by any party making a
written request to the American Arbitration Association, together with any
appropriate filing fee, at the office of the American Arbitration Association
in Louisville, Kentucky. All arbitration proceedings shall be held in
Louisville, Kentucky. Any order or determination of the arbitral tribunal
shall be final and binding upon the parties to the arbitration and may be
entered in any court having jurisdiction.
4.4. HEADINGS. The section and paragraph heading contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
-3-
<PAGE>
4.5. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, shall be addressed to the receiving party's
address set forth below or to such other address as a party may designate by
notice hereunder, and shall be either (i) delivered by hand, (ii) sent by
recognized overnight courier, (iii) made by telecopy or facsimile
transmission, or (iv) sent by registered or certified mail, return receipt
requested, postage prepaid.
If to the Company:
c/o ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
Attn: Stephen A. Hoffmann, Chief Executive Officer
Fax No: (502) 412-0301
With a copy to:
Stites & Harbison
400 West Market Street, Suite 1800
Louisville, KY 40202
Attn: Ralston W. Steenrod, Esq.
Fax No: (502) 587-6391
If to the Employee:
Charles L. Smith
c/o Primax Window Co.
5611 Fern Valley Road
Louisville, Kentucky 40228
Fax No: (502) 962-9484
With a copy to:
Greenebaum Doll & McDonald, PLLC
3300 National City Tower
Louisville, Kentucky 40202
Attn: Ivan M. Diamond, Esq.
Fax No: (502) 540-2134
All notices, requests, consents and other communications hereunder shall
be deemed to have been given (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if sent by overnight courier, on the next business
-4-
<PAGE>
day following the day such notice is delivered to the courier service, (iii)
if made by telecopy or facsimile transmission, at the time the receipt
thereof has been acknowledged by electronic confirmation or otherwise, or
(iv) if sent by registered or certified mail, on the fifth business day
following the day such mailing is sent.
Any party to this Agreement may change his or its address upon written
notice delivered pursuant to this Section.
4.6. ENTIRE AGREEMENT. This Agreement is intended by the parties hereto
to be the final expression of their agreement with respect to the subject
matter hereof and is the complete and exclusive statement of the terms
thereof notwithstanding any representations, statements or agreements to the
contrary heretofore made. This Agreement may be modified only by a written
instrument signed by each of the parties hereto.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer
to execute this Agreement and the Employee has executed this Agreement as of
the date first above written.
EMPLOYEE:
/s/ Charles L. Smith
------------------------------------
Charles L. Smith
COMPANY:
PRECISION WINDOW MFG., INC.
By: /s/ Stephen A. Hoffmann
-------------------------------
Stephen A. Hoffmann, Vice President
-5-
<PAGE>
LEASE
THIS LEASE is made and entered into this first day of November, 1998, by
and between GLENN LYON DEVELOPMENT CORPORATION, a Kentucky corporation, 4828
Brownsboro Road, Louisville, Kentucky 40207, hereinafter referred to as "Lessor"
or "Landlord", and THERMO VIEW INDUSTRIES, INC., a Delaware corporation, 1101
Herr Lane, Louisville, Kentucky 40222, hereinafter referred to as "Lessee" or
"Tenant".
WITNESSETH:
1. LEASED PREMISES
Lessor does hereby grant, demise and lease unto Lessee and Lessee does
hereby lease and Lessee does hereby lease and take from Lessor, for the term and
upon the terms and conditions set forth in this Lease, the Leased Premises,
being the entire office building of approximately 7,671 square feet located at
1101 Herr Lane in Louisville, Jefferson County, Kentucky.
2. POSSESSION
Lessor and Lessee acknowledge that the Lessee is currently in possession
of the Leased Premises and with the execution of this Lease, the Lessee accepts
possession of the Leased Premises in its present "as is" condition.
3. ORIGINAL AND EXTENDED TERMS
A. The "Original Term" of this Lease is and shall be for the
sixty (60) months, commencing November 1, 1998 (the "Commencement Date"), and
ending October 31, 2003, unless sooner terminated or extended as herein
provided.
B. Lessee shall have and is hereby granted two (2) consecutive
renewal options to extend the term of this Lease for additional terms of five
(5) years each beginning on the first day after the end of the Original Term,
and except for the rental, all the covenants and provisions of this Lease shall
apply to such extended terms. If Lessee shall elect to exercise said options,
it shall do so by giving Lessor written notice of such election not later than
one hundred eighty (180) days prior to the expiration of the Original Term or
extended term, as the case may be, of this Lease.
<PAGE>
4. RENTAL
A. BASE RENT
From the Commencement Date the Lessee agrees to pay to Lessor a
base annual rent of One Hundred Three Thousand Five Hundred Fifty-Eight Dollars
and Fifty Cents ($103,558.50) in monthly installments of Eight Thousand Six
Hundred Twenty-Nine Dollars and Eighty-Seven Cents ($8,629.87) in advance on or
before the first day of each month. The base rent shall increase on January 1,
2000 and annually every January 1 thereafter during the term of this Lease by an
amount equal to three percent (3%) of the amount of the base annual rental of
the preceding year.
B. ADDITIONAL RENT
(i) TAXES - Lessee shall pay Lessor an amount equal to all
taxes applicable to the Leased Premises. "Taxes" shall have the meaning
specified in paragraph 18.H of this Lease.
(ii) OPERATING EXPENSES - Lessee shall pay lessor an amount
equal to Lessee's pro rata share of operating expenses. The term "Operating
Expenses" shall have the meaning specified in paragraph 18.I of this Lease.
(iii) MANNER OF PAYMENT - Lessee's share of taxes and operating
expenses shall be paid in the following manner:
1. Lessor shall reasonably estimate in advance the
amounts Lessee shall owe for taxes and operating
expenses for any full or partial calendar year of
the term of this Lease. Lessee shall pay such
estimated amounts, on a monthly basis, on or before
the first day of each calendar month, together with
Lessee's payment of base rent. Such estimate may be
reasonably adjusted from time to time by Lessor.
Lessee shall continue to pay the latest such
estimated amount until such time as Lessor adjusts
such estimate.
Beginning on the Commencement Date, the monthly
amount of estimated taxes and operating expenses
payable by Lessee to Lessor shall be the sum of Six
Hundred Thirty-Nine Dollars and Twenty-Five Cents
($639.25).
2. Following the end of each calendar year, Lessor
shall provide a statement prepared by Lessor (the
"Statement") to Lessee showing: (a) the amount of
actual taxes and operating expenses for such
calendar year, with a
<PAGE>
listing of amounts for major categories of operating
expenses; and (b) any amount paid by Lessee towards
taxes and operating expenses during such calendar
year on an estimated basis.
3. Within thirty (30) days after receiving such
statement, Lessee shall pay any difference between
(a) any amount Lessee paid on an estimated basis for
such calendar year, and (b) Lessee's pro rata share
of actual taxes and operating expenses for such
calendar year.
4. After receiving the statement, Lessee shall commence
paying estimated payments towards Lessee's pro rata
share of taxes and operating expenses at a rate
reasonably estimated by Lessor in the statement.
5. If the statement shall show that Lessee's estimated
payments exceeded Lessee's pro rata share of actual
taxes and operating expenses for such calendar year,
Lessee shall receive a credit for the difference
against payments of rent next due. If the term
shall have expired and no further rent shall be due,
Lessee shall receive a refund of such difference.
6. Unless otherwise provided herein, Lessor expressly
reserves the right to reasonably change or alter,
from time to time, the manner, method, or timing of
the payment, and accounting practices relating to
the computation of taxes and operating expenses
required hereunder or any components thereof;
provided, however, no changes in the foregoing shall
be made without compensating adjustments to insure
that Lessee does not pay more solely because of the
change. In lieu of providing one such statement
covering taxes and operating expenses, Lessor may
provide separate statements covering, respectively,
taxes and operating expenses at the same or
different times. Lessor shall provide the statement
(or separate statements) within one hundred twenty
(120) days following the end of each calendar year,
or as soon thereafter as practicable, but no delay
by Lessor in providing the statement (or separate
statements) shall be deemed a default by Lessor nor
a waiver of Lessor's right to require payment of
Lessee's pro rata
<PAGE>
share of actual or estimated taxes or operating
expenses. In no event shall a decrease in taxes or
operating expenses ever decrease the amount of base
rent required to be paid hereunder.
(iv) PRO RATION - If the term commences other than January 1 or
ends other than on December 31, Lessee's obligations to pay estimated and actual
amounts towards Lessee's pro rata share of taxes and operating expenses for such
first and final calendar years shall be pro rated to reflect the portion of such
years included in the term. Such pro ration shall be made by multiplying the
total estimated (or actual, as the case may be) taxes and operating expenses for
such calendar years by a fraction, the numerator of which shall be the number of
days from the term during such calendar year, and the denominator of which shall
be three hundred sixty-five (365). With respect to any such final year of the
term ending other than on December 31, it is expressly understood and agreed
that, within ninety (90) days before or after the expiration of the term, Lessor
may reasonably adjust its estimate of Lessee's pro rata share of taxes and
operating expenses (as pro rated for such partial calendar year), and Lessee
shall pay any such additional estimated amount within thirty (30) days after
written request therefor, subject to adjustment after the end of such calendar
year in the manner described above.
(v) LESSOR'S RECORDS - Lessor shall maintain adequate records
respecting taxes and operating expenses and determine the same in accordance
with sound accounting and management practices. Lessee shall have the right to
examine such records and make copies thereof, upon reasonable prior notice
during normal business hours at the place or places where such records are
normally kept by Lessors by sending such notice no later than sixty (60) days
following the furnishing of the statement (or if separate statements are
provided with respect to taxes and operating expenses, then within sixty (60)
days after furnishing each separate statement, with respect to the items
contained therein). Lessee shall have the right to take exception to matters
included in taxes and operating expenses, or Lessor's computation of Lessee's
pro rata share of either, by sending notice specifying such exception and the
reasons therefore to Lessor no later than ninety (90) days after Lessor makes
such records available for examination. Such statement (or separate statements)
shall be considered final and accepted by Lessee, except as to matters to which
exception is taken after examination of Lessor's records in the foregoing manner
and within the foregoing times. If Lessee takes exception to any matter
contained in the statement (or separate statements) as provided herein, Lessor
shall refer the matter to a mutually acceptable independent certified public
accountant whose operations are of national scope; his certification as to the
proper amount shall be final and conclusive as between Lessor and Lessee.
Lessee shall promptly pay the cost of such certification
<PAGE>
unless such certification determines that the statement (or any separate
statement) was in error to Lessee's detriment. Pending resolution of any
such exceptions in the foregoing manner, Lessee shall continue paying
Lessee's pro rata share of taxes and operating expenses in the amounts
determined by Lessor, subject to adjustment, until any such exceptions are
resolved.
(vi) RENT AND OTHER CHARGES - Base rent and Lessee's pro rata
share of taxes and operating expenses, and any other amounts which Lessee is or
becomes obligated to pay Lessor under this Lease, are sometimes herein referred
to collectively as "rent", and all remedies applicable to the non-payment of
rent shall be applicable thereto. Rent shall be paid to the Lessor at any place
designated by Lessor, without any prior demand or notice therefore (except as
expressly provided herein) and shall, in all events, be paid without any
deductions, set-offs or counterclaims whatsoever, and without relief from any
valuation or appraisement laws.
5. TITLE AND QUIET ENJOYMENT
A. Lessor covenants that it has good title to the Leased
Premises, and that Lessor has the right to lease the same.
B. Lessor agrees that Lessee, upon paying the fixed and
additional rent and performing the covenants of this Lease on its part to be
performed, shall, during the term of this Lease, peaceably and quietly have,
hold and enjoy the Leased Premises and all rights granted Lessee in and by this
Lease.
6. USE OF PREMISES
Lessee will use the Leased Premises for business office purposes only and
for no other purpose whatsoever. Lessee will not use the Leased Premises or
allow it to be used in any manner so as to violate any applicable laws, rules or
regulations of any governmental body or in such a manner as to increase the rate
of insurance on the Leased Premises.
7. HAZARDOUS SUBSTANCES
Lessee covenants and agrees not to permit any "hazardous material" to
be placed, held, located or disposed of upon, or released upon, under, or at
the Leased Premises, or any part thereof. For purposes of this Lease,
"hazardous material" means and includes any hazardous, toxic, or dangerous
waste, substance, or material defined as such in, or for the purpose of, the
Comprehensive Environmental Response, Compensation, and Liability Act, any
so-called "super fund" or "superlien" law, or any other Federal, State, or
local statute, law, ordinance, code, rule, regulation, order or decree
regulating, relating to, or imposing liability or standards of conduct
concerning any hazardous, toxic
<PAGE>
or dangerous waste, substance or material, as now or at any time hereafter in
effect. If Lessee has knowledge of or receives any notice of (1) the
happening of any event involving the use, spill, discharge, or cleaning up of
any hazardous material (a "hazardous discharge") or (2) any complaint, order,
citation or notice with regard to air emissions, water discharges, notice
emissions, or any other environmental, health or safety matter affecting
Lessee, or the Leased Premises (an "environmental complaint") from any person
or entity, including, without limitation, the United States Environmental
Protection Agency ("EPA"), Lessee shall give immediate notice thereof to
Lessor disclosing full details of same. Lessee does and shall indemnify,
defend and hold Lessor harmless from all loss, costs, claims, damage, and
expense, including, but not limited to, reasonable attorney fees incurred by
Lessor as a result of any hazardous material on the Leased Premises during
the term of this Lease, such indemnification in favor of Lessor shall survive
the expiration or termination of this Lease and shall be unlimited in
duration. Provided, however, Lessee may, upon the expiration or termination
of this Lease, obtain an environmental survey, by a mutually acceptable
environmental engineer or engineering company, for the purpose of determining
the presence of hazardous material at the Leased Premises. In the event such
environmental survey verifies that hazardous material is absent from the
Leased Premises, then and in that event, the indemnification provisions of
this paragraph 7 shall terminate. The cost of any such environmental survey
or surveys shall be the sole responsibility of the Lessee.
8. INDEMNIFICATION
Lessee agrees to indemnify, defend and hold Lessor harmless from and
against all liabilities, obligations, losses, damages, penalties, claims,
actions, suits, costs, charges, and expenses, including reasonable attorney
fees, which may be imposed upon or incurred by or asserted against Lessor or the
Leased Premises in respect of any use, non-use, or condition of the Leased
Premises created by Lessee or any permitted assignee or permitted subtenant of
Lessee or attributable to the use or manner of use of the Leased Premises by
Lessee or any permitted assignee or permitted subtenant of Lessee. In the event
that any action or proceeding shall be brought against Lessor by reason of any
claim referred to in this paragraph, Lessee, upon written notice from Lessor,
shall, at Lessee's sole cost and expense, resist or defend the same through
counsel selected by Lessee. In the event of any final judgment being rendered
against the Leased Premises or Lessor, as a result thereof and all periods to
appeal from any such judgment shall have expired, Lessee will promptly pay such
judgment, interest, and costs prior to any levy or execution thereon. This
provision shall survive the expiration or termination of the term of this Lease
for a period of five (5) years.
<PAGE>
9. MAINTENANCE, REPAIR AND ALTERATIONS
Lessee shall not make any alterations or additions to the Leased Premises
without obtaining the prior written consent of the Lessor.
Lessee, at Lessee's expense, shall keep in good order, condition and
repair the Leased Premises and every part thereof, including but not limited to,
al plumbing, electrical, heating and cooling equipment, ventilation equipment,
interior walls, ceilings, windows, doors, plate glass and signs that are located
within or adjacent to the Leased Premises during the term of the Lease.
If Lessee fails to perform Lessee's obligations for maintenance, repairs,
and general upkeep, Lessor may at Lessee's expense put the same in good order,
condition and repair, and the costs thereof together with interest thereon at
the rate of twelve percent (12%) per annum shall be due and payable as
additional rent to Lessor together with Lessee's next rental installment.
Lessor shall arrange and pay for the general upkeep and maintenance of
all exterior common areas, including cleaning and replacement of all
landscaping, grass, parking areas (including snow and ice removal and parking
lot lighting costs), exterior walls, roof, gutters, storm drains, sidewalks and
exterior common area plumbing equipment.
Upon the termination of this Lease, all fixtures and all improvements of
a permanent nature shall become the sole property of the Lessor.
10. LIENS
Lessee agrees to forever indemnify and shall save the Lessor harmless on
the account of any claim or lien of mechanics, materialmen, laborers or others
in connection with any repairs, alterations, additions or changes made or
required to be made by Lessee and Lessee will, if required by Lessor, furnish
such waiver or waivers of liens and appropriate affidavits from the general
contractor or subcontractors as Lessor may require before starting any work in
connection with making such repairs, alterations, additions or changes.
11. UTILITIES
Lessee agrees to pay all electricity, gas, water, drainage, sewer charges
or other utilities furnished to or used in or about or assessed against the
Leased Premises during the term of this Lease.
<PAGE>
12. INSURANCE
A. Lessor shall obtain and keep in force during the term of
this Lease a policy or policies of insurance covering loss or damage to the
Leased Premises in the amount of the full insurable value thereof, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, and special extended perils
(all risk).
B. Lessee shall, at Lessee's expense, obtain and keep in force
during the term of this Lease a policy of comprehensive public liability
insurance insuring Lessor and Lessee against any liability arising out of the
ownership, use, occupancy or maintenance of the Leased Premises and all areas
appurtenant thereof. Such insurance shall be in an amount not less than One
Million Dollars ($1,000,000.00) for injury or death of one (1) person in any one
(1) accident or occurrence and in an amount of not less than One Million Dollars
($1,000,000.00) for injury or death of more than one (1) person in any one (1)
accident or occurrence. Such insurance shall further insure Lessor and Lessee
against liability for property damage of at least Five Hundred Thousand Dollars
($500,000.00). If Lessee shall fail to procure and maintain said insurance,
Lessor may, but shall not be required to, procure and maintain the same but at
Lessee's expense.
C. Lessee shall at its own expense keep its personal property
located on, or any improvements made by it to the Leased Premises and will cause
any property of others stored in or located on said premises, to be insured with
an insurance company or companies satisfactory to Lessor, licensed to do
business in Kentucky, against fire and such hazards as are included within
extended coverage and vandalism, in the amount equal to the full insurance value
thereof.
D. Each policy of insurance required to be maintained by
Lessee under the terms of this Lease shall name Lessor as an additional insured
and shall provide that the same may not be canceled or materially changed
without at least thirty (30) days prior written notice to Lessor.
E. The Lessee shall furnish to the Lessor certificates or
copies of all policies of insurance required under the provisions of this Lease.
F. Lessor and Lessee each waives all rights of subrogation
against each other for all claims to the extent of insurance coverage under the
terms of this Lease. Further, Lessor and Lessee will cause all policies of
insurance required to be maintained under this Lease to contain waivers of
subrogation.
<PAGE>
G. The Lessee and the Lessor shall cooperate with each other
in connection with collection of any insurance monies that may be due in the
event of a loss and the Lessee and Lessor shall execute and deliver to the
insurance companies such proof of loss or other instruments which may be
required for the purpose of obtaining a recovery of any insurance money.
13. ASSIGNING AND SUBLETTING
Lessee shall not assign, mortgage, pledge, encumber or sublet this Lease
or its leasehold interest in the Leased Premises without obtaining the prior
written consent of the Lessor, which consent will not be unreasonably withheld.
14. SUBORDINATION AND ESTOPPEL CERTIFICATES
Lessee accepts this lease subject and subordinate to all mortgages which
may now or hereafter be a lien upon or affecting the land and building which are
the Leased Premises. Lessee shall execute and deliver to the Lessor, within
fifteen (15) days after request, an estoppel certificate addressing such matters
as may be reasonably requested by an existing or prospective mortgagee or a
prospective transferee of the Leased Premises. Further, Lessee shall, within
fifteen (15) days after request, and provided Lessee shall not become liable,
execute any instrument, release or other document, that may be required by any
mortgagee or mortgagor for the purpose of subjecting and subordinating this
Lease to the lien of any such mortgage or mortgages, and the failure of Lessee
to execute any such instruments, releases, estoppel certificates or documents
shall constitute a default hereunder.
15. LESSOR'S RIGHT OF ACCESS AND ENTRY
Lessor and its representatives shall have free access to and the right to
enter the Leased Premises during all reasonable hours to examine the same or to
make such repairs or alterations as may be necessary for the safety and
preservation of the Leased Premises, but without any obligation to make such
repairs, and to exhibit the Leased Premises to third parties for the purpose of
sale.
16. REMEDIES OF LESSOR IN EVENT OF DEFAULT BY LESSEE
A. DEFAULT - The occurrence of any one or more of the following
events shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Leased Premises by
Lessee, where such abandonment continues for ten (10) days.
(b) The failure by Lessee to make any payment of rent or other
payment required to be made by Lessee hereunder, within five (5) days of written
notification by Lessor.
<PAGE>
(c) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of the Lease to be observed or performed by
Lessee, other than described in the paragraph (b) above, where such failure
shall continue for a period of fifteen (15) days after written notice thereof
from Lessor to Lessee; provided, however, that if the nature of the Lessee's
default is such that more than fifteen (15) days are reasonably required for its
cure, then Lessee has commenced such cure within said fifteen (15) days and
thereafter diligently prosecutes such cure to completion.
(d) (1) The making by Lessee of any general assignment, or
general arrangement for the benefit of creditors; (2) the filing by or against
Lessee of a petition to have Lessee adjudged a bankrupt or a petition for
reorganization or arrangement under any law relating to bankruptcy (unless, in
the case of a petition filed against Lessee, the same is dismissed within sixty
(60) days); (3) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Leased Premises or of
Lessee's interest in this Lease, where possession is not restored to Lessee
within fifteen (15) days; or (4) the attachment, execution, or other judicial
seizure of substantially all of Lessee's assets located at the Leased Premises
or of Lessee's interest in this Lease.
B. REMEDIES - In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter without limiting Lessor in the
exercise of any right or remedy which Lessor may have by reason of such default
or breach;
(a) Terminate Lessee's right to possession of the Leased
Premises by any lawful means, in which case this Lease shall terminate and
Lessee shall immediately surrender possession of the Leased Premises to Lessor.
In such event, Lessor shall by reason of Lessee's default be entitled to recover
from Lessee all damages incurred by Lessor including, but not limited to the
cost of recovering possession of the Leased Premises, expenses of reletting,
including necessary repairs, reasonable attorney's fees, and rents lost. Upon
Lessor's reletting the Leased Premises, Lessee shall become and thereafter be
liable and indebted to Lessor for, and upon demand shall promptly pay to Lessor,
the differences between the amount of the rent and additional rent herein
specified and the amount of rent and additional rent which shall be collected
and received from the Leased Premises for each month during the residue of the
then current term of this Lease. Unpaid installments of rent and other sums due
Lessor shall bear interest from the date due at the rate of twelve percent (12%)
per annum.
(b) The rights provided for in this paragraph are cumulative to
and not restrictive of any other and further rights provided by law; and no
delay or failure by Lessor to exercise any right herein or by law provided, or
to insist upon strict compliance by Lessee with the terms and provisions hereof,
shall
<PAGE>
constitute a waiver of Lessor's right thereafter to exercise and avail itself
of said right or thereafter to demand strict compliance by Lessee with the
terms and provisions hereof.
17. DAMAGE AND DESTRUCTION
In the event of the total destruction of the building which comprises a
portion of the Leased Premises, this Lese shall automatically terminate.
If the building is partially damaged during the term of this Lease, the
rents payable hereunder shall be abated in proportion to which Lessee's use is
impaired. In such event and within sixty (60) days from the date of such
partial damage, Lessor shall commence to restore the Leased Premises and
thereafter diligently complete such restoration. Such repairs shall
substantially restore the condition of the Leased Premises prior to the
casualty, except for modifications required by zoning and building codes and
other laws, and except that Lessor shall not be required to repair or replace
any of Lessee's personal property, fixtures or improvements. Lessor shall not
be liable for any inconvenience or annoyance to Lessee, or injury to Lessee's
business resulting in any way from such damage or repair thereof, except Lessor
shall allow Lessee a proportionate abatement of rent during the time and to the
extent the Leased Premises are unfit for occupancy, and not occupied by Lessee
as a result of such damages. Provided, however, the obligation of Lessor to
repair and restore the Leased Premises, shall not apply in the event the damage
or destruction to the Leased Premises is not covered by Lessor's insurance
policies under the insurance coverage maintained by Lessor under this Lease.
18. GENERAL PROVISIONS AND DEFINITIONS
A. LESSOR'S LIABILITY
The term "Lessor" as used herein shall mean only the owner
or owners at the time in question of the Lessee's interest in this Lease.
Lessor herein named (and in case of any subsequent transfers the then grantor)
upon transfer of title of said Leased Premises, shall be relieved from all
obligations as Lessor thereafter.
B. SEVERABILITY
The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
C. INTEREST ON PAST DUE OBLIGATIONS
Interest on any amount due Lessor which is in arrears shall
bear interest at the rate of twelve percent (12%)
<PAGE>
per annum. Payment of such interest shall not excuse or cure any default by
Lessee under this Lease.
D. BINDING EFFECT
Subject to any restrictions of assignment or subletting by
Lessee, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the
Commonwealth of Kentucky.
E. ATTORNEY'S FEES
If Lessor or Lessee brings action to enforce the terms
herein or declare rights hereunder, and prevails, it shall be entitled to
recover its reasonable attorney's fees to be paid by the losing party.
F. SIGNS
Subject to Lessor's requirements, Lessee shall, at its own
costs and expense, install an identification sign that has first been approved
by Lessor in writing at a place or places designated by Lessor. Lessee shall
continuously maintain any such sign in good condition and repair. Other than
such permitted signs, Lessee shall not place or install or suffer to be placed
or installed any advertising medium, flag, banner, or the like upon or outside
the Leased Premises. Lessor shall have the right, without liability and with or
without notice to Lessee, to remove any items installed by Lessee in violation
of this paragraph and to charge Lessee for the reasonable cost of such removal
and/or any repairs necessitated thereby.
G. LEASE MEMORANDUM
At the request of the Lessor, Lessee shall execute a Memorandum of
Lease or short form lease in recordable form.
H. TAXES
"Taxes" shall mean all federal, state, county, or local
governmental or municipal taxes, fees, charges, or other impositions of every
kind and nature, whether general, special, ordinary, or extraordinary, including
without limitation, real estate taxes, general and special assessments, sewer
and water rents, rates and charges, transit taxes, taxes based upon the receipt
of rent, including gross receipts or sales taxes applicable to the receipt of
rent, personal property taxes imposed upon the fixtures, machinery, equipment,
apparatus, systems and equipment, appurtenances, furniture, and other personal
property used in connection with the Leased Premises which Lessor shall pay
during any calendar year, any portion of which occurs during the term of this
Lease (without regard to any different fiscal year used by such government or
municipal authority) because of or in connection with the ownership,
<PAGE>
leasing, and operation of the Leased Premises. Notwithstanding the
foregoing, there shall be excluded from taxes all excess profits taxes,
franchise taxes, gift taxes, capital stock taxes, inheritance and succession
taxes, estate taxes, federal, state, and local income taxes, and other taxes
to the extent applicable to Lessor's general or net income (as opposed to
rents, receipts, or income attributable to operations at the Leased
Premises). Any expenses incurred by Lessor in attempting to protest, reduce,
or minimize taxes shall be included in taxes in the calendar year such
expenses are paid. If taxes for any period shall be increased after payment
thereof by Lessor, for any reason including, without limitation, error or
reassessment by applicable governmental or municipal authorities. Lessee
shall pay Lessor, upon demand, Lessee's pro rata share of such increased
taxes. Lessor shall pay all taxes in a timely manner so as to benefit from
any discount which is available for early payment.
I. OPERATING EXPENSES
"Operating Expenses" shall mean all expenses, costs, and
amounts (other than taxes) of every kind and nature which Lessor shall pay
during any calendar year, any portion of which occurs during the term of the
Lease, because of or in connection with the ownership, management, repair,
replacement, restoration, and operation of the Leased Premises, including,
without limitation, any amounts paid for the following items:
(1) Utilities for the Leased Premises, including, but
not limited to, electricity, power, gas, steam, oil or other fuel, water, sewer,
lighting, heating, air conditioning and ventilating;
(2) Permits, licenses, and certificates necessary to
operate, manage, and lease the Leased Premises;
(3) Insurance applicable to the Leased Premises, not
limited to the amount of coverage Lessor is required to provide under this
Lease;
(4) Supplies, tools, equipment, and materials used in
the operation, repair and maintenance of the Leased Property;
(5) Accounting, legal, and professional services
(including inspection and consultation);
(6) Any equipment rental agreements or management
agreements (including the cost of any customary management fee and the fair
rental value of any office space provided thereunder), provided such is
reasonable and customary in the City of Louisville, Kentucky;
<PAGE>
(7) Wages, salaries, and other compensation and benefits
of all persons engaged in the operation, maintenance, or security of the Leased
Premises, and employer's social security taxes, unemployment taxes, or
insurance, and any other taxes which may be levied on such wages, salaries,
compensation, and benefits; and
(8) Operation, repair, maintenance, and replacement of
all systems and equipment and components thereof, janitorial service, alarm and
security service, window cleaning, trash removal, cleaning of walks, parking
facilities, and building walls, removal of ice and snow, replacement of wall and
floor coverings, ceiling tiles and fixtures in common or public areas or
facilities, maintenance and replacement of shrubs, trees, grass, sod and other
landscaped items, irrigation systems, drainage facilities, fences, curbs, and
walkways, repaving and restriping parking facilities, repairs to roof and
reroofing.
19. NON-WAIVER
No delay or omission by either party hereto to exercise any right or
power accruing upon any non-compliance or default by the other party with
respect to any of the terms hereof shall impair any such right or power or to be
construed to be a waiver thereof. Every such right and power may be exercised
at any time during the continuance of such default. It is further agreed that a
waiver by either of the parties hereto of any of the covenants and agreements
hereof to be performed by the other shall not be construed to be a waiver of any
succeeding breach thereof or of any other agreements or covenants herein
contained.
20. ENTIRE AGREEMENT
This Lease contains the entire agreement of the parties and no
representations, inducements, promises or agreements, oral or otherwise, not
embodied in this Lease shall be of any force and effect.
21. GOVERNING LAW
This Lease has been executed and delivered in the State of Kentucky and
all the terms and provisions hereof and the rights and obligations of the
parties hereto shall be construed and enforced in accordance with the laws
thereof.
22. PARAGRAPH HEADINGS
The paragraph headings in this Lease are for convenience only and are not
a part of this Lease and do not in any way limit or amplify the terms and
provisions hereof and in no way shall be held to explain, modify or aid in the
interpretation, construction or meaning of the provisions of this Lease.
<PAGE>
23. SURRENDER OF POSSESSION AND HOLDING OVER
Lessee will surrender possession of the Leased Premises to Lessor at the
expiration of or upon any prior termination of this Lease in a broom-clean
condition and the exterior area surrounding the Leased Premises free of all
trash and debris. Failure by Lessee to so surrender said premises and any
holding over by Lessee shall not operate, except by express mutual agreement
between the parties hereto, to extend or renew this lease, and in the absence of
such agreement, either party may thereafter terminate such occupancy at the end
of any calendar month by first giving to the other party at least thirty (30)
days notice of its intention to do so.
24. EMINENT DOMAIN
If the whole or any part of the Leased Premises shall be taken by power
of eminent domain or condemned by any competent authority for any public or
quasi-public use or purpose, or if any adjacent property or street shall be so
taken, condemned, reconfigured, or vacated by such authority in such manner as
to require the use, reconstruction, or remodeling of any part of the Leased
Premises, or if Lessor shall grant a deed or other instrument in lieu of such
taking by eminent domain or condemnation, Lessor shall have the option to
terminate this Lease on thirty (30) days' notice. Lessor shall be entitled to
receive the entire award or payment in connection therewith without any payment
to Lessee and Lessee hereby irrevocably assigns to Lessor its interest in such
award or payment, except that Lessee shall have the right to file any separate
claim available to Lessee for any taking of Lessee's personal property and
fixtures belonging to Lessee and removable by Lessee upon expiration of the
term, and for moving expenses (so long as such claim does not diminish the award
available to Lessor, and such claim is payable separately to Lessee). All rent
shall be apportioned as of the date of such termination, or the date of such
taking, whichever shall first occur. If any part of the Leased Premises shall
be taken and this Lease shall not be so terminated, the rent shall be
proportionately abated.
If less than the whole or substantially the whole of the Leased Premises
be condemned or taken, and in the reasonable exercise of Lessee's business
judgment, the area of the Leased Premises remaining after the condemnation is
insufficient for Lessee to conduct its business in an efficient businesslike
manner, Lessee may, at its option, terminate this Lease as of the date of the
taking of possession for such use or purpose by notifying Lessor in writing of
such termination.
25. NOTICE PROVISIONS
Notices shall be deemed property delivered if sent by United States mail,
certified with return receipt requested. Such notices shall be sent to Lessor
at 4828 Brownsboro Road,
<PAGE>
Louisville, Kentucky 40207, and to Lessee at 1101 Herr Lane, Louisville,
Kentucky 40222, or to such other addresses as requested by the parties hereto
having given proper prior notice.
IN WITNESS WHEREOF, the Lessor and Lessee have executed this Lease
effective as of the day and year first above written, but actually on the dates
indicated below.
LESSOR:
GLENN LYON DEVELOPMENT CORPORATION
By: /s/ Richard Eilers
---------------------------------------
Title: President
------------------------------------
LESSEE:
THERMO VIEW INDUSTRIES, INC.
By: /s/ Nelson E. Clemmens
---------------------------------------
Title: President
------------------------------------
SUBSCRIBED AND SWORN TO before me by ________________________ as
_____________________ of Glenn Lyon Development Corporation on this 6th day of
July, 1999.
My commission expires: 6-16-2003.
/s/ Sue Flesk
------------------------------------------
Notary Public - State at Large - KY
SUBSCRIBED AND SWORN TO before me by Nelson E. Clemmens as President of
Thermo View Industries, Inc. on this 16th day of June, 1999.
My commission expires: September 11, 1999.
/s/ Charlton C. Hundley
------------------------------------------
Notary Public - State at Large - KY
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
Warrant No. ___________ Warrant to Purchase 125,000 Shares
of Common Stock
Dated: November 1, 1998
THIS CERTIFIES THAT EBI SECURITIES CORPORATION (herein sometimes called
the "Holder") is entitled to purchase from THERMOVIEW INDUSTRIES, INC., a
Delaware corporation (the "Company"), at the price and during the period as
hereinafter specified, up to One Hundred Twenty-Five Thousand (125,000)
shares of common stock, $.001 par value per share (the "Common Stock") at a
purchase price of $10.00 per share subject to adjustment as described below,
at any time during the five-year period from the date hereof (the "Effective
Date").
This Warrant is issued in connection with the merger and acquisition and
related services tendered to the Company.
1. [RESERVED]
2. (a) The shares subject to this Warrant may be exercised at any time, in
whole or in part, by (i) the surrender of the Warrant (with the purchase form
at the end hereof properly executed) at the principal executive office of the
Company (or such other office of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of
the Company); (ii) payment to the Company of the Exercise Price then in
effect for the number of shares specified in the above-mentioned purchase
form together with applicable stock transfer taxes, if any; and (iii)
delivery to the Company of a duly executed agreement signed by the person(s)
designated in the purchase form to the effect that such person(s) agree(s) to
be bound by the provisions of this Warrant. This Warrant shall be deemed to
have been exercised, in whole or in part to the extent specified, immediately
prior to the close of business on the date this Warrant is surrendered and
payment is made in accordance with the provisions of this paragraph 2, and
the person or persons in whose name or names the certificates for shares of
Common Stock shall be issuable upon such exercise shall become the holder or
holders of record of such Common Stock at that time and date. The
certificates for the Common Stock so purchased shall be delivered to the
Holder within a reasonable time, not exceeding ten (10) business days, after
the shares represented by this Warrant shall have been so exercised.
<PAGE>
(b) Notwithstanding anything to the contrary contained in paragraph
2(a), the Holder may elect to exercise this Warrant in whole or in part by
receiving shares of Common Stock equal to the value (as determined below) of
this Warrant, or any part hereof, upon surrender of this Warrant at the
principal office of the Company together with notice of such election in
which event the Company shall issue to the Holder a number of shares of
Common Stock computed using the following formula:
X = Z(A-B)
------
A
Where X = the number of Shares of Common Stock to be issued to the
Holder;
A = the current fair market value of one share of Common Stock;
Z = the number of shares of Common Stock issuable upon exercise
of the Warrants; and
B = the Exercise Price of the Warrants.
As used herein, current fair market value of Common Stock
shall mean with respect to each share of Common Stock the
average of the closing prices of the Company's Common Stock
sold on the principal national securities exchanges on which
the Common Stock is at the time admitted to trading or listed,
or, if there have been no sales of any such exchange on such
day, the average of the highest bid and lowest ask price on
such day as reported by NASDAQ, or any similar organization if
NASDAQ is no longer reporting such information, either (i) on
the date which the form of election is deemed to have been
sent to the Company (the "Notice Date") or (ii) over a period
of five (5) trading days preceding the Notice Date, whichever
of (i) or (ii) is greater. If on the date for which current
fair market value is to be determined the Common Stock is not
listed on any securities exchange or quoted in the NASDAQ
System or the over-the-counter market, the current fair market
value of Common Stock shall be the highest price per share
which the Company could then obtain from a willing buyer (not
a current employee or director) for shares of Common Stock
sold by the Company, from authorized but unissued shares, as
determined in good faith by the Board of Directors of the
Company, unless prior to such date the Company has become
subject to a binding agreement for a merger, acquisition or
other consolidation pursuant to which the Company is not the
surviving party, in which case the current fair market value
of the Common Stock shall be deemed to be the value to be
received by the holders of the Company's Common Stock for each
share thereof pursuant to the Company's acquisition.
2
<PAGE>
3. This Warrant shall not be sold, transferred, assigned, or hypothecated
except that it may be transferred to successors of the Holder, and may be
assigned in whole or in part or to any person who is an officer of the
Holder. Any such assignment shall be effected by the Holder by (i) executing
the form of assignment at the end hereof and (ii) surrendering this Warrant
for cancellation at the office of the Company referred to in paragraph 2
hereof, accompanied by a certificate (signed by an officer of the Holder if
the Holder is a corporation) stating that each transferee is a permitted
transferee under this paragraph 3; whereupon the Company shall issue, in the
name or names specified by the Holder (including the Holder), a new Warrant
of like tenor and representing in the aggregate rights to purchase the same
number of shares as are purchasable hereunder at such time.
4. The Company covenants and agrees that all shares of Common Stock subject
to this Warrant will, upon issuance and delivery against payment therefor of
the requisite purchase price, be duly and validly issued, fully paid and
nonassessable. The Company further covenants and agrees that the Company
will at all times have authorized and reserved a sufficient number of shares
of its Common Stock to provide for the exercise of this Warrant.
5. This Warrant shall not entitle the Holder to any voting rights or other
rights, including without limitation notice of meetings of other actions or
receipt of dividends, as a stockholder of the Company.
6. (a) The Company shall advise the Holder or its permitted transferee by
written notice at least four weeks prior to the filing of any registration
statement under the Securities Act of 1933, as amended (the "Act"), or the
filing of a notification on Form 1-A under the Act for a public offering of
securities, covering any securities of the Company, for its own account or
for the account of others, except for (i) any registration statement covering
securities in an initial public offering of the Company or (ii) any
registration statement filed on Form S-4 or S-8 (or other comparable form),
and will, during the five (5) year period from the Effective Date, upon the
request of the Holder, include in any such registration statement (or
notification, as the case may be) such information as may be required to
permit a public offering of the Common Stock issuable upon the exercise of
this Warrant (the "Registrable Securities"). The delivery by the Holder of
any such notice shall not constitute a demand made pursuant to Section 6(b).
The Company shall supply prospectuses and such other documents as the Holder
may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities, use its best efforts to register
and qualify any of the Registrable Securities for sale in such states as such
Holder designates; and do any and all other acts and things which may be
necessary or desirable to enable such Holder to consummate the public sale or
other disposition of the Registrable Securities, all at no expense to the
Holder (other than sales commissions, underwriting discounts or commissions,
or other expenses of such sale), and furnish indemnification in the manner
provided in paragraph 7 hereof. The Holder shall furnish information and
indemnification as set forth in paragraph 7. Notwithstanding anything to the
contrary contained in this paragraph 6(a), if the managing underwriter of a
proposed public offering shall advise the Company in writing that, in its
opinion, the distribution of the
3
<PAGE>
Registrable Securities requested to be included in the registration
concurrently with the securities being registered by the Company or a
demanding security holder(s) would materially and adversely affect the
distribution of such securities by Company or such demanding security
holder(s), then all selling security holders (other than (i) any demanding
security holder who initially requested such registration and (ii) any
security holders whose registration rights granted prior to the date hereof
do not provide for such pro rata reduction) shall reduce the amount of
securities each intended to distribute through such offering on a pro rata
basis.
(b) At any time during the three (3) year period beginning two (2)
years after the Effective Date, a 50% Holder (as defined below) may request,
on one occasion, that the Company register under the Act any and all of the
Registrable Securities held by such 50% Holder. Upon the receipt of any such
notice the Company will promptly, but no later than four weeks after receipt
of any such notice, file a registration statement pursuant to the Act, so
that such designated Registrable Securities may be publicly sold under the
Act as promptly as practicable thereafter and the Company will use reasonable
efforts to cause such registration to become and remain effective (including
the taking of such reasonable steps as are necessary to obtain the removal of
any stop order) within 120 days after the receipt of such notice, provided,
that such Holder shall furnish the Company with appropriate information in
connection therewith as the Company may reasonably request in writing. Within
ten days after receiving any such notice pursuant to this subsection (b) of
paragraph 6, the Company shall give notice to any other Holders of the
Warrants, advising that the Company is proceeding with such registration
statement and offering to include therein the securities underlying that part
of the Warrant held by the other Holders, provided that they shall furnish
the Company with such appropriate information (relating to the intentions of
such Holders) in connection therewith as the Company shall reasonably request
in writing. If such Holders elect to include their securities in the
registration statement, such election will constitute a demand pursuant to
this subparagraph 6(b). All costs and expenses of the registration statement
shall be borne by the Company, except that the Holder(s) shall bear the fees
of their own counsel and any other advisors retained by them and any
underwriting discounts or commissions applicable to any of the securities
sold by them. The Company will use its best efforts to maintain such
registration statement curent under the Act for a period of at least 180 days
from the effective date thereof. The Company shall supply prospectuses and
such other documents as the Holder(s) may reasonably request in order to
facilitate the public sale or other disposition of the Registrable
Securities, use its best efforts to register and qualify any of the
Registrable Securities for sale in such states as such Holder(s) designate
and furnish indemnification in the manner provided in paragraph 7 hereof.
Notwithstanding the foregoing set forth in this paragraph 6(b), the Company
shall not be required to include in any registration statement any
Registrable Securities (i) which in the opinion of counsel to the Company
(which opinion is reasonably acceptable to counsel to the Holder(s)) would be
saleable immediately without restriction under the Act if this Warrant were
exercised pursuant to paragraph 2(b) herein or (ii) which Holder had a right
to have included in a registration statement of the Company or selling
security holder(s) pursuant to paragraph 6(a) declared effective within six
months prior to the date of the request pursuant to this paragraph 6(b).
4
<PAGE>
(c) The term "50% Holder" as used in this paragraph 6 shall mean the
Holder(s) of at least 50% of the Warrants and the Common Stock subject
thereto.
7. (a) Whenever pursuant to paragraph 6 a registration statement relating
to any Common Stock issued upon exercise of this Warrant is filed under the
Act, the Company will indemnify and hold harmless each Holder of the
securities covered by such registration statement (such Holder being
hereinafter called the "Indemnitee"), and each person, if any, who controls
(within the meaning of the Act) the Indemnitee, and each underwriter (within
the meaning of the Act) of such securities and each person, if any, who
controls (within the meaning of the Act) any such underwriter, against any
losses, claims, damages or liabilities, joint or several, to which the
Indemnitee, any such controlling person or any such underwriter 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 any such registration statement as declared effective or any
final prospectus constituting a part thereof 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 and will reimburse
the Indemnitee or such controlling person or underwriter for any legal or
other expense reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged
omission made in said registration statement, said preliminary prospectus,
said final prospectus or said amendment or supplement in reliance upon and in
conformity with written information furnished by such Indemnitee for use in
the preparation thereof and provided further, that the indemnity agreement
provided in this Section 7(a) with respect to any preliminary prospectus
shall not inure to the benefit of any Indemnitee, controlling person of such
Indemnitee, underwriter or controlling person of such underwriter from whom
the person asserting any losses, claims, charges, liabilities or litigation
based upon any untrue statement or alleged untrue statement of a material
fact or omission or alleged omission to state therein a material fact,
received such preliminary prospectus, if a copy of the prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected has not been sent or given to such person within the
time required by the Act and the Rules and Regulations thereunder.
(b) The Indemnitee will indemnify and hold harmless the Company, each
of its directors, each of its officers who have signed said registration
statement and such amendments and supplements thereto, and each person, if
any, who controls the Company (within the meaning of the Act) against any
losses, claims, damages or liabilities, joint or several, to which the
Company or any such director, officer or controlling person may become
subject, under the Act or otherwise, insofar as such losses, claims, damages
or liabilities, or actions in respect thereof, arise out of or are based upon
any untrue or alleged untrue statement of any material fact contained in said
registration statement, said preliminary prospectus, said final prospectus,
or said amendment or supplement, 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
5
<PAGE>
statements therein not misleading, in each case to the extent, but only to
the extent, that such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in said registration statement, said preliminary
prospectus, said final prospectus or said amendment or supplement in reliance
upon and in conformity with written information furnished by such Indemnitee
for use in the preparation thereof; and will reimburse the Company or any
such director, officer or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this paragraph
7 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against any indemnifying party,
give the indemnifying party notice 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 paragraph 7.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement hereof, 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, 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
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation.
8. The Exercise Price in effect at the time and the number and kind of
securities purchasable upon the exercise of this Warrant shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock
into a greater number of shares, (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, or (iv) enter into
any transaction whereby the Warrants or outstanding shares of Common Stock of
the Company are at any time changed into or exchanged for a different number
or kind of shares or other security of the Company or of another corporation
through reorganization, merger, consolidation, liquidation or
recapitalization, then appropriate adjustments in the number of shares (or
other securities for which such shares have previously been exchanged or
converted) subject to this Warrant shall be made and the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination, reclassification,
reorganization, merger, consolidation, liquidation or recapitalization shall
be proportionately adjusted so that the Holder exercised after such date
shall be entitled to receive the aggregate number and kind of shares of
Common Stock which, if this Warrant had been
6
<PAGE>
exercised by such Holder immediately prior to such date, the Holder would
have been entitled to receive upon such dividend, distribution, subdivision,
combination, reclassification, reorganization, merger, consolidation,
liquidation or recapitalization. For example, if the Company declares a 2
for 1 stock distribution and the Exercise Price hereof immediately prior to
such event was $10.00 per share issuable upon exercise of this Warrant was
125,000, the adjusted Exercise Price immediately after such event would be
$5.00 per share and the adjusted number of shares upon exercise of this
Warrant would be 250,000. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible
into Common Stock) at a price (the "Subscription Price") (or having a
conversion price per share) less than the Exercise Price on a per share basis
giving no value to the Warrants (the "Per Share Exercise Price") on such
record date, the Exercise Price shall be adjusted so that the same shall
equal the price determined by multiplying the number of shares of Common
Stock then subject to this Warrant by the Per Share Exercise Price in effect
immediately prior to the date of issuance by a fraction, the numerator of
which shall be the sum of the number of shares of Common Stock then
outstanding on the record date mentioned below and the number of additional
shares of Common Stock which the aggregate offering price of the total number
of shares of Common Stock so offered (or the aggregate conversion price of
the convertible securities so offered) would purchase at the Per Share
Exercise Price in effect immediately prior to the date of such issuance, and
the denominator of which shall be the sum of the number of shares of Common
Stock outstanding on the record date mentioned below and the number of
additional shares of Common Stock offered for subscription or purchase (or
into which the convertible securities so offered are convertible). Such
adjustment shall be made successively whenever such rights or warrants are
issued and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such rights or warrants;
and to the extent that shares of Common Stock are not delivered (or
securities convertible into Common Stock are not delivered) after the
expiration of such rights or warrants the Exercise Price shall be readjusted
to the Exercise Price which would then be in effect had the adjustments made
upon the issuance of such rights or warrants been made upon he basis of
delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute to all holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in
subparagraph (a) above) or subscription rights or warrants (excluding those
referred to in subparagraph (b) above), then in each such case the Exercise
Price in effect thereafter shall be determined by multiplying the number of
shares then subject to this Warrant by the Per Share Exercise Price in effect
immediately prior thereto, multiplied by a fraction, the numerator of which
shall be the total number of shares of Common Stock then outstanding
multiplied by the current market price per share of Common Stock (as defined
in subparagraph (e) below), less the fair market value (as determined by the
Company's Board of Directors) of said assets, or evidences of indebtedness so
distributed or of such rights or
7
<PAGE>
warrants, and the denominator of which shall be the total number of shares of
Common Stock outstanding multiplied by such current market price per share of
Common Stock. Such adjustment shall be made whenever any such distribution
is made and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such distribution.
(d) Whenever the Exercise Price payable upon exercise of this Warrant
is adjusted pursuant to subparagraphs (a), (b) or (c) above, the number of
shares purchasable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of shares issuable upon exercise of this
Warrant by the Exercise Price in effect on the date hereof and dividing the
product so obtained by the Exercise Price, as adjusted.
(e) For the purpose of any computation under subparagraph (c) above,
the current market price per share of Common Stock at any date shall be
deemed to be the average of the daily closing prices of the Common Stock for
30 consecutive business days before such date. The closing price for each
day shall be the last sale price regular way or, in case no such reported
sale takes place on such day, the average of the last reported bid and asked
prices regular way, in either case on the principal national securities
exchange on which the Common Stock is admitted to trading or listed, or, if
not listed or admitted to trading on such exchange, the average of the
highest reported bid and lowest reported asked prices as reported by NASDAQ,
or other similar organization if NASDAQ is no longer reporting such
information, or if not so available, the fair market price as determined by
the Board of Directors as set forth in paragraph 2(b) herein.
(f) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five cents
($0.05) in such price; provided, however, that any adjustments which may by
reason of this subparagraph (f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment required to be
made hereunder. All calculations under this paragraph 8 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may be.
Anything in this paragraph 8 to the contrary notwithstanding, the Company
shall be entitled, but shall not be required, to make such changes in the
Exercise Price, in addition to those required by this paragraph 8, as it
shall determine, in its sole discretion, to be advisable in order that any
dividend or distribution in shares of Common Stock, or any subdivision,
reclassification or combination of Common Stock, hereafter made by the
Company shall not result in any Federal income tax liability to the holders
of the Common Stock or securities convertible into Common Stock.
(g) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise
Price and adjusted number of shares issuable upon exercise of this Warrant to
be mailed to the Holder, at its address set forth herein, and shall cause a
certified copy thereof to be mailed to the Company's transfer agent, if any.
The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants
employed by the Company) to make any computation required by this paragraph
8, and a certificate signed by such firm shall be conclusive evidence of the
correctness of such adjustment.
8
<PAGE>
(h) In the event that at any time, as a result of an adjustment made
pursuant to the provisions of this paragraph 8, the Holder thereafter shall
become entitled to receive any shares of the Company other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect
to the Common Stock contained in subparagraphs (a) to (f), inclusive, above.
This Agreement shall be governed by and in accordance with the laws of
the State of Delaware without regard to conflict of laws provision.
9
<PAGE>
IN WITNESS WHEREOF, THERMOVIEW INDUSTRIES, INC.. has caused this Warrant
to be signed by its duly authorized officer under its corporate seal, and
this Warrant to be dated as of November 1, 1998.
THERMOVIEW INDUSTRIES, INC.
By: /s/ Stephen A. Hoffmann
------------------------
Stephen A. Hoffmann,
Chief Executive Officer
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Warrant)
The undersigned, the holder of the foregoing Warrant, hereby irrevocably
elects to purchase _____ shares of Common Stock, and herewith makes payment
of $_______ therefor, and requests that the certificates for shares of Common
Stock be issued in the name(s) of, and delivered to ________________________,
whose address(es) is (are): ________________________________________________,
__________________________________________, ________________________________.
Dated: _______________, ____
By:________________________________
___________________________________
___________________________________
Address
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto ______________________________ the right to purchase shares represented
by the foregoing Warrant to the extent of __________ shares, and appoints
_________________________ attorney to transfer such rights on the books of
_________________ ____________, with full power of substitution in the
premises.
Dated: _______________, ____
By:________________________________
___________________________________
___________________________________
Address
In the presence of:
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "AGREEMENT"), is entered into as of August
31, 1998, among [i] THERMOVIEW INDUSTRIES, INC., a Delaware corporation
("ThermoView"), [ii] AMERICAN HOME DEVELOPERS CO., INC., a California
corporation ("American Home"), [iii] AMERICAN HOME REMODELING, a California
corporation ("American Home Remodeling"), [iv] BLIZZARD ENTERPRISES, INC., a
Minnesota corporation ("Blizzard Enterprises"), [v] FIVE STAR BUILDERS, INC., a
California corporation ("Five Star"), [vi] ICE, INC., a North Dakota business
corporation ("Ice"), [vii] KEY HOME CREDIT, INC., a Delaware corporation ("Key
Home"), [viii] KEY HOME MORTGAGE, INC., a Delaware corporation ("Key Home
Mortgage"), [ix] LEINGANG SIDING AND WINDOW, INC., a North Dakota business
corporation ("Leingang Siding"), [x] PRIMAX WINDOW CO., a Kentucky corporation
("Primax"), [xi] ROLOX, INC., a Kansas corporation ("Rolox"), [xii] TD WINDOWS,
INC., a Kentucky corporation ("TD Windows"), [xiii] THERMAL LINE WINDOWS,
L.L.P., a Minnesota limited liability partnership ("Thermal Line"), [xiv]
THERMOVIEW OF MISSOURI, INC., a Missouri corporation ("ThermoView-Missouri"),
and [xv] THERMO-TILT WINDOW COMPANY, a Delaware corporation ("Thermo-Tilt"),
[(ThermoView, American Home, American Home Remodeling, Blizzard Enterprises,
Five Star, Ice, Key Home, Key Home Mortgage, Leingang Siding, Primax, Rolox, TD
Windows, Thermal Line, ThermoView-Missouri and Thermo-Tilt individually are
referred to in this Agreement as the "ORIGINAL BORROWERS", the "ORIGINAL
BORROWERS" together with each other entity acquired or formed by any of the
aforementioned Original Borrowers (each an "ACQUIRED ENTITY") and that hereafter
joins this Agreement as an obligor pursuant to the provisions hereof are
referred to each individually as a "BORROWER" and collectively as the
"BORROWERS") and PNC BANK, NATIONAL ASSOCIATION, a national banking association
(the "BANK")].
The Borrower and the Bank, with the intent to be legally bound, agree as
follows:
1. LOAN. The $15,000,000.00 Committed Line of Credit (the "LOAN") made
by the Bank for the purpose of [i] allowing the Borrowers to make acquisitions,
[ii] providing the Borrowers with working capital and [iii] providing the
initial funding of Key Home Credit Inc., a Delaware corporation ("Key Home
Credit"), shall be subject to and governed by this Agreement. The Loan is or
will be evidenced by that certain Promissory Note (Committed Line of Credit
Note) of the Borrowers (the "NOTE") acceptable to the Bank, which shall set
forth the interest rate, repayment and other provisions, the terms of which are
incorporated into this Agreement by reference.
1. LOAN COMMITMENT. The Bank agrees to disburse to the Borrowers
from time to time after the date hereof, subject to and in accordance with the
terms and conditions of this Agreement, an aggregate principal amount not to
exceed at any one time outstanding the lesser of Fifteen Million Dollars
($15,000,000.00) or the amount which is prescribed by the Section of this
Agreement entitled "Limitation of Commitment." Within such limits, Borrowers
may borrow, repay and reborrow. ANYTHING TO THE CONTRARY CONTAINED IN THIS
SECTION OR THIS AGREEMENT OR
<PAGE>
THE OTHER LOAN DOCUMENTS TO THE CONTRARY NOTWITHSTANDING, BORROWERS SHALL NOT
BE ENTITLED TO OBTAIN AND THE BANK SHALL NOT BE REQUIRED TO MAKE ANY ADVANCE
OF THE LOAN AT ANY TIME AT WHICH THERE EXISTS AN EVENT OF DEFAULT UNDER THIS
AGREEMENT. FOR PURPOSES OF THIS AGREEMENT THE TERM "ADVANCE" MEANS A
DISBURSEMENT OF FUNDS BY THE BANK TO THE BORROWERS PURSUANT TO ANY OF THE
LOAN DOCUMENTS.
2. APPLICATION FOR ADVANCES. Subject to the provisions of the
Note, which shall control in the case of any inconsistency with the
provisions of this Section, Borrowers apply for each Advance of the Loan in
writing, accompanied by a certificate in form and substance acceptable to the
Bank confirming (including showing the requisite calculations) that the
aggregate principal amount of the Loan will not exceed the Commitment Limit
(hereinafter defined) after giving effect to the Advance being requested, and
certifying that the representations and warranties of Borrowers contained in
this Agreement remain in full force and effect and that no Event of Default,
as hereinafter defined (or circumstance that with any applicable required
notice and/or period of cure would become an Event of Default), is existing
or will exist after giving effect to the Advance being requested. Each
Advance shall be in the aggregate amount of not less than Five Hundred
Thousand and No/100 Dollars ($500,000.00), or integral multiples thereof, and
shall be credited into a demand deposit account maintained by the Borrowers
with the Bank. The Bank shall endeavor to effect credit of the proceeds of
any Advance requested prior to 11:00 a.m. on the same business day on which
application for such Advance is received by the Bank. Proceeds of any
Advance for which a request is received by the Bank after 11:00 a.m. may not
be credited, at the option of the Bank, until the next business day. The
date and amount of each Advance made by the Bank, and the date and amount of
each payment or prepayment of principal of the Loan shall be recorded by the
Bank, but any failure of the Bank so to record such dates or amounts shall
not relieve the Borrowers of their obligations hereunder or under the Note
evidencing the Loan. Each Borrower agrees that the Bank's books and records
as to the amounts due under the Loan shall be deemed to be presumptively
correct except for manifest error.
3. LIMITATION OF COMMITMENT. Notwithstanding any other provision
of this or any other Loan Document, the aggregate unpaid principal amount of
Advances of the Loan shall not at any time exceed an amount (the "COMMITMENT
LIMIT") equal to the lesser of:
[1] $15,000,000.00 (the "DOLLAR LIMITATION"); or
[2] 3.5 times the collective (a) Modified Borrower EBITDA, as
hereinafter defined, for all Borrowers for the immediately preceding four
(4) fiscal quarters of Borrowers calculated as of the date of the
requested Advance using information on the Borrowers as of the most
recently ended fiscal quarter of Borrowers for which Financial Statements,
as hereinafter defined, have been delivered to the Bank (the "ADVANCE
LIMITATION"). Notwithstanding the foregoing Advance Limitation, no Advance
will be allowed the result of which will be to cause the outstanding
principal balance of the Loan to exceed $6,500,000 unless and until [i] the
Bank has received projections and budgets for the finances and operations
of Borrowers for fiscal years 1998 and 1999 of Borrowers (including balance
sheets, income statements and monthly cash flow projections), in such
detail and containing such disclosures of the assumptions underlying that
information as
-2-
<PAGE>
Bank reasonably requests, reflecting that the financial results of
Borrowers during such periods will not result in a breach of any
of the covenants contained in this Agreement, [ii] the Bank has conducted
the September Field Audit, as hereinafter defined, of the Borrowers, and
[iii] the Borrowers have provided the Bank with evidence satisfactory to
Bank that the Borrowers have raised not less than $10,000,000.00 in capital
from the issuance of the Convertible Preferred Stock, as hereinafter
defined.
4. TERMINATION OF COMMITMENT. Lender's obligation to make
Advances under the Loan (the "COMMITMENT") shall continue until the earlier of
August 31, 2000, or any later date or dates, if applicable, as to which
Borrowers and the Bank (each in their sole and absolute discretion, which may be
exercised arbitrarily) may agree in writing (August 31, 2000 or such later date
is referred to herein as the "LOAN EXPIRATION DATE"), and the amount of all
Advances not earlier repaid, together with interest thereon, shall be due and
payable in full as of the Loan Expiration Date.
5. UNUSED LOAN FEE. Borrowers shall pay to the Bank a fee (the
"UNUSED LOAN FEE"), in arrears, on October 1, 1998, and on the first day of
each calendar quarter thereafter, and on the Loan Expiration Date (the period
from the date of this Agreement until and including October 1, 1998, and each
calendar quarter thereafter, and the portion of any calendar quarter, if
applicable, that includes the Loan Expiration Date, are referred to as the
"UNUSED LOAN FEE CALCULATION PERIOD"). The Unused Loan Fee applicable to any
Unused Loan Fee Calculation Period shall be the product derived by multiplying
the Unused Loan Fee Rate times the average amount by which the Dollar Limitation
during the applicable Unused Loan Fee Calculation Period exceeded the average
daily outstanding principal amount of the Loan during that interval, divided by
360, multiplied by the number of days during the applicable Unused Loan Fee
Calculation Period. The applicable Unused Loan Fee rate (the "UNUSED LOAN FEE
RATE") shall be based upon the collective Funded Debt to Modified Borrower
EBITDA of all Borrowers as of the end of the applicable Unused Loan Fee
Calculation Period as set forth in LOAN FEE CALCULATION SCHEDULE attached to and
made a part of this Agreement.
2. SECURITY. The security for repayment of the Loan shall include but
not be limited to the collateral, and other documents heretofore,
contemporaneously or hereafter executed and delivered to the Bank (the "SECURITY
DOCUMENTS"), which shall secure repayment of the Loan, the Note and all other
loans, Advances, debts, liabilities, obligations, covenants and duties owing by
the Borrowers to the Bank of any kind or nature, present or future, whether or
not evidenced by any note, guaranty or other instrument, whether arising under
any agreement, instrument or document, whether or not for the payment of money,
whether arising by reason of an extension of credit, opening of a letter of
credit, loan or guarantee or in any other manner, whether arising out of
overdrafts on deposit or other accounts or electronic funds transfers (whether
through automatic clearing houses or otherwise) or out of the Bank's non-receipt
of or inability to collect funds or otherwise not being made whole in connection
with depository transfer check or other similar arrangements, whether direct or
indirect (including those acquired by assignment or participation), absolute or
contingent, joint or several, due or to become due, now existing or hereafter
arising, and any amendments, extensions, renewals or increases and all costs and
-3-
<PAGE>
expenses of the Bank incurred in the documentation, negotiation,
modification, enforcement, collection or otherwise in connection with any of
the foregoing, including but not limited to reasonable attorneys' fees and
expenses (hereinafter referred to collectively as the "OBLIGATIONS"). Unless
expressly provided to the contrary in documentation for any other loan or
loans, it is the express intent of the Bank and the Borrowers that all
Obligations including those included in the Loan be cross-defaulted, such
that a default under any Obligation shall be a default under all Obligations.
This Agreement, the Note and the Security Documents are collectively
referred to as the "LOAN DOCUMENTS".
3. REPRESENTATIONS AND WARRANTIES. The Borrowers hereby make the
following representations and warranties, which shall be continuing in nature
and remain in full force and effect until the Obligations are paid in full, and
which shall be true and correct except as otherwise set forth in any Schedule
attached hereto.
1. YEAR 2000. Each Borrower has reviewed the areas within their
respective businesses and operations which could be adversely affected by,
and have developed or are developing a program to address on a timely basis,
the risk that certain computer applications used by each of the Borrowers (or
any of their respective material suppliers, customers or vendors) may be
unable to recognize and perform properly date-sensitive functions involving
dates before and after December 31, 1999 (the "YEAR 2000 PROBLEM"). The Year
2000 Problem will not result in any Material Adverse Change. For purposes of
the above provision the term "Material Adverse Change" shall mean any set of
circumstances or events which (a) has or could reasonably be expected to have
any material adverse effect whatsoever upon the validity or enforceability of
this Agreement or any of the other Loan Documents, (b) is or could reasonably
be expected to be material and adverse to the business, properties, assets,
financial condition, results of operations or prospects of any Borrower taken
as a whole, (c) impairs materially or could reasonably be expected to impair
materially the ability of any Borrower to duly and punctually pay or
perform its Obligations, or (d) impairs materially or could reasonably be
expected to impair materially the ability of the Bank, to the extent
permitted, to enforce its legal remedies pursuant to this Agreement and the
Loan Documents.
2. EXISTENCE, POWER AND AUTHORITY. Each of the Borrowers is duly
organized, validly existing and in good standing under the laws of the State of
its respective incorporation and each such Borrower has the power and authority
to own and operate its respective assets and to conduct its respective business
as now or proposed to be carried on, and is duly qualified, licensed and in good
standing to do business in all jurisdictions where its respective ownership of
property or the nature of its respective business requires such qualification or
licensing. Each Borrower is duly authorized to execute and deliver the Loan
Documents, all necessary action to authorize the execution and delivery of the
Loan Documents has been properly taken, and each Borrower is and will continue
to be duly authorized to borrow under this Agreement and to perform all of the
other terms and provisions of the Loan Documents.
3. CAPITAL STRUCTURE. Each Borrower other than ThermoView and
Thermal Line is a wholly-owned subsidiary of ThermoView. All of the partnership
interest of Thermal Line is owned by, collectively, Blizzard Enterprises and
Ice. The number of authorized, issued,
-4-
<PAGE>
and outstanding shares of capital stock of each Borrower other than
ThermoView and Thermal Line is as set forth on the CAPITAL STRUCTURE SCHEDULE
attached to and made a part of this Agreement.
4. FINANCIAL STATEMENTS. Each Borrower has delivered or caused to
be delivered its most recent balance sheet, income statement and statement of
cash flows (the "HISTORICAL FINANCIAL STATEMENTS"). The Historical Financial
Statements are true, complete and accurate in all material respects and fairly
present the financial condition, assets and liabilities, whether accrued,
absolute, contingent or otherwise and the results of such Borrower's operations
for the period specified therein. The Historical Financial Statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied from period to period subject in the case of interim
statements to normal year-end adjustments and to any comments and notes
acceptable to the Bank in its sole discretion.
5. NO MATERIAL ADVERSE CHANGE. Since the date of the most recent
Financial Statements, no Borrower has suffered any damage, destruction or loss,
and no event or condition has occurred or exists, which has resulted or would
result in a material adverse change in its respective business, assets,
operations, financial condition or results of operation.
6. BINDING OBLIGATIONS. Each Borrower has full power and authority
to enter into the transactions provided for in this Agreement and has been duly
authorized to do so by appropriate action of its respective Board of Directors;
and the Loan Documents, when executed and delivered by each such Borrower, will
constitute the legal, valid and binding obligations of each such Borrower
enforceable in accordance with their terms.
7. NO DEFAULTS OR VIOLATIONS. There does not exist any Event of
Default under this Agreement or any default or violation by any Borrower of
or under any of the terms, conditions or obligations of: (i) its respective
articles or certificate of incorporation, regulations or bylaws; (ii) any
indenture, mortgage, deed of trust, franchise, permit, contract, agreement,
or other instrument to which any such Borrower is a party or by which any
such Borrower is bound; or (iii) any law, regulation, ruling, order,
injunction, decree, condition or other requirement applicable to or imposed
upon any such Borrower by any law, the action by any court or any
governmental authority or agency; and the consummation of this Agreement and
the transactions set forth herein will not result in any such default or
violation.
8. TITLE TO ASSETS. Each Borrower has good and marketable title to
the assets reflected on the most recent Historical Financial Statements, free
and clear of all liens and encumbrances, except for (i) current taxes and
assessments not yet due and payable, (ii) liens and encumbrances, if any,
reflected or noted in the Historical Financial Statements, (iii) assets disposed
of by each such Borrower in the ordinary course of its respective business since
the date of the most recent Historical Financial Statements, and (iv) those
liens or encumbrances specified on the ENCUMBRANCES SCHEDULE, which is attached
to and made a part of this Agreement.
9. LITIGATION. Except as set forth in the LITIGATION SCHEDULE which
is attached to and made a part of this Agreement, there are no actions, suits,
proceedings or governmental
-5-
<PAGE>
investigations pending or, to the knowledge of any Borrower, threatened
against any Borrower, none of which could result in a material adverse change
in any such Borrower's respective business, assets, operations, financial
condition or results of operations and there is no basis known to any
Borrower for any action, suit, proceedings or investigation which could
result in such a material adverse change. All pending or threatened
litigation against any Borrower is listed on the LITIGATION SCHEDULE, which
is attached to and made a part of this Agreement.
10. TAX RETURNS. Each Borrower has filed all returns and reports
that are required to be filed by each such Borrower in connection with any
federal, state or local tax, duty or charge levied, assessed or imposed upon it
or its respective property or withheld by any such Borrower, including
unemployment, social security and similar taxes and all of such taxes, have been
either paid or adequate reserve or other provision has been made or such taxes
are being contested in good faith in which case a brief description of each such
contest is set forth in the LITIGATION SCHEDULE.
11. EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which
any Borrower may have any liability complies in all material respects with
applicable provisions of the Employee Retirement Income Security Act of 1974
("ERISA"), including minimum funding requirements, and (i) no Prohibited
Transaction (as defined under ERISA) has occurred with respect to any such plan,
(ii) no Reportable Event (as defined under Section 4043 of ERISA) has occurred
with respect to any such plan which would cause the Pension Benefit Guaranty
Corporation to institute proceedings under Section 4042 of ERISA, (iii) no
Borrower has withdrawn from any such plan or initiated steps to do so, and (iv)
no steps have been taken to terminate any such plan.
12. ENVIRONMENTAL MATTERS. Each Borrower is in compliance, in all
material respects, with all Environmental Laws, including, without
limitation, all Environmental Laws in jurisdictions in which each such
Borrower owns or operates, or has owned or operated, a facility or site,
stores Collateral, arranges or has arranged for disposal or treatment of
hazardous substances, solid waste or other waste, accepts or has accepted for
transport any hazardous substances, solid waste or other wastes or holds or
has held any interest in real property or otherwise. Except as otherwise
disclosed on the LITIGATION SCHEDULE, no litigation or proceeding arising
under, relating to or in connection with any Environmental Law is pending or,
to any Borrower's knowledge, threatened against any Borrower, any real
property which any Borrower holds or has held an interest or any past or
present operation of any of the Borrowers. No release, threatened release or
disposal of hazardous waste, solid waste or other wastes is occurring, or to
any Borrower's knowledge has occurred, on, under or to any real property in
which any Borrower holds any interest or performs any of its respective
operations, in violation of any Environmental Law. As used in this Section,
"LITIGATION OR PROCEEDING" means any demand, claim, notice, suit, suit in
equity, action, administrative action, investigation or inquiry whether
brought by a governmental authority or other person, and "ENVIRONMENTAL LAWS"
means all provisions of laws, statutes, ordinances, rules, regulations,
permits, licenses, judgments, writs, injunctions, decrees, orders, awards and
standards promulgated by any governmental authority concerning health,
safety and protection of, or regulation of the discharge of substances into,
the environment.
-6-
<PAGE>
13. INTELLECTUAL PROPERTY. Each Borrower owns or is licensed to
use all patents, patent rights, trademarks, trade names, service marks,
copyrights, intellectual property, technology, know-how and processes
necessary for the conduct of its respective business as currently conducted
that are material to the condition (financial or otherwise), business or
operations of each such Borrower.
14. REGULATORY MATTERS. No part of the proceeds of the Loan will be
used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U of the Board of
Governors of the Federal Reserve System as now and from time to time in effect
or for any purpose which violates the provisions of the Regulations of such
Board of Governors.
15. SOLVENCY. As of the date hereof and after giving effect to the
transactions contemplated by the Loan Documents, (i) the aggregate value of each
Borrower's assets will exceed its liabilities (including contingent,
subordinated, unmatured and unliquidated liabilities), (ii) each Borrower will
have sufficient cash flow to enable it to pay its debts as they mature, and
(iii) each Borrower will not have unreasonably small capital for the business in
which it is engaged.
16. DISCLOSURE. None of the Loan Documents contains or will contain
any untrue statement of material fact or omits or will omit to state a material
fact necessary in order to make the statements contained in this Agreement or
the Loan Documents not misleading. There is no fact known to any Borrower which
materially adversely affects or, so far as any Borrower can now foresee, might
materially adversely affect the business, assets, operations, financial
condition or results of operation of any Borrower and which has not otherwise
been fully set forth in this Agreement or in the Loan Documents.
4. AFFIRMATIVE COVENANTS. The Borrowers agree that from the date of
execution of this Agreement until all Obligations have been fully paid and any
commitments of the Bank to the Borrowers have been terminated, the Borrowers
will:
1. BOOKS AND RECORDS. Maintain books and records in accordance with
GAAP and give representatives of the Bank access thereto at all reasonable
times, including permission to examine, copy and make abstracts from any of such
books and records and such other information as the Bank may from time to time
reasonably request, and each Borrower will make available to the Bank for
examination copies of any reports, statements or returns which any such Borrower
may make to or file with any governmental department, bureau or agency, federal
or state.
2. INTERIM FINANCIAL STATEMENTS; CERTIFICATE OF NO DEFAULT. Within
forty-five (45) days after the end of each calendar quarter of ThermoView,
furnish the Bank with the Financial Statements of ThermoView for such period, in
reasonable detail, certified by an authorized officer of ThermoView and prepared
in accordance with GAAP applied from period to period. ThermoView shall also
deliver a certificate as to its compliance with applicable
-7-
<PAGE>
financial covenants for the period then ended and whether any Event of
Default exists, and, if so, the nature thereof and the corrective measures
ThermoView proposes to take. "FINANCIAL STATEMENTS" means ThermoView's
consolidated and, if required by the Bank in its sole discretion,
consolidating, balance sheets, income statements and statements of cash flows
for the year, month or quarter together with, in regard to any Borrowers for
which comparable data is available, year-to-date figures and comparative
figures for the corresponding periods of the prior year.
3. ANNUAL FINANCIAL STATEMENTS. Within one hundred twenty (120)
days after the end of the fiscal year of ThermoView, furnish the Bank with
the Financial Statements of ThermoView for such period. Those Financial
Statements will be prepared on an audited basis in accordance with GAAP by an
independent certified public accountant selected by the Borrowers and
satisfactory to the Bank and [ii] shall contain the unqualified opinion of an
independent certified public accountant and its examination shall have been
made in accordance with GAAP consistently applied from period to period.
4. PAYMENT OF TAXES AND OTHER CHARGES. Pay and discharge when due
all indebtedness and all taxes, assessments, charges, levies and other
liabilities imposed upon each of the Borrowers, their income, profits, property
or business, except those which currently are being contested in good faith by
appropriate proceedings and for which each such applicable Borrower shall have
set aside adequate reserves or made other adequate provision with respect
thereto acceptable to the Bank in its reasonable discretion.
5. MAINTENANCE OF EXISTENCE, OPERATION AND ASSETS. Do all things
necessary to maintain, renew and keep in full force and effect each
Borrower's organizational existence and all rights, permits and franchises
necessary to enable each such Borrower to continue its respective business;
continue in operation in substantially the same manner as at present; keep
its respective properties in good operating condition and repair; and make
all necessary and proper repairs, renewals, replacements, additions and
improvements thereto. Without limitation of the foregoing, Borrowers will
provide Bank, promptly upon request of Bank except in any event immediately
upon moving property of any Borrower that is collateral for the Loan to a
location that is leased by a Borrower, with a landlord lien waiver in form
and substance acceptable to Bank from such landlord.
6. INSURANCE. Maintain with financially sound and reputable
insurers, insurance with respect to its respective property and business
against such casualties and contingencies, of such types and in such amounts
as is customary for established companies engaged in the same or similar
business and similarly situated. In the event of a conflict between the
provisions of this Section and the terms of any Security Documents relating
to insurance, the provisions in the Security Documents will control.
7. COMPLIANCE WITH LAWS. Comply in all material respects with
all laws applicable to each Borrower and to the operation of its respective
business (including any statute, rule or regulation relating to employment
practices and pension benefits or to environmental, occupational and health
standards and controls).
-8-
<PAGE>
8. BANK ACCOUNTS. Establish and maintain at the Bank the primary
depository accounts of ThermoView, which shall include one or more "sweep
accounts" into which regularly shall be deposited from time to time a
substantial portion of the deposits of each other Borrower.
9. FINANCIAL COVENANTS. Comply with each of the following financial
covenants, determined in accordance with GAAP:
[1] FUNDED DEBT TO MODIFIED BORROWER EBITDA. The ratio,
calculated as of the end of each fiscal quarter of Borrowers beginning June
30, 1998 (each a "CALCULATION DATE"), of the consolidated (and combined, if
applicable) Funded Debt of Borrowers as of each Calculation Date divided by
the consolidated (and combined, if applicable) Modified Borrower EBITDA for
Borrowers for the four (4) fiscal quarters of Borrowers immediately
preceding the applicable Calculation Date shall not be greater than 3.50 to
1.00. For purposes of this financial covenant, the following terms shall
have the following meanings:
[1] "BASE EARNINGS" is defined as the consolidated (and
combined, if applicable) sum of all earnings before interest, taxes,
depreciation and amortization LESS any extraordinary gain, PLUS
expenses, calculated and estimated by Borrowers in a manner and
amount acceptable to Bank in each case, incurred by each Borrower,
if and to the extent applicable, that reasonably are expected no
longer to be incurred because of operating efficiencies realized
as a result of and following each such entity having become a
Borrower ("NON-RECURRING EXPENSES"), and before giving effect to
the Corporate Income and Corporate Overhead, each hereinafter defined.
[2] "EBITDA" is defined as the sum of [i] Base Earnings of
Borrowers, PLUS [ii] an amount, not to exceed $1,000,000, equal to
all non-cash charges to income incurred by Borrowers on or before
the date of this Agreement in respect of stock options heretofore
issued by Borrowers ("STOCK OPTION CHARGES"), PLUS [iii] the amount
of "corporate income" (e.g. interest income and similar revenues
generated by investment of cash on hand; referred to in this
Agreement as "CORPORATE INCOME"), except that Corporate Income
during the four (4) fiscal quarters of Borrowers preceding
September 30, 1998 and December 31, 1998, respectively, shall be
deemed to be $100,000 even if the actual amount of Corporate
Income during such period is greater or less than $100,000,
and LESS [iv] an allocation for corporate overhead incurred by
Borrowers ("CORPORATE OVERHEAD") during the period of
calculation, except that Corporate Overhead during the four (4)
fiscal quarters of Borrowers preceding September 30, 1998 and
December 31, 1998, respectively, shall be deemed to be $1,425,000,
even if the actual amount of Corporate Overhead during such
periods is greater or less than $1,425,000, and Corporate
Overhead as of each Calculation Date after December 31, 1998,
shall be deemed equal to the GREATER of either (a) the actual
amount thereof as established by Borrowers in a manner acceptable
to the Bank, or (b) $2,000,000.
-9-
<PAGE>
[3] "FUNDED DEBT" is defined as the consolidated (and
combined, if applicable) sum of all line borrowings, plus current
(i.e. less than or equal to one (1) year) and non-current maturities
of long term debt of each of the Borrowers (including but not
limited to any "earn-outs", i.e. obligations of any Borrower that
are determined based on the future performance of any Acquired
Entity) that in each case are not subordinated to all indebtedness
of whatsoever nature of Borrower to the Bank pursuant to
documentation acceptable in form and substance to the Bank.
[4] "MODIFIED BORROWER EBITDA" is defined as the EBITDA
of the Borrowers for which the Funded Debt to Modified Borrower EBITDA
financial covenant is being calculated, except without giving effect
to the EBITDA of any Borrower (each an "UNAUDITED BORROWER") for
which the Bank has not received both [a] audited financial
statements in form and detail acceptable to the Bank, as well as
[b] other due diligence information concerning such Borrower as Bank
may request, in form and substance acceptable to the Bank plus
[i] fifty percent (50%) of the EBITDA of each Unaudited Borrower.
[2] MODIFIED BORROWER EBIT TO INTEREST AND DIVIDENDS. The ratio
as of each Calculation Date of the consolidated (and combined, if
applicable) EBIT of Borrowers during the immediately preceding four (4)
fiscal quarters of Borrowers divided by the sum of consolidated (and
combined, if applicable) interest and dividends for Borrowers during the
same period shall be greater than 3.00 to 1.00. For purposes of this
financial covenant, the terms "EBIT" and "MODIFIED BORROWER EBIT" have the
same meanings and shall be calculated in the same manner as EBITDA and
Modified Borrower EBITDA, respectively, except that, for purposes of
defining and calculating EBIT and Modified Borrower EBIT, Base Earnings
shall mean earnings before interest and taxes, LESS any extraordinary gain.
10. NET WORTH. Borrowers will maintain at all times a consolidated
(and combined, if applicable) minimum Net Worth in an amount equal to ninety
percent (90%) of Borrowers' actual book net worth as indicated in Borrowers'
consolidated (and combined, if applicable) Financial Statements dated as of June
30, 1998 (the "BASE NET WORTH"), plus, for each fiscal year of Borrowers (or
portion thereof, in the case of the fiscal year ending 12/31/98) ending after
June 30, 1998, an amount equal to the sum of [i] seventy-five percent (75%) of
Borrowers' consolidated (and combined, if applicable) net income for each such
fiscal year and [ii] seventy-five percent (75%) of the net proceeds of any
equity offering for Borrowers for each such fiscal year. As used in this
financial covenant the term "Net Worth" means stockholders' equity in the
Borrower.
11. CONVERTIBLE PREFERRED STOCK. Raise a minimum of $10,000,000 in
capital (including the $8,500,000 that is one of the conditions hereinafter
described to the Bank making any Advances of the Loan) from the issuance of the
Borrowers' convertible preferred stock (the "CONVERTIBLE PREFERRED STOCK") on or
before September 30, 1998.
-10-
<PAGE>
12. ADDITIONAL REPORTS. Provide prompt written notice to the Bank
of the occurrence of any of the following (together with a description of the
action which the Borrowers propose to take with respect thereto): [i] any
Event of Default or potential Event of Default, [ii] any litigation filed by
or against any Borrower, [iii] any Reportable Event or Prohibited Transaction
with respect to any Employee Benefit Plan(s) (as defined in ERISA) or [iv]
any event which might result in a material adverse change in the business,
assets, operations, financial condition or results of operation of any
Borrower.
13. KEY HOME CREDIT FUNDING. Obtain additional funding for Key
Home Credit once and to the extent that Key Home Credit's then (and
thereafter, from time to time) outstanding loan portfolio exceeds
$5,000,000.00. In addition, neither Key Home Credit nor any other Borrower
shall either [a] purchase or otherwise acquire for value any account or note
receivable or other evidence of indebtedness from any person or entity not a
Borrower, or [b] create or permit to exist any loan or note receivable
arising in the course of their respective businesses that is not either "A"
or "B" paper as defined by the so-called "FICO" scoring system utilized by
the Bank and other institutional lenders in asset securitization valuation
procedures.
14. FINANCIAL PROJECTIONS. Provide the Bank with financial
projections with respect to the consolidating and consolidated (and combined,
if applicable) operations of the Borrowers for the fiscal years of Borrowers
ended December 31, 1998 and December 31, 1999 that are acceptable to the Bank
in its sole discretion before September 30, 1998.
15. KEY-MAN LIFE INSURANCE. Provide the Bank with evidence of
key-man life insurance insuring the lives of Steven Hoffman and Gene Bowlds
who are members of the Borrowers' executive management on or before October
30, 1998.
16. FIELD AUDIT. On or before September 30, 1998, allow
representatives of the Bank to conduct a "field audit", satisfactory to the
Bank in its sole discretion, of the operations of the Borrowers (the
"SEPTEMBER FIELD AUDIT"). The September Field Audit will primarily be
focused on due diligence procedures utilized by the Borrowers when reviewing
potential acquisitions, the integration and conversion of acquisitions, and
on the Borrowers' accounting and systems areas including the adequacy of
Borrowers' procedures and controls. The Bank may require additional field
audits no more frequently than once every six (6) months during the term of
this Agreement. The Borrowers shall be responsible for all expenses incurred
by the Bank in connection with the September Field Audit and all subsequent
field audits.
17. JOINDER OF ACQUIRED ENTITIES. Each Acquired Entity shall join
this Loan Agreement and the Security Agreement and the other Loan Documents
as a Borrower, pursuant to documentation (including UCC-1 Financing
Statements) acceptable to Bank, promptly upon being acquired or formed by any
Borrower, and until such joinder has been completed to the satisfaction of
Bank, any EBITDA of such Acquired Entity shall not be considered in
calculating the Commitment Limit.
-11-
<PAGE>
5. NEGATIVE COVENANTS. Each Borrower covenants and agrees that from the
date of execution of this Agreement until all Obligations have been fully paid
and any commitments of the Bank to the Borrowers have been terminated, no
Borrower will, except as set forth in the ENCUMBRANCES SCHEDULE, without the
Bank's prior written consent:
1. INDEBTEDNESS. Incur any indebtedness for borrowed money
(including but not limited to capitalized leases) other than: (i) the Loan and
any subsequent indebtedness to the Bank; (ii) existing indebtedness disclosed on
the Historical Financial Statements referred to in the "Financial Statements"
Section of this Agreement; and (ii) indebtedness that is subordinated in form
and substance acceptable to the Bank.
2. LIENS AND ENCUMBRANCES. Except for liens and encumbrances in
favor of the Bank and except as provided in the "Title to Assets" Section of
this Agreement, create, assume or permit to exist any mortgage, pledge,
encumbrance or other security interest or lien upon any assets now owned or
hereafter acquired or enter into any arrangement for the acquisition of property
subject to any conditional sales agreement.
3. GUARANTEES. Guarantee, endorse or become contingently liable for
the obligations of any person, firm or corporation, except in connection with
the endorsement and deposit of checks in the ordinary course of business for
collection.
4. LOANS OR ADVANCES. Purchase or hold beneficially any stock,
other securities or evidences of indebtedness of any loans or advances to, or
make any investment or acquire any interest whatsoever in, any other person,
firm or corporation, except investments disclosed on the Borrowers' Historical
Financial Statements or acceptable to the Bank in its sole discretion.
5. MERGER OR TRANSFER OF ASSETS. Merge or consolidate with or into
any person, firm or corporation or lease, sell, transfer or otherwise dispose of
all, or substantially all, of its property, assets and business whether now
owned or hereafter acquired, except for internal consolidations or
reorganizations after which a Borrower or an Acquired Entity is the surviving
entity.
6. CHANGE IN BUSINESS, MANAGEMENT OR OWNERSHIP. Make or permit any
material change [i] in the nature of its respective business as carried on as of
the date hereof, [ii] in the composition of its respective current executive
management, or [iii] in its respective equity ownership.
7. DIVIDENDS. Except for those dividends payable pursuant to the
Convertible Preferred Offering dated as of June 12, 1998, declare or pay any
dividends on or make any distribution with respect to any class of its equity or
ownership interest, or purchase, redeem, retire or otherwise acquire any of its
equity, except for the amount of federal and state income tax of the principals
of any Borrower attributable to the earnings of any such Borrower where any such
Borrower is an S corporation.
-12-
<PAGE>
6. EVENTS OF DEFAULT. The occurrence of any of the following
will be deemed to be an "EVENT OF DEFAULT":
1. COVENANT DEFAULT. Any Borrower shall default in the
performance of any of the covenants or agreements contained in this
Agreement, including but not limited to those covenants contained in the
"Interim Financial Statements; Certificate of No Default" and "Annual
Financial Statements" Sections of this Agreement, and such default is not
cured to the satisfaction of the Bank on or before twenty-one (21) calendar
days after the Bank has given written notice thereof to any such Borrower.
Notwithstanding the foregoing, the twenty-one (21) day cure period described
above shall not be applicable to those covenants contained in Sections 4(M),
5(A), 5(B), 5(C), 5(D) and 5(E) of this Agreement.
2. BREACH OF WARRANTY. Any Financial Statement, other
financial information or due diligence, representation, warranty or
certificate made or furnished by any Borrower to the Bank in connection with
this Agreement shall be false, incorrect or incomplete when made.
3. OTHER DEFAULT. The occurrence of an Event of Default as
defined in the Note or any of the Security Documents.
A0 POST-CLOSING DELIVERIES. If Borrower shall not, as
applicable, have satisfied those conditions and delivered to Bank those items
described in the POST CLOSING DELIVERIES SCHEDULE attached to and made a part
of this Agreement on or before the respective dates indicated therein.
Upon the occurrence of an Event of Default, the Bank will have all rights and
remedies specified in the Note and the Security Documents and all rights and
remedies (which are cumulative and not exclusive) available under applicable law
or in equity.
7. CONDITIONS. The Bank's obligation to make any Advance under the Loan
is subject to the conditions set forth below, all of which must be satisfied on
or before September 30, 1998 (time being of the essence) or this Agreement shall
be voidable at any time thereafter at the option of the Bank:
1. CONVERTIBLE PREFERRED STOCK. The Borrower shall have
demonstrated to the reasonable satisfaction of the Bank that Borrowers have
irrevocably raised at least $8,500,000.00 in capital from the issuance of
Convertible Preferred Stock.
2. NO EVENT OF DEFAULT. No Event of Default or event which with the
passage of time, provision of notice or both would constitute an Event of
Default shall have occurred and be continuing.
3. AUTHORIZATION DOCUMENTS. The Bank shall have been furnished
certified copies of resolutions of the board of directors of any corporation
that executes this Agreement, the Note or any of the Security Documents; or
other proof of authorization in the case of each Borrower satisfactory to the
Bank.
-13-
<PAGE>
4. RECEIPT OF LOAN DOCUMENTS. The Bank shall have received the
Loan Documents and such other instruments and documents which the Bank may
reasonably request in connection with the transactions provided for in this
Agreement, which may include an opinion of counsel for any party executing
any of the Loan Documents in form and substance satisfactory to the Bank.
5. LOAN FEE. The Bank shall have received the remainder not already
paid, if any, of a fee in the amount of $50,000.00 for providing and committing
to the Loan.
6. INTERIM FINANCIAL STATEMENTS. The Borrowers shall have provided
the Bank with interim unaudited Financial Statements on each of the Borrowers
for the period ended June 30, 1998.
B0 ADDITIONAL AUDITED FINANCIAL STATEMENTS. The Borrowers shall
have provided the Bank with the Financial Statements of Thermo-Tilt, Primax,
Rolox and American Home as of December 31, 1997, prepared on an audited basis in
accordance with GAAP by an independent certified public accountant selected by
the Borrowers and satisfactory to the Bank (the "ADDITIONAL AUDITED FINANCIAL
STATEMENTS") collectively reflecting combined or consolidated Base Earnings of
such Borrowers of at least $1,359,000.00. Such Additional Audited Financial
Statements shall contain the unqualified opinion of an independent certified
public accountant and its examination shall have been made in accordance with
GAAP consistently applied from period to period.
C0 OTHER FINANCIAL INFORMATION. Without limitation of Section 7.F
above, Borrowers shall have provided the Bank with [i] the unaudited Financial
Statements for each of Five Star, Leingang Siding, TD Windows, Thermal Line,
Blizzard Enterprises, Ice, Key Home, Key Home Mortgage and American Home
Remodeling collectively reflecting combined Base Earnings for such Borrowers of
at least $2,250,000 during the four fiscal quarters immediately preceding June
30, 1998, and [ii] documentation adequately supporting, in the opinion of the
Bank, an additional $100,000 during the same period in Corporate Income, and
[iii] summaries of all due diligence, in form and substance reasonably
acceptable to Bank, on all acquisitions by each Borrower occurring on or before
the date of this Agreement.
7. LIQUIDATION OF CURRENT INDEBTEDNESS. The Borrowers shall have or
shall simultaneously with the execution and delivery of this Agreement [i] pay
in full any and all indebtedness owed by any Borrower to Bank One, Kentucky, NA,
and [ii] pay in full that certain Promissory Note (Interim Term Note) executed
and delivered on or about August 13, 1998 in the face principal amount of
$4,000,000 from Borrowers to the Bank.
8. EXPENSES. The Borrowers agree to pay the Bank, upon the closing of
this Agreement, and otherwise on demand, all costs and expenses incurred by the
Bank in connection with the (i) preparation, negotiation and delivery of this
Agreement and the other Loan Documents, and any modifications thereto, and (ii)
collecting the loan or instituting, maintaining, preserving, enforcing and
foreclosing the security interest in any of the collateral securing the
-14-
<PAGE>
Loan, whether through judicial proceedings or otherwise, or in defending or
prosecuting any actions or proceedings arising out of or relating to this
Agreement, including reasonable fees and expenses of counsel (which may
include costs of in-house counsel), expenses for auditors, appraisers and
environmental consultants, lien searches, recording and filing fees and taxes.
9. INCREASED COSTS. On written demand, together with the written
evidence of the justification therefor, the Borrowers agree to pay the Bank, all
direct costs incurred and any losses suffered or payments made by the Bank as a
consequence of making the Loan by reason of any change in law or regulation or
its interpretation imposing any reserve, deposit, allocation of capital or
similar requirement (including without limitation, Regulation D of the Board of
Governors of the Federal Reserve System) on the Bank, its holding company or any
of their respective assets.
10. MISCELLANEOUS.
1. NOTICES. Each Borrower acknowledges and agrees that any notice
given in accordance with the provisions of this Section of this Agreement solely
to Thermo-View shall constitute notice to each Borrower. All notices, demands,
requests, consents, approvals and other communications required or permitted
hereunder must be in writing and will be effective upon receipt if delivered
personally to such party, or if sent by facsimile transmission with confirmation
of delivery, or by nationally recognized overnight courier service, to the
address set forth below or to such other address as any party may give to the
other in writing for such purpose:
To the Bank: PNC Bank, National Association
500 West Jefferson Street
Louisville, Kentucky 40202
Attention: Gregory M. Carroll, Vice President
Facsimile No.: (502) 581-3355
Telephone No.: (502) 581-4779
To the Borrower: ThermoView Industries, Inc.
1101-C Herr Lane
Louisville, Kentucky 40222
Attention: Stephen A. Hoffmann, President
Facsimile No.: (502) 412-0301
Telephone No.: (502) 412-5600
2. PRESERVATION OF RIGHTS. No delay or omission on the part of the
Bank to exercise any right or power arising hereunder will impair any such right
or power or be considered a waiver of any such right or power or any
acquiescence therein, nor will the action or inaction of the Bank impair any
right or power arising hereunder. The Bank's rights and remedies hereunder are
cumulative and not exclusive of any other rights or remedies which the Bank may
have under other agreements, at law or in equity.
3. ILLEGALITY. In case any one or more of the provisions contained
in this Agreement should be invalid, illegal or unenforceable in any respect,
the validity, legality and
-15-
<PAGE>
enforceability of the remaining provisions contained herein shall not in any
way be affected or impaired thereby.
4. CHANGES IN WRITING. No modification, amendment or waiver of any
provision of this Agreement nor consent to any departure by any Borrower
therefrom, will in any event be effective unless the same is in writing and
signed by the Bank, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice to or
demand on any Borrower in any case will entitle any Borrower to any other or
further notice or demand in the same, similar or other circumstance.
5. ENTIRE AGREEMENT. This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all other prior agreements and understandings, both written and oral, between
the parties with respect to the subject matter hereof.
6. COUNTERPARTS. This Agreement may be signed in any number of
counterpart copies and by the parties hereto on separate counterparts, but all
such copies shall constitute one and the same instrument.
7. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and
inure to the benefit of all of the Borrowers and the Bank and their respective
heirs, executors, administrators, successors and assigns; PROVIDED, HOWEVER,
that no Borrower may assign this Agreement in whole or in part without the
prior written consent of the Bank and the Bank at any time may assign this
Agreement in whole or in part.
8. INTERPRETATION. In this Agreement, unless the Bank and the
Borrowers otherwise agree in writing, the singular includes the plural and the
plural the singular; words importing any gender include the other genders;
references to statutes are to be construed as including all statutory provisions
consolidating, amending or replacing the statute referred to; the word "or"
shall be deemed to include "and/or", the words "including", "includes" and
"include" shall be deemed to be followed by the words "without limitation";
references to articles, sections (or subdivisions of sections) or exhibits are
to those of this Agreement unless otherwise indicated; and references to
agreements and other contractual instruments shall be deemed to include all
subsequent amendments and other modifications to such instruments, but only to
the extent such amendments and other modifications are not prohibited by the
terms of this Agreement. Section headings in this Agreement are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose. Unless otherwise specified in this Agreement, all
accounting terms shall be interpreted and all accounting determinations shall be
made in accordance with GAAP. This Agreement is executed by more than one
Borrower, and, therefore, the obligations of all such entities are joint and
several.
9. INDEMNITY. Each Borrower agrees to indemnify each of the Bank,
its directors, officers and employees and each legal entity, if any, who
controls the Bank (the "INDEMNIFIED PARTIES") and to hold each Indemnified Party
harmless from and against any and all claims, damages, losses, liabilities and
expenses (including, without limitation, all fees of
-16-
<PAGE>
counsel with whom any Indemnified Party may consult and all expenses of
litigation or preparation therefor) which any Indemnified Party may incur or
which may be asserted against any Indemnified Party in connection with or
arising out of the matters referred to in this Agreement or in the other Loan
Documents by any person, entity or governmental authority (including any
person or entity claiming derivatively on behalf of any Borrower), whether
(a) arising from or incurred in connection with any breach of a
representation, warranty or covenant by any Borrower, or (b) arising out of
or resulting from any suit, action, claim, proceeding or governmental
investigation, pending or threatened, whether based on statute, regulation or
order, or tort, or contract or otherwise, before any court or governmental
authority, which arises out of or relates to this Agreement, any other Loan
Document, or the use of the proceeds of the Loan; PROVIDED, HOWEVER, that the
foregoing indemnity agreement shall not apply to claims, damages, losses,
liabilities and expenses solely attributable to an Indemnified Party's gross
negligence or willful misconduct. The indemnity agreement contained in this
Section shall survive the termination of this Agreement, payment of any Loan
and assignment of any rights hereunder. Any Borrower may participate at its
expense in the defense of any such action or claim.
10. ASSIGNMENTS AND PARTICIPATIONS. At any time, without any
notice to any Borrower, the Bank may sell, assign, transfer, negotiate,
grant participations in, or otherwise dispose of all or any part of the
Bank's interest in the Loan. Each Borrower hereby authorizes the Bank to
provide, iwthout any notice to any such Borrower, any information concerning
the any Borrower, including information pertaining to such Borrower's
financial condition, business operations or general creditworthiness, to any
person or entity which may succeed to or participate in all or any part of
the Bank's interest in the Loan.
11. GOVERNING LAW AND JURISDICTION. This Agreement has been
delivered to and accepted by the Bank and will be deemed to be made in the
State where the Bank's office indicated above is located. THIS AGREEMENT
WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO
DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE BANK'S OFFICE
INDICATED ABOVE IS LOCATED, EXCLUDING ITS CONFLICT OF LAWS RULES. Each
Borrower hereby irrevocably consents to the exclusive jurisdiction of any
state or federal court for the county or judicial district where the Bank's
office indicated above is located, and consents that all service of process
be sent by nationally recognized overnight courier service directed to such
Borrower at such Borrower's address set forth herein and service so made
will be deemed to be completed on the business day after deposit with such
courier; provided that nothing contained in this Agreement will prevent the
Bank from bringing any action, enforcing any award or judgment or exercising
any rights against any such Borrower individually, against any security or
against any property of any such Borrower within any other county, state or
other foreign or domestic jurisdiction. The Bank and the Borrowers agree
that the venue provided above is the most convenient forum for both the Bank
and the Borrowers. Each Borrower waives any objection to venue and any
objection based on a more convenient forum in any action instituted under
this Agreement.
EACH BORROWER ACKNOWLEDGES THAT SUCH BORROWER HAS READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS AGREEMENT AND HAS BEEN ADVISED BY COUNSEL AS NECESSARY OR
APPROPRIATE.
-17-
<PAGE>
WITNESS the due execution hereof as a document under seal, as of the
date first written above.
"BORROWERS"
THERMOVIEW INDUSTRIES, INC.,
a Delaware corporation
By: /s/ Stephen A. Hoffmann
---------------------------------
Stephen A. Hoffmann, President
AMERICAN HOME DEVELOPERS CO., INC., a California
corporation
By: /s/ Stephen A. Hoffmann
---------------------------------
Stephen A. Hoffmann, President
AMERICAN HOME REMODELING, a California
corporation
By: /s/ Stephen A. Hoffmann
---------------------------------
Stephen A. Hoffmann, President
BLIZZARD ENTERPRISES, INC., a Minnesota
corporation
By: /s/ Stephen A. Hoffmann
---------------------------------
Stephen A. Hoffmann, President
FIVE STAR BUILDERS, INC., a California
corporation
By: /s/ Stephen A. Hoffmann
---------------------------------
Stephen A. Hoffmann, President
-18-
<PAGE>
ICE, INC., a North Dakota business corporation
By: /s/ Stephen A. Hoffmann
---------------------------------
Stephen A. Hoffmann, President
KEY HOME CREDIT, INC., a
Delaware corporation
By: /s/ Nelson E. Clemmens
---------------------------------
Nelson E. Clemmens, President
KEY HOME MORTGAGE, INC., a Delaware
corporation
By: /s/ Nelson E. Clemmens
---------------------------------
Nelson E. Clemmens, President
LEINGANG SIDING AND WINDOW, INC.,
a North Dakota business corporation
By: /s/ Stephen A. Hoffmann
---------------------------------
Stephen A. Hoffmann, President
PRIMAX WINDOW CO., a Kentucky corporation
By: /s/ Stephen A. Hoffmann
---------------------------------
Stephen A. Hoffmann, President
ROLOX, INC. a Kansas corporation
By: /s/ Stephen A. Hoffmann
---------------------------------
Stephen A. Hoffmann, President
-19-
<PAGE>
TD WINDOWS, INC. a Kentucky corporation
By: /s/ Stephen A. Hoffmann
---------------------------------
Stephen A. Hoffmann, President
THERMAL LINE WINDOWS, L.L.P. a
Minnesota limited liability partnership
By: /s/ Stephen A. Hoffmann
---------------------------------
Stephen A. Hoffmann, Manager
By: /s/ Charleton C. Hundley
---------------------------------
Charleton C. Hundley, Manager
THERMOVIEW OF MISSOURI, INC., a
Missouri corporation
By: /s/ Stephen A. Hoffmann
---------------------------------
Stephen A. Hoffmann, President
THERMO-TILT WINDOW COMPANY, a
Delaware corporation
By: /s/ Stephen A. Hoffmann
---------------------------------
Stephen A. Hoffmann, President
ATTACHMENTS:
- -- Loan Fee Calculation Schedule
- -- Capital Structure Schedule
- -- Encumbrances Schedule
- -- Litigation Schedule
- -- Post-Closing Deliveries Schedule
-20-
<PAGE>
LOAN FEE CALCULATION SCHEDULE
TO
AGREEMENT
<TABLE>
<CAPTION>
- ---------------------------------------- --------------------------------------
- ---------------------------------------- --------------------------------------
FUNDED DEBT TO MODIFIED BORROWER EBITDA APPLICABLE UNUSED LOAN FEE RATE
- ---------------------------------------- --------------------------------------
- ---------------------------------------- --------------------------------------
<S> <C>
Less than 1.25 to 1.0 .175%
- ---------------------------------------- --------------------------------------
Greater than or equal to 1.25 .175%
to 1.0 but less than 1.75 to 1.0
- ---------------------------------------- --------------------------------------
Greater than or equal to 1.75 to .250%
1.0 but less than 2.25 to 1.0
- ---------------------------------------- --------------------------------------
Greater than or equal to 2.25 to .300%
1.0 but less than 2.75 to 1.0
- ---------------------------------------- --------------------------------------
- ---------------------------------------- --------------------------------------
Greater than or equal to 2.75 to .350%
1.0 but less than 3.50 to 1.0
- ---------------------------------------- --------------------------------------
- ---------------------------------------- --------------------------------------
</TABLE>
-21-
<PAGE>
CAPITAL STRUCTURE SCHEDULE
TO
AGREEMENT
ThermoView Industries, Inc.
<TABLE>
<CAPTION>
Company Authorized Shares Issued and Outstanding
- ------- ----------------- ----------------------
<S> <C> <C>
ThermoView 50,000,000 13,423,746
American Home 1,000 100
American Home Remodeling 1,000 100
Five Star 1,000 100
Key Home 10,000 1,000
Leingang Siding 25,000 24,408
Primax 1,000 100
Rolox 1,000 100
TD Windows 1,000 100
Thermal Line N/A N/A
Thermo-Tilt 20,000,000 100*
Thermo-View-Missouri 1,000 100
Key Home Mortgage 10,000 1,000
Blizzard Enterprises 5,000 voting common 500
95,000 non-voting common 9,500
Ice, Inc. 2,500 1,000
</TABLE>
* 5,381,475 shares were canceled for the 100 shares of Thermo-Tilt
ENCUMBRANCES SCHEDULE
TO
-22-
<PAGE>
AGREEMENT
(Describe additional Liens and Encumbrances)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SCHEDULE OF PERMITTED ENCUMBRANCES
FILE DATE FILE NO. TYPE ADDITIONAL INFORMATION COMMENTS
<S> <C> <C> <C> <C>
AMERICAN HOME REMODELING
04/19/95 9511460165 UCC-1 Copelco Capital, Inc. LEASE: ETS 4-station
telemarketing system
07/31/95 9521460825 UCC-1 Milguard PMSI: Inventory-aluminum
Manufacturing, Inc. windows and doors
06/30/97 9718360563 UCC-1 Green Tree Vendor LEASE: Predictive
Services Corporation dialing hardware
FIVE STAR BUILDERS, INC.
01/08/96 9600960766 UCC-1 Copelco Capital, Inc. LEASE: Notice
marketing hardware
10/18/96 9629660662 UCC-1 Copelco Capital, Inc. LEASE: Notice
marketing hardware
03/03/97 9706660394 UCC-1 Sun Data, Inc. LEASE: Notice
marketing hardware
04/11/97 97105C0221 Assig Norwest Equipment Assignment at
Finance, Inc. 03/03/97 #9706660394
03/13/97 9707760731 UCC-1 Matsushita Electric Telephone equipment
Corporation of America
08/03/98 9821860024 UCC-1 Matsushita Electric Telephone Equipment
Corporation
PRIMAX WINDOW CO.
11/25/97 973170560564 TLS Bank One 1998 Ford Windstar
04/24/98 972810560378 TLS Bank One 1997 Ford cargo van
09/10/98 49863 TLS Ford Motor Credit 1990 Ford F-250
AMERICAN HOME REMODELING D/B/A PACIFIC EXTERIORS, INC.
03/21/94 94055064 UCC-1 Eberhard Equipment Heavy
equipment-tractor
- -------------------------------------------------------------------------------
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SCHEDULE OF PERMITTED ENCUMBRANCES
FILE DATE FILE NO. TYPE ADDITIONAL INFORMATION COMMENTS
<S> <C> <C> <C> <C>
06/06/94 94112915 UCC-1 Ford Motor Credit Heavy
Company equipment-tractor
10/27/94 9432260059 UCC-1 Ford Motor Credit Heavy
Company equipment-tractor
10/27/94 9432260338 UCC-1 Associates Commercial Massey Ferguson skip
Corp. loader
10/23/95 9529760567 UCC-1 Ford New Holland Ford heavy
Credit Company equipment-tractor,
loader, hydraulic
scraper
TD WINDOWS (ALLHOM EAGLE WINDOWS & DOORS, INC.)
09/01/98 9807781 TLS Chelsea Building Equipment
Products, Inc.
06/17/97 T734237 TLS Huntington Acceptance 1997 Chevy 1500
THERMAL LINE WINDOWS, L.L.P.
03/14/96 1832278 UCC-1 Norwest Bank North Equipment
Dakota, NA
01/12/98 98-000741420 UCC-1 Norwest Equipment LEASE: Complast
Finance Manuf. Equipment
THERMO-TILT WINDOW COMPANY
08/05/96 979393 UCC-1 Ford Motor Credit TLS: 1997 F-150 truck
Company
06/02/97 989114 UCC-1 Ford Motor Credit TLS: 1997 F-150 truck
Company
09/26/97 993247 UCC-1 National City Bank TLS: 1992 Ford pickup
09/26/97 993248 UCC-1 National City Bank TLS: 1990 Chevy van
11/07/97 994777 UCC-1 The Owensboro National TLS: 1994 Chevy S-10
Bank truck
01/09/98 996591 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
- -------------------------------------------------------------------------------
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SCHEDULE OF PERMITTED ENCUMBRANCES
FILE DATE FILE NO. TYPE ADDITIONAL INFORMATION COMMENTS
<S> <C> <C> <C> <C>
01/09/98 996592 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
01/09/98 996593 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
01/27/98 997130 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
01/27/98 997131 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
01/27/98 997132 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
02/23/98 997955 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
THERMOVIEW INDUSTRIES, INC.
06/21/98 98-06463 UCC-1 LCDA, Inc. Telephone equipment
- -------------------------------------------------------------------------------
</TABLE>
LEGEND:
LOC = Line of Credit
TLS = Title Lien Statement
Lease = Equipment Leased - Notice Only
PMSI = Purchase Money Security Interest
-25-
<PAGE>
LITIGATION SCHEDULE
TO
AGREEMENT
(Describe Pending or Threatened Litigation, Proceedings, Etc.)
-26-
<PAGE>
POST-CLOSING DELIVERIES SCHEDULE
TO
AGREEMENT
1. If Borrower shall not have provided Bank on or before October 31, 1998 with
evidence satisfactory to Lender that each of the security interests and
other matters described below in to this Schedule has been terminated of
record.
2. If Borrower shall not have provided Bank on or before October 31, 1998 with
landlord lien waivers substantially in the form attached to the Schedule
(containing no variations not acceptable to Bank) from each landlord of
premises leased to Borrower at which any collateral for the Loan is
located.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SCHEDULE OF LIEN TERMINATIONS TO BE PROVIDED POST-CLOSING
FILE DATE FILE NO. TYPE ADDITIONAL INFORMATION COMMENTS
<S> <C> <C> <C> <C>
AMERICAN HOME REMODELING
03/10/98 9807061235 UCC-1 CitiBank, FSB LOC: Account closed;
UCC3 termination to
follow
FIVE STAR BUILDERS, INC.
07/02/98 9818760481 UCC-1 Wells Fargo Bank LOC: Account closed;
Business Lending UCC3 termination to
follow
LEINGANG SIDING AND WINDOW, INC.
11/03/78 19447 UCC-1 First Norwestern LOC: Account closed;
National Bank of Manda UCC3 termination to
be filed
07/18/83 28499 Cont Norwest Bank Mandan, LOC: Account closed;
National Association UCC3 termination to
be filed
05/06/96 34244 Amend Norwest Bank, Mandan, LOC: Account closed;
NA UCC3 termination to
be filed
01/04/88 37242 Assn Midwest Federal LOC: Account closed;
Savings Bank UCC3 termination to
be filed
- -------------------------------------------------------------------------------
</TABLE>
-27-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SCHEDULE OF LIEN TERMINATIONS TO BE PROVIDED POST-CLOSING
FILE DATE FILE NO. TYPE ADDITIONAL INFORMATION COMMENTS
<S> <C> <C> <C> <C>
06/13/88 38202 Cont Midwest Federal LOC: Account closed;
Savings Bank UCC3 termination to
be filed
07/02/90 40929 Assn Midwest Federal LOC: Account closed;
Savings Bank of Minot UCC3 termination to
be filed
07/02/90 40930 Assn Norwest Bank North LOC: Account closed;
Dakota, NC UCC3 termination to
be filed
08/16/93 98-000789968 Cont Norwest Bank North LOC: Account closed;
Dakota, NA UCC3 termination to
be filed
PRIMAX WINDOW CO.
07/22/96 96-06318 UCC-1 Bank One, KY NA UCC3 termination to
be filed
06/11/97 97-04994 UCC-1 Bank One, Kentucky NA UCC3 termination to
be filed
TD WINDOWS (ALLHOM EAGLE WINDOWS & DOORS, INC.)
04/30/93 9303709 UCC-1 Liberty National Bank UCC3 termination to
follow
10/25/94 9303709A Amend Liberty National Bank UCC3 termination to
follow
11/21/97 9709753 Cont Liberty National Bank UCC3 termination to
follow
03/17/98 9709753 Amend Liberty National Bank UCC3 termination to
follow
THERMAL LINE WINDOWS, L.L.P.
03/12/96 96-000579239 UCC-1 Norwest Bank North UCC3 release to be
Dakota, NA filed
THERMO-TILT WINDOW COMPANY
12/16/94 071455 UCC-1 The Owensboro Account closed UCC3
<PAGE>
National Bank termination to be
filed
- -------------------------------------------------------------------------------
</TABLE>
-28-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SCHEDULE OF LIEN TERMINATIONS TO BE PROVIDED POST-CLOSING
FILE DATE FILE NO. TYPE ADDITIONAL INFORMATION COMMENTS
<S> <C> <C> <C> <C>
10/09/95 969617 UCC-1 PNC Account closed UCC3
termination to be
filed
03/14/97 076181 UCC-1 National City Bank of Account closed UCC3
KY termination to be
filed
03/31/97 076279 UCC-1 National City Bank of UCC3 release to be
KY filed
- -------------------------------------------------------------------------------
</TABLE>
LEGEND:
LOC = Line of Credit
TLS = Title Lien Statement
Lease = Equipment Leased - Notice Only
PMSI = Purchase Money Security Interest
-29-
<PAGE>
LANDLORD'S WAIVER
Date: August _____, 1998
PREMISES: ________________________________
________________________________
TENANT: ________________________________
The Undersigned is/are the owner(s) and/or landlord(s) of the above
premises (the "PREMISES") which are rented to the above-named tenant (the
"TENANT"). The Tenant has granted or is granting a continuing lien and security
interest to PNC Bank, National Association, a national banking association (the
"BANK"), whose address is 500 West Jefferson Street, Louisville, Kentucky
40202, in the following collateral (the "COLLATERAL"):
ALL OF THE TENANT'S NOW EXISTING AND HEREAFTER ACQUIRED OR ARISING
PROPERTY, INCLUDING WITHOUT LIMITATION ACCOUNTS, CHATTEL PAPER, DOCUMENTS,
INSTRUMENTS, GENERAL INTANGIBLES, GOODS, INVENTORY, EQUIPMENT, FURNITURE
AND FIXTURES, AND ALL CASH AND NON-CASH PROCEEDS AND PRODUCTS (INCLUDING
WITHOUT LIMITATION INSURANCE PROCEEDS) OF THE FOREGOING, AND ALL ADDITIONS
AND ACCESSIONS THERETO, SUBSTITUTIONS THEREFOR AND REPLACEMENTS THEREOF.
NOW, THEREFORE, the Undersigned, intending to be legally bound hereby, and
for other good, valuable and sufficient consideration, receipt whereof is hereby
acknowledged, hereby agrees as follows:
1. Any and all liens, claims, demands, or rights, including but not
limited to the right to levy or distrain for unpaid rent, which the Undersigned
now has or hereafter acquires on or in any of the Collateral shall be
subordinate and inferior to the lien and security interest of the Bank, and as
to the Bank, the Undersigned hereby specifically waives and relinquishes all
rights of levy, distraint or execution with respect to such property.
2. Any Collateral of the Tenant shall, at all times, be considered to be
personal property and shall not become a part of the Premises, so long as any
monies are owing to the Bank by the Tenant.
3. The Bank may at any time enter upon the Premises and remove the
Collateral. The Bank may also take possession of the Collateral on the
Premises, and may remain on the Premises for a period of time not to exceed
sixty (60) days, without charge, in order to dismantle, prepare for disposition
or removal, dispose of or otherwise deal with the Collateral. If the Bank stays
on the Premises for longer than sixty (60) days, the Bank shall pay to the
Undersigned a use and occupancy fee equal to the rent which the Tenant would
have paid to the Undersigned during such additional period, pro rated for each
day the Bank remains on the Premises.
-30-
<PAGE>
4. The Undersigned will notify any purchaser of the Premises and any
subsequent landlord or other encumbrance holder of the existence of this waiver,
which shall be binding upon the heirs, executors, administrators, successors,
transferees or assignees of the Undersigned and shall inure to the benefit of
the successors and assigns of the Bank.
5. The Undersigned will give the Bank ten (10) days prior written notice
of the termination or modification of the Tenant's Lease or the termination of
the Tenant's right to possess the Premises.
6. THIS DOCUMENT WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE
TENANT, THE BANK AND THE UNDERSIGNED DETERMINED IN ACCORDANCE WITH THE LAWS OF
THE STATE WHERE THE BANK'S OFFICE INDICATED ABOVE IS LOCATED, EXCLUDING ITS
CONFLICT OF LAWS RULES.
WITNESS the due execution hereof as a document under seal, as of the
date first written above.
LANDLORD
______________________________, a
______________________________
By:_________________________________
Name:______________________________
Title:_______________________________
LANDLORD'S ADDRESS:
-----------------------------------
-----------------------------------
-----------------------------------
-31-
<PAGE>
STATE OF ____________________ )
) SS
COUNTY OF ____________________ )
The foregoing instrument was acknowledged before me this _____ day of
August, 1998, by ____________________, as ____________________ of
____________________, a ____________________, on behalf of the
___________________
My commission expires: ______________________
------------------------------
NOTARY PUBLIC
-32-
<PAGE>
JOINDER TO LOAN DOCUMENTS
AND AMENDMENT TO LOAN DOCUMENTS
(Thomas Construction, Inc.)
THIS JOINDER TO LOAN DOCUMENTS AND AMENDMENT TO LOAN DOCUMENTS (the
"Joinder Agreement") is made and entered into as of January 1, 1999, by and
among [i] THERMOVIEW INDUSTRIES, INC., a Delaware corporation ("ThermoView"),
[ii] AMERICAN HOME DEVELOPERS CO., INC., a California corporation ("American
Home"), [iii] FIVE STAR BUILDERS, INC., a California corporation, successor
in interest to American Home Remodeling ("Five Star"), [iv] KEY HOME CREDIT,
INC., a Delaware corporation ("Key Home"), [v] KEY HOME MORTGAGE, INC., a
Delaware corporation ("Key Home Mortgage"), [vi] LEINGANG SIDING AND WINDOW,
INC., a North Dakota business corporation ("Leingang Siding"), [vii] PRIMAX
WINDOW CO., a Kentucky corporation ("Primax"), [viii] ROLOX, INC., a Kansas
corporation ("Rolox"), [ix] TD WINDOWS, INC., a Kentucky corporation ("TD
Windows"), [x]THERMAL LINE WINDOWS, INC., a North Dakota corporation,
successor in interest to Thermal Line Windows, LLP, Blizzard Enterprises,
Inc. and Ice, Inc. ("Thermal Line"), [xi] THERMOVIEW OF MISSOURI, INC., a
Missouri corporation ("ThermoView-Missouri"), [xii] THERMO-TILT WINDOW
COMPANY, a Delaware corporation ("Thermo-Tilt"), (ThermoView, American Home,
Five Star, Key Home, Key Home Mortgage, Leingang Siding, Primax, Rolox, TD
Windows, Thermal Line, ThermoView-Missouri and Thermo-Tilt individually are
referred to in this Joinder Agreement as an "Original Borrower" and
collectively are referred to in this Joinder Agreement as the "Original
Borrowers"), [xiii] THOMAS CONSTRUCTION, INC., a Missouri corporation
("Thomas" or the "Thomas Acquired Entity") and [xiv] PNC BANK, NATIONAL
ASSOCIATION, a national banking association (the "Bank").
RECITALS:
A. The Original Borrowers and the Bank are parties to a certain
Loan Agreement, dated as of August 31, 1998 (the "Loan Agreement") (certain
capitalized terms used in this Joinder Agreement have the meanings set forth
for them in the Loan Agreement unless expressly otherwise defined herein),
pursuant to which, among other things, the Bank established a $15,000,000.00
Committed Line of Credit in favor of the Original Borrowers.
B. As a condition of including the EBITDA of any Acquired Entity
in the calculation of the Commitment Limit, the Original Borrowers agreed to
cause each such Acquired Entity to join in the Loan Agreement, the Note, the
Security Agreement and the other Loan Documents promptly upon being acquired
by any of the Original Borrowers.
C. The Original Borrowers have acquired or will soon acquire
Thomas, Castle Remodeling, Inc., a Missouri corporation ("Castle"), and
Showplace Home Improvements, Inc., a
<PAGE>
Missouri corporation ("Showplace") (collectively referred to in this Joinder
Agreement as the "Thomas Acquisition").
D. Immediately after the Thomas Acquisition, ThermoView will
cause Castle and Showplace to be merged into Thomas so that Thomas will be
the surviving entity (the "Thomas Merger").
E. After the Thomas Merger, the Originals Borrowers desire to
have the EBITDA of Thomas used in the calculation of the Commitment Limit.
F. The Original Borrowers have also requested that the Bank amend
the Loan Agreement to provide for a Letter of Credit Facility, as that term
is defined in this Joinder Agreement.
G. The Bank has agreed to allow the EBITDA of Thomas to be used
in the calculation of the Commitment Limit provided Thomas and the Original
Borrowers enter into this Joinder Agreement, and subject to the other
provisions of the Loan Documents, Thomas has agreed to join in the Loan
Agreement, the Note, the Security Agreement, and Original Borrowers and the
Bank have agreed to modify the Loan Agreement and the other Loan Documents as
hereinafter set forth.
H. The Bank has also agreed to make available the Letter of
Credit Facility provided the Original Borrowers enter into this Joinder
Agreement, and subject to the other provisions of the Loan Documents, the
Original Borrowers and the Bank have agreed to modify the Loan Agreement and
the other Loan Documents as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth in this Joinder Agreement and for other
good and valuable consideration, the mutuality, receipt and sufficiency of
which are hereby acknowledged, the Original Borrowers, Thomas and the Bank
hereby agree as follows:
ARTICLE 1
JOINDER TO LOAN AGREEMENT
Subject to delivery to the Bank of each of the "Joinder Agreement
Documents" more particularly described in Article 7 of this Joinder Agreement:
1.1 Thomas is hereby joined as a Borrower to the Loan Agreement.
1.2 Thomas covenants and agrees to comply with:
2
<PAGE>
A. All of the covenants contained in the "Affirmative Covenants"
Section of the Loan Agreement from the date of execution of this Joinder
Agreement until all Obligations have been fully paid and any commitments of
the Bank to the Borrowers have been terminated;
B. All of the covenants contained in the "Negative Covenants"
Section of the Loan Agreement from the date of execution of this Joinder
Agreement until all Obligations have been fully paid and any commitments of the
Bank to the Borrowers have been terminated; and
C. All of the other terms, conditions, covenants, agreements and
obligations of each Borrower to be performed under and pursuant to the Loan
Agreement.
1.3 Thomas makes, as of the date of this Joinder Agreement, all of the
representations and warranties contained in the "Representations and
Warranties" Section of the Loan Agreement, which shall be continuing in
nature and remain in full force and effect until the Obligations are paid in
full, and which shall be true and correct.
1.4 Thomas acknowledges its receipt of a complete copy of the Loan
Agreement and each and every other presently existing Loan Document referred
to or referenced in the Loan Agreement.
1.5 The Loan Agreement is hereby amended by substituting the CAPITAL
STRUCTURE SCHEDULE which is attached to and made a part of this Joinder
Agreement for the CAPITAL STRUCTURE SCHEDULE originally attached to and made
a part of the Loan Agreement.
1.6 The Loan Agreement is hereby amended by substituting the
ENCUMBRANCES SCHEDULE which is attached to and made a part of this Joinder
Agreement for the ENCUMBRANCES SCHEDULE originally attached to and made a
part of the Loan Agreement.
ARTICLE 2
JOINDER TO NOTE
Subject to delivery to the Bank of each of the "Joinder Agreement
Documents" more particularly described in Article 7 of this Joinder Agreement:
2.1 Thomas is hereby joined as a Borrower to the Note and jointly and
severally promises and agrees to pay the indebtedness evidenced thereby in
accordance with the provisions thereof.
2.2 Without limitation of Section 2.1 above, Thomas promises and agrees
to pay to the order of the Bank, the aggregate principal sum of Fifteen
Million and No/100 Dollars ($15,000,000.00), or so much thereof as may be
advanced under the Note, together with interest
3
<PAGE>
thereon as provided in the Note, in lawful money of the United States of
America, in the manner set forth in the Note, on or before the Expiration
Date as that term is defined in the Note.
2.3 Thomas covenants and agrees to comply with all of the other terms,
conditions, covenants, agreements and obligations of each Borrower to be
performed under and pursuant to the Note.
2.4 Thomas acknowledges its receipt of a complete copy of the Note and
each and every other Loan Document referred to or referenced in the Note.
ARTICLE 3
JOINDER TO SECURITY AGREEMENT
Subject to delivery to the Bank of each of the "Joinder Agreement
Documents" more particularly described in Article 7 of this Joinder Agreement:
3.1 Thomas is hereby joined as a Borrower to the Security Agreement.
3.2 Thomas assigns and grants to the Bank, as a secured party, a
continuing lien on and security interest in the Collateral.
3.3 Thomas makes, as of the date of this Joinder Agreement, all of the
representations and warranties contained in the "Representations and Warranties"
Section of the Security Agreement, which shall be continuing in nature and
remain in full force and effect until the Obligations are paid in full, and
which shall be true and correct.
3.4 Thomas covenants and agrees to comply with:
A. The covenants contained in the "Grantors' Covenants" and the
"Covenants for Accounts" Sections of the Security Agreement from the date of
execution of this Joinder Agreement until all Obligations have been fully
paid and any commitments of the Bank to the Grantors have been terminated;
B. The covenants contained in the "Negative Pledge; No Transfer"
Section of the Security Agreement from the date of execution of this Joinder
Agreement until all Obligations have been fully paid and any commitments of
the Bank to the Grantors have been terminated; and
C. All of the other terms, conditions, covenants, agreements and
obligations of each Borrower to be performed under and pursuant to the
Security Agreement.
4
<PAGE>
3.5 Thomas acknowledges its receipt of a complete copy of the Security
Agreement and each and every other Loan Document referred to or referenced in
the Security Agreement.
ARTICLE 4
AMENDMENT TO SECURITY AGREEMENT
Subject to delivery to the Bank of each of the "Joinder Agreement
Documents" more particularly described in Article 7 of this Joinder
Agreement, the Security Agreement is hereby amended by substituting EXHIBIT
"A" TO SECURITY AGREEMENT which is attached to and made a part of this
Joinder Agreement for EXHIBIT "A" TO SECURITY AGREEMENT originally attached
to and made a part of the Security Agreement.
ARTICLE 5
AMENDMENT TO PLEDGE AGREEMENT
Subject to delivery to the Bank of each of the "Joinder Agreement
Documents" more particularly described in Article 7 of this Joinder
Agreement, the Pledge Agreement is hereby amended as follows:
5.1 Thomas Construction, Inc., a Missouri corporation, is added as a
Borrower in the "Obligations Secured" Section of the Pledge Agreement.
5.2 EXHIBIT "A" TO PLEDGE AGREEMENT, which is attached to and made a
part of this Joinder Agreement, is substituted for EXHIBIT "A" TO PLEDGE
AGREEMENT originally attached to and made a part of the Pledge Agreement.
ARTICLE 6
AMENDMENT TO LOAN AGREEMENT
Subject to delivery to the Bank of each of the "Loan Agreement
Amendment Documents" more particularly described in Article 7 of this Joinder
Agreement, the Loan Agreement is hereby amended as follows:
6.1 The following provisions are added to the Loan Agreement as new
Sections:
5
<PAGE>
F. LETTER OF CREDIT FACILITY; EXPIRATION DATE. Subject to the
provisions of this Agreement, Bank agrees to issue irrevocable standby
Letters of Credit from time to time after January ____, 1999, until the
earlier of August 31, 2000, or any later date or dates, if applicable, as to
which Borrowers and Bank may agree (each in their sole and absolute
discretion, which may be exercised arbitrarily) in writing (August 31, 2000,
or such later date is referred to herein as the "LETTER OF CREDIT EXPIRATION
DATE") upon the request of, for the account of, and with recourse to
Borrowers (the "LETTER OF CREDIT FACILITY"). If Bank elects not to extend any
Letter of Credit Expiration Date, Borrowers shall have ninety (90) days from
the date of written notice (the "LETTER OF CREDIT FACILITY CANCELLATION
NOTICE") from Bank that Bank does not intend to extend the Letter of Credit
Expiration Date to obtain another Bank or Banks to replace Bank as the issuer
of any then outstanding Letters of Credit. Any and each extension of the
Letter of Credit Expiration Date shall be evidenced by, and become effective
upon the execution and delivery by Borrowers and Bank of a written
"DECLARATION OF EXTENSION."
G. LETTER OF CREDIT FACILITY LIMIT. The sum at any time of
calculation of [i] the aggregate outstanding amount of all Letters of Credit
issued by Bank for the account of Borrowers but not drawn against, plus [ii]
the amount of any outstanding Advances made by Bank to honor any drafts drawn
under any Letter of Credit, shall not exceed the amount (the "LETTER OF
CREDIT FACILITY LIMIT") of Five Million and No/100 Dollars ($5,000,000.00).
H. APPLYING FOR LETTERS OF CREDIT. Borrowers shall apply for
Letters of Credit under the Letter of Credit Facility by tendering to Bank
its standard form of application for standby letter of credit (the "LETTER OF
CREDIT APPLICATION"), or pursuant to such other form as may be adopted by
Bank from time to time hereafter for use by its customers generally, signed
in every instance by Borrowers with joint and several liability thereunder.
Issuance of Letters of Credit by Bank shall be effected subject to and in
accordance with the following conditions and stipulations:
[1] Borrowers shall be, as of the date of application, in
compliance with all of the terms, covenants and conditions of this Agreement;
there shall exist no Event of Default as defined herein; and the
representations and warranties contained herein and in the other Loan
Documents shall be and remain true and correct in all material respects at
the time of such request.
[2] No Letter of Credit shall have a maturity date beyond the
earlier of a date which is 365 days beyond the date on which the Letter of
Credit is issued or the Letter of Credit Expiration Date without the prior
written consent of Bank (which consent may be granted or withheld in Bank's
sole and absolute discretion).
[3] To the extent any Letter of Credit has a maturity date
that extends beyond the Letter of Credit Expiration Date, Bank shall have no
obligation to release any Collateral securing the Letters of Credit (even if
Bank has elected not to extend the Letter of Credit Expiration Date) until
(i) the expiration of each and every such Letter of Credit, or (ii) full
disbursement of the face
6
<PAGE>
amount thereof (and repayment by Borrowers to Bank of the amount of each such
disbursement, together with interest thereon at a rate equal to the Default
Rate described in the Note, or (iii) another Bank acceptable to Bank replaces
Bank as issuer of all such Letters of Credit and Bank is absolutely released
by Borrowers and the beneficiaries of the Letters of Credit, or absolutely
indemnified by the replacement Bank, in connection with all such Letters of
Credit.
[4] All Letters of Credit shall be issued in accordance with,
and subject to, the standard terms and conditions for issuance of letters of
credit as adopted from time to time by Bank for use by its customers
generally and otherwise shall be in form and substance satisfactory to Bank.
Initially all Letters of Credit issued by Bank shall be subject to all terms
and provisions of the Letter of Credit Application. The Bank, however,
reserves the right to modify from time to time in its sole and absolute
discretion the form provisions of the Letter of Credit Application provided
by it for use by its customers generally, and Borrowers hereby agree to abide
by the terms and provisions of any such document. Bank shall endeavor to
issue Letters of Credit on the third (3rd) business day following the
business day on which an original, executed Letter of Credit Application
(signed on behalf of Borrowers and otherwise properly completed in all
respects) is delivered to Bank prior to 11:00 a.m. (Eastern Standard time or
Eastern Daylight time, as applicable). Borrowers hereby indemnify Bank
against and agrees to reimburse Bank for and hold Bank harmless from all
costs, losses, claims, damages, orders and expenses incurred by Bank, that
result from, arise out of or are connected with any request from Borrowers to
Bank to issue, or issuance by Bank of, any Letter of Credit, except to the
extent incurred as a result of Bank's gross negligence or wilfully malicious
misconduct.
[5] If any Letter of Credit becomes the subject matter of any
order, judgment, injunction or other such determination restricting payment
by Bank under and in accordance with such Letter of Credit or extending
Bank's liability under such Letter of Credit beyond the expiration date
stated therein (herein an "ORDER"), the Letter of Credit subject to such
Order shall continue to be included within the calculation of the Letter of
Credit Facility Limit described above. If the Order remains in effect on the
Letter of Credit Expiration Date (and Borrowers shall not otherwise have
obtained another Bank to assume the Obligations of Bank under such Letter of
Credit in conjunction with a release of Bank thereunder), Borrowers shall be
obligated to continue to maintain with Bank all of the security for the
Letters of Credit provided under this Agreement or, if permitted by Bank in
its sole and absolute discretion which may be exercised arbitrarily,
Borrowers may pay to Bank on such date, in immediately available funds, an
additional amount equal to Bank's contingent liability in respect of any
Letter of Credit subject to the Order. In the event, following the Letter of
Credit Expiration Date, the original counterpart of such Letter of Credit
ultimately is returned to Bank for cancellation, or Bank is released by the
beneficiary of such Letter of Credit (and any other Person asserting a claim
in connection with the Letter of Credit) from any obligations thereunder, or
upon the entry of a final and non-appealable order, judgment or other
determination either terminating the Order or permanently enjoining Bank from
paying under such Letter of Credit, Bank shall promptly return to Borrowers
all or that portion of the funds remaining after payment and satisfaction by
Bank of all amounts required to be paid by it under the Letter of Credit and
any other
7
<PAGE>
amounts due by Borrowers to Bank under the indemnity given to Bank pursuant
to this Agreement or otherwise under any provisions of the Loan Documents.
I. LETTER OF CREDIT FACILITY FEE. Borrowers shall pay Bank a fee
(the "LETTER OF CREDIT FEE"), for the period beginning when such Letter of
Credit is issued to its expiry date, in an amount equal to a percentage of
the outstanding amount of each Letter of Credit when issued equal to the
Applicable Eurorate Margin, as such term is defined in the Note, in effect
under the Note at the time the Letter of Credit is issued with a minimum
payment of $150.00 per Letter of Credit, payable quarterly in advance (except
in the case of a minimum payment, which payment shall be due when the Letter
of Credit is opened, renewed or extended).
6.2 By deleting Section 2 of the Loan Agreement and substituting a new
Section 2 reading in its entirety as follows:
2. SECURITY. The security for repayment of the Loan shall include but
not be limited to the collateral, and other documents heretofore,
contemporaneously or hereafter executed and delivered to the Bank (the
"SECURITY DOCUMENTS"), which shall secure repayment of the Loan, the Note,
the Letters of Credit and all other loans, Advances, debts, liabilities,
obligations, covenants and duties owing by the Borrowers to the Bank of any
kind or nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, whether arising under any agreement, instrument
or document, whether or not for the payment of money, whether arising by
reason of an extension of credit, opening of a Letter of Credit, loan or
guarantee or in any other manner, whether arising out of overdrafts on
deposit or other accounts or electronic funds transfers (whether through
automatic clearing houses or otherwise) or out of the Bank's non-receipt of
or inability to collect funds or otherwise not being made whole in connection
with depository transfer check or other similar arrangements, whether direct
or indirect (including those acquired by assignment or participation),
absolute or contingent, joint or several, due or to become due, now existing
or hereafter arising, and any amendments, extensions, renewals or increases
and all costs and expenses of the Bank incurred in the documentation,
negotiation, modification, enforcement, collection or otherwise in connection
with any of the foregoing, including but not limited to reasonable attorneys'
fees and expenses (hereinafter referred to collectively as the
"OBLIGATIONS"). Unless expressly provided to the contrary in documentation
for any other loan or loans, it is the express intent of the Bank and the
Borrowers that all Obligations including those included in the Loan be
cross-defaulted, such that a default under any Obligation shall be a default
under all Obligations. This Agreement, the Note and the Security Documents
are collectively referred to as the "LOAN DOCUMENTS".
6.3 By deleting Section 4I[1][c] of the Loan Agreement and substituting
a new Section 4I[1][c] reading in its entirety as follows:
[C] "FUNDED DEBT" is defined as the consolidated (and combined, if
applicable) sum of all line borrowings (including, but not limited to,
Letters of Credit issued pursuant to this
8
<PAGE>
Agreement), plus current (i.e. less than or equal to one (1) year) and
non-current maturities of long term debt of each of the Borrowers (including
but not limited to any "earn-outs", i.e. obligations of any Borrower that are
determined based on the future performance of any Acquired Entity) that in
each case are not subordinated to all indebtedness of whatsoever nature of
Borrower to the Bank pursuant to documentation acceptable in form and
substance to the Bank.
6.4 By amending Section 4I[1] of the Loan Agreement, effective as of
September 29, 1998, to change the required Funded Debt to Modified Borrower
EBITDA ratio for the September 30, 1998 Calculation Date from 3.50 to 1.00 to
3.60 to 1.00 for that Calculation Date only.
6.5 By amending Section 4I[2] of the Loan Agreement, effective as of
September 29, 1998, to change the required Modified Borrower EBIT to Interest
and Dividends ratio for the September 30, 1998 Calculation Date from 3.00 to
1.00 to 2.60 to 1.00 for that Calculation Date only.
ARTICLE 7
CONDITIONS PRECEDENT
7.1 The joinder of Thomas to each of the Loan Agreement, the Note, and
the Security Agreement and the modifications to the Security Agreement, the
Pledge Agreement and the Loan Agreement described in Articles 1 through 5 of
this Joinder Agreement shall become effective on that date (the "Effective
Date") on which each of the following documents (collectively, the "Joinder
Agreement Documents") has been executed by each of the parties to them and
delivered to the Bank and when the Bank determines to its satisfaction that
each other condition set forth below has been fulfilled:
A. This Joinder Agreement, duly executed by each of the Original
Borrowers, Thomas, and the Bank;
B. Certified Resolutions of the Board of Directors of Thomas
authorizing the execution and delivery by Thomas of this Joinder Agreement;
C. Certified Resolutions of the Board of Directors of [i]
ThermoView, [ii] American Home, [iii] American Home Remodeling, [iv] Five
Star, [v] Key Home, [vi] Leingang Siding, [vii] Primax, [viii] Rolox, [ix] TD
Windows, [x] Thermo View-Missouri, and [xi] Thermo-Tilt authorizing the
execution and delivery by each of those entities of this Joinder Agreement
(the "Resolutions");
9
<PAGE>
D. UCC-1 Financing Statements naming Thomas as the Debtor and the
Bank as the Secured Party for filing in the St. Louis County, Missouri,
Recorder's Office and in the Office of the Secretary of State of Missouri;
E. Landlord Waivers executed by each landlord of Thomas;
F. Stock Certificate evidencing ThermoView's ownership of 16,875
shares of the capital stock of Thomas;
G. Stock Power executed by ThermoView;
H. Opinion of Stites & Harbison, counsel to Thomas;
I. Financial Statements of Thomas for the last two (2) fiscal
years of Thomas, [i] prepared on an audited basis in accordance with GAAP by
an independent certified public accountant chosen by the Borrowers and
acceptable to the Bank and [ii] containing the unqualified opinion of such
independent certified public accountant and its examination shall have been
made in accordance with GAAP consistently applied from period to period; and
J. Financial Statements for Thomas for and through the period
ending September 30, 1998;
K. A completed ThermoView Industries, Inc. Draw Test certificate,
in the form attached to this Joinder Agreement as the DRAW TEST CERTIFICATE
EXHIBIT, dated as of the date of this Joinder Agreement;
L. The completion of the Thomas Acquisition; and
M. The completion of the Thomas Merger.
7.2 The amendment to the Loan Agreement described in Article 6 of this
Joinder Agreement shall become effective on that date (the "Amendment
Effective Date") on which each of the following documents (collectively, the
"Loan Agreement Amendment Documents") has been executed by each of the
parties to them and delivered to the Bank and when the Bank determines to its
satisfaction that each other condition set forth below has been fulfilled:
A. This Joinder Agreement, duly executed by each of the Original
Borrowers and the Bank; and
B. The Resolutions.
10
<PAGE>
ARTICLE 8
OTHER STIPULATIONS
8.1 Upon the Effective Date, the provisions of Articles 1 through 5 of
this Joinder Agreement shall become effective and modify or supersede and
replace the applicable provisions of the Loan Agreement and the other Loan
Documents recited as being modified by them and Thomas shall be joined as a
party to the Loan Agreement, the Note, and the Security Agreement. Upon the
Amendment Effective Date, the provisions of Article 6 of this Joinder
Agreement shall become effective and modify or supersede and replace the
applicable provisions of the Loan Agreement and the other Loan Documents
recited as being modified by them. From and after, as applicable, the
Effective Date and the Amendment Effective Date each reference to the "Loan
Agreement" and the "Loan Documents" or words of like import shall mean and be
deemed a reference to, as applicable, the Loan Agreement and Loan Documents
as modified by this Joinder Agreement but, except as modified by this Joinder
Agreement and the other Joinder Agreement Documents, the Loan Agreement and
the other Loan Documents shall remain in full force and effect in the same
form as existed immediately prior to the, as applicable, the Effective Date
or the Amendment Effective Date.
8.2 If each of the Joinder Agreement Documents has not been fully
executed and delivered to the Bank on or before January _____, 1999, this
Joinder Agreement shall be voidable at any time prior to the delivery of each
of such Joinder Agreement Document upon notice given by any Borrower to the
Bank.
8.3 This Joinder Agreement and the other Joinder Agreement Documents
contain the final, complete and exclusive agreement of the parties to them
with regard to their subject matter, may not be amended except in writing
signed by each of the parties to them, shall be binding upon and inure to the
benefit of the respective successors and assigns of each of the parties to
them (subject to applicable provisions of, as applicable, the Loan Agreement
and the Loan Documents), and shall be construed in accordance with and
otherwise governed in all respects by the laws of the Commonwealth of
Kentucky. This Joinder Agreement may be executed in counterparts, and all
counterparts collectively shall constitute but one original document. Each
of the Original Borrowers and Thomas hereby agrees to reimburse the Bank for
all costs and expenses incurred by the Bank in connection with the
preparation, negotiation, documentation, execution and delivery of this
Joinder Agreement and the other Joinder Agreement Documents, including but
not limited to the reasonable fees of legal counsel to Bank.
8.4 Each of the Original Borrowers join in this Joinder Agreement for
the purpose of consenting to the provisions of the foregoing Joinder
Agreement, and each of the Original Borrowers confirm and agree that its and
their respective obligations under, as applicable, the Note and the other
Loan documents shall be unimpaired by this Joinder Agreement and that no
Original Borrower has any defenses or set offs against the Bank, or its
respective officers, directors, employees, agents
11
<PAGE>
or attorneys with respect to, as applicable, the Note or the other Loan
Documents and that all of the terms, conditions and covenants in the Loan
Documents remain unaltered and in full force and effect and are hereby
ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have caused this Joinder
Agreement to be duly executed as of the day and year first above written.
"ORIGINAL BORROWERS"
THERMOVIEW INDUSTRIES, INC.,
a Delaware corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
AMERICAN HOME DEVELOPERS CO., INC.,
a California corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
FIVE STAR BUILDERS, INC., a California
corporation, successor in interest to American
Home Remodeling
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
KEY HOME CREDIT, INC., a Delaware corporation
By: /s/ Leigh Ann Barney
-------------------------------------------
Leigh Ann Barney, President
12
<PAGE>
KEY HOME MORTGAGE, INC., a Delaware corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
LEINGANG SIDING AND WINDOW, INC.,
a North Dakota business corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
PRIMAX WINDOW CO., a Kentucky corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
ROLOX, INC. a Kansas corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
TD WINDOWS, INC. a Kentucky corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
13
<PAGE>
THERMAL LINE WINDOWS, INC. a
North Dakota corporation, successor in
interest to Blizzard Enterprises, Inc., Ice.,
Inc., and Key Home Credit, Inc.
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
THERMOVIEW OF MISSOURI, INC., a
Missouri corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
THERMO-TILT WINDOW COMPANY, a
Delaware corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
"THOMAS"
THOMAS CONSTRUCTION, INC., a Missouri
corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Name: Nelson E. Clemmens
Title: President
14
<PAGE>
"BANK"
PNC BANK, NATIONAL ASSOCIATION, a national
banking association
By: /s/ Gregory M. Carroll
-------------------------------------------
Gregory M. Carroll, Vice President
ATTACHMENTS:
- - EXHIBIT A TO SECURITY AGREEMENT
- - EXHIBIT A TO PLEDGE AGREEMENT
- - CAPITAL STRUCTURE SCHEDULE
- - DRAW TEST CERTIFICATE EXHIBIT
- - ENCUMBRANCES SCHEDULE
15
<PAGE>
EXHIBIT "A"
TO SECURITY AGREEMENT
Address of each Grantor's chief executive office, including the County, for
each Grantor named in A through P) below is 1101 Herr Lane, Louisville,
Jefferson County, Kentucky 40222.
1. ThermoView
2. American Home
3. American Home Remodeling
4. Blizzard Enterprises
5. Five Star
6. Ice
7. Key Home
8. Key Home Mortgage
9. Leingang Siding
10. Primax
11. Rolox
12. TD Windows
13. Thermal Line
14. ThermoView-Missouri
15. Thermo-Tilt
16. Thomas
16
<PAGE>
Address for books and records, if different:
17. ThermoView
18. American Home
20501 Ventura Blvd., Suites 116 and 340
Woodland Hills, CA 91365
19. American Home Remodeling
16147 Valerio Street
Van Nuys, CA 91406
20. Blizzard Enterprises
3601 30th Avenue NW
Box 579
Mandan, ND 58554
21. Five Star
8445 Camino Santa Fe
Suite 103
San Diego, CA 92121
22. Ice
3601 30th Avenue NW
Box 579
Mandan, ND 58554
23. Key Home
1035 Frederica Street
Owensboro, KY 42301
24. Key Home Mortgage
1035 Frederica Street
Owensboro, KY 42301
25. Leingang Siding
2605 Twin City Drive
P.O. Box 579
Mandan, ND 58554
26. Primax
5611 Fern Valley Road
Louisville, KY 40228
17
<PAGE>
27. Rolox
4002 Main Street
Grandview, MO 64030
28. TD Windows
1720 Research Drive
Louisville, KY 40299
29. Thermal Line
3601 30th Avenue N.W.
Box 579
Mandan, ND 58554
30. ThermoView-Missouri
1917 Beltway
St. Louis, MO 63114
31. Thermo-Tilt
2800 Warehouse Road
Owensboro, KY 42301
32. Thomas
13397 Lakefront Drive
Earth City, Missouri 63045
18
<PAGE>
Addresses of other Collateral locations, including Counties and name and
address of landlord or owner if location is not owned by the applicable
Grantor:
A ThermoView
33. American Home
34. American Home Remodeling
35. Blizzard Enterprises
36. Five Star
37. Ice
38. Key Home
39. Key Home Mortgage
40. Leingang Siding
41. Primax
42. Rolox
43. TD Windows
44. Thermal Line
45. ThermoView-Missouri
46. Thermo-Tilt
47. Thomas
[See attached schedule.]
19
<PAGE>
Other names or tradenames now or formerly used by the Grantors:
A ThermoView
48. American Home
49. American Home Remodeling
[DBA Pacific Exteriors]
50. Blizzard Enterprises
51. Five Star
52. Ice
53. Key Home
54. Key Home Mortgage
55. Leingang Siding
[Leingang Construction and Steel Siding]
56. Primax
57. Rolox
[Rolox at Kansas City, MO and Rolox at Wichita]
58. TD Windows
[Allhom Eagle Windows and Doors, Inc.]
59. Thermal Line
60. ThermoView-Missouri
[NuView Industries, Inc.]
61. Thermo-Tilt
20
<PAGE>
EXHIBIT A
TO
PLEDGE AGREEMENT
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION OF SECURITIES CERTIFICATE NUMBER(S)
- -------- ------------------------- ---------------------
<S> <C> <C>
100 Shares of the common Stock 2
of American Home
100 Shares of the common Stock 2
of American Home Remodeling
100 Shares of the common Stock 2
of Five Star
1,000 Shares of the common Stock 2
of Ice, Inc.
100 Shares of the common Stock 2
of Key Home
100 Shares of the common Stock 2
of Key Home Mortgage
24,408 Shares of the common Stock 2
of Leingang Siding
100 Shares of the common Stock 2
of Primax
100 Shares of the common Stock 2
of Rolox
100 Shares of the common Stock 1
of TD Windows
100 Shares of the common Stock 1
of ThermoView-Missouri
9,500 Shares of the non-voting common 104
Stock of Blizzard Enterprises
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION OF SECURITIES CERTIFICATE NUMBER(S)
- -------- ------------------------- ---------------------
<S> <C> <C>
500 Shares of the voting common 103
Stock of Blizzard Enterprises
100 Shares of the Common Stock ____
of Thermo-Tilt
16,875 Shares of the Common Stock 11
of Thomas
</TABLE>
22
<PAGE>
CAPITAL STRUCTURE SCHEDULE
TO
AGREEMENT
ThermoView Industries, Inc.
<TABLE>
<CAPTION>
COMPANY AUTHORIZED SHARES ISSUED AND OUTSTANDING
- ------- ----------------- ----------------------
<S> <C> <C>
ThermoView - Common 100,000,000 _____________
ThermoView - Preferred 50,000,000 2,980,000**
American Home 1,000 100
American Home Remodeling 1,000 100
Five Star 1,000 100
Key Home 10,000 1,000
Leingang Siding 25,000 24,408
Primax 1,000 100
Rolox 1,000 100
TD Windows 1,000 100
Thermal Line N/A N/A
Thermo-Tilt 20,000,000 100*
Thermo-View-Missouri 1,000 100
Key Home Mortgage 10,000 1,000
Blizzard Enterprises 5,000 voting common 500
95,000 non-voting common 9500
Ice, Inc. 2,500 1,000
Thomas Construction, Inc. 30,000 16,875
</TABLE>
* 5,381,475 shares were canceled for the 100 shares of Thermo-Tilt
** Series A Preferred Stock
23
<PAGE>
DRAW TEST CERTIFICATE EXHIBIT
TO
JOINDER AGREEMENT
(Attach Form of Draw Test Certificate)
24
<PAGE>
ENCUMBRANCES SCHEDULE
TO
AGREEMENT
(Describe additional Liens and Encumbrances)
- -------------------------------------------------------------------------------
SCHEDULE OF PERMITTED ENCUMBRANCES
<TABLE>
<CAPTION>
FILE DATE FILE NO. TYPE ADDITIONAL INFORMATION COMMENTS
AMERICAN HOME REMODELING
<S> <C> <C> <C> <C>
04/19/95 9511460165 UCC-1 Copelco Capital, Inc. LEASE: ETS 4-station
telemarketing system
07/31/95 9521460825 UCC-1 Milguard PMSI:
Manufacturing, Inc. Inventory-aluminum
windows and doors
06/30/97 9718360563 UCC-1 Green Tree Vendor LEASE: Predictive
Services Corporation dialing hardware
FIVE STAR BUILDERS, INC.
01/08/96 9600960766 UCC-1 Copelco Capital, Inc. LEASE: Notice
marketing hardware
10/18/96 9629660662 UCC-1 Copelco Capital, Inc. LEASE: Notice
marketing hardware
03/03/97 9706660394 UCC-1 Sun Data, Inc. LEASE: Notice
marketing hardware
04/11/97 97105C0221 Assig Norwest Equipment Assignment at
Finance, Inc. 03/03/97 #9706660394
03/13/97 9707760731 UCC-1 Matsushita Electric Telephone equipment
Corporation of America
08/03/98 9821860024 UCC-1 Matsushita Electric Telephone Equipment
Corporation
PRIMAX WINDOW CO.
11/25/97 973170560564 TLS Bank One 1998 Ford Windstar
04/24/98 972810560378 TLS Bank One 1997 Ford cargo van
</TABLE>
- -------------------------------------------------------------------------------
25
<PAGE>
- -------------------------------------------------------------------------------
SCHEDULE OF PERMITTED ENCUMBRANCES
<TABLE>
<CAPTION>
FILE DATE FILE NO. TYPE ADDITIONAL INFORMATION COMMENTS
<S> <C> <C> <C> <C>
09/10/98 49863 TLS Ford Motor Credit 1990 Ford F-250
AMERICAN HOME REMODELING D/B/A PACIFIC EXTERIORS, INC.
03/21/94 94055064 UCC-1 Eberhard Equipment Heavy
equipment-tractor
06/06/94 94112915 UCC-1 Ford Motor Credit Heavy
Company equipment-tractor
10/27/94 9432260059 UCC-1 Ford Motor Credit Heavy
Company equipment-tractor
10/27/94 9432260338 UCC-1 Associates Commercial Massey Ferguson skip
Corp. loader
10/23/95 9529760567 UCC-1 Ford New Holland Ford heavy
Credit Company equipment-tractor,
loader, hydraulic
scraper
TD WINDOWS (ALLHOM EAGLE WINDOWS & DOORS, INC.)
09/01/98 9807781 TLS Chelsea Building Equipment
Products, Inc.
06/17/97 T734237 TLS Huntington Acceptance 1997 Chevy 1500
THERMAL LINE WINDOWS, L.L.P.
03/14/96 1832278 UCC-1 Norwest Bank North Equipment
Dakota, NA
01/12/98 98-000741420 UCC-1 Norwest Equipment LEASE: Complast
Finance Manuf. Equipment
THERMO-TILT WINDOW COMPANY
08/05/96 979393 UCC-1 Ford Motor Credit TLS: 1997 F-150 truck
Company
06/02/97 989114 UCC-1 Ford Motor Credit TLS: 1997 F-150 truck
Company
09/26/97 993247 UCC-1 National City Bank TLS: 1992 Ford pickup
</TABLE>
- -------------------------------------------------------------------------------
26
<PAGE>
- -------------------------------------------------------------------------------
SCHEDULE OF PERMITTED ENCUMBRANCES
<TABLE>
<CAPTION>
FILE DATE FILE NO. TYPE ADDITIONAL INFORMATION COMMENTS
<S> <C> <C> <C> <C>
09/26/97 993248 UCC-1 National City Bank TLS: 1990 Chevy van
11/07/97 994777 UCC-1 The Owensboro TLS: 1994 Chevy S-10
National Bank truck
01/09/98 996591 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
01/09/98 996592 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
01/09/98 996593 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
01/27/98 997130 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
01/27/98 997131 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
01/27/98 997132 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
02/23/98 997955 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
THERMOVIEW INDUSTRIES, INC.
06/21/98 98-06463 UCC-1 LCDA, Inc. Telephone equipment
THOMAS CONSTRUCTION, INC.
12/22/94 015682 UCC-1 Clarklift of PMSI: Forklift
St. Louis Inc.
08/22/96 10082 UCC-1 Ameritech Credit LEASE: Equipment
Corporation
04/12/97 3996 UCC-3 Ameritech Credit Amendment
Corporation
03/21/97 3494 UCC-1 Ikon Office Solutions LEASE: Equipment
03/24/97 3523 UCC-1 Forklifts of PMSI: Forklift
St. Louis Inc.
</TABLE>
- -------------------------------------------------------------------------------
27
<PAGE>
- -------------------------------------------------------------------------------
SCHEDULE OF PERMITTED ENCUMBRANCES
<TABLE>
<CAPTION>
FILE DATE FILE NO. TYPE ADDITIONAL INFORMATION COMMENTS
<S> <C> <C> <C> <C>
05/14/97 5795 UCC-1 Ikon Office Solutions LEASE: Equipment
11/05/97 13265 UCC-1 Ikon Office Solutions LEASE: Equipment
12/19/94 2485452 UCC-1 Clarklift of PMSI: Forklift
St. Louis Inc.
08/19/96 2698058 UCC-1 Ameritech Credit LEASE: Equipment
Corporation
03/27/97 2771989 UCC-3 Ameritech Credit Amendment
Corporation
03/21/97 2768931 UCC-1 Ikon Office Solutions LEASE: Equipment
03/21/97 2770518 UCC-1 Forklifts of PMSI: Forklift
St. Louis Inc.
05/12/97 2788911 UCC-1 Ikon Office Solutions LEASE: Equipment
11/03/97 2847843 UCC-1 Ikon Office Solutions LEASE: Equipment
</TABLE>
- -------------------------------------------------------------------------------
LEGEND:
LOC = Line of Credit
TLS = Title Lien Statement
Lease = Equipment Leased - Notice Only
PMSI = Purchase Money Security Interest
28
<PAGE>
JOINDER TO LOAN DOCUMENTS
AND AMENDMENT TO LOAN DOCUMENTS
(Precision Window Mfg., Inc.)
THIS JOINDER TO LOAN DOCUMENTS AND AMENDMENT TO LOAN DOCUMENTS (the
"Joinder Agreement") is made and entered into as of January 5, 1999, by and
among [i] THERMOVIEW INDUSTRIES, INC., a Delaware corporation ("ThermoView"),
[ii] AMERICAN HOME DEVELOPERS CO., INC., a California corporation ("American
Home"), [iii] FIVE STAR BUILDERS, INC., a California corporation, successor
in interest to American Home Remodeling, a California corporation ("Five
Star"), [iv] KEY HOME CREDIT, INC., a Delaware corporation ("Key Home"), [v]
KEY HOME MORTGAGE, INC., a Delaware corporation ("Key Home Mortgage"), [vi]
LEINGANG SIDING AND WINDOW, INC., a North Dakota business corporation
("Leingang Siding"), [vii] PRIMAX WINDOW CO., a Kentucky corporation
("Primax"), [viii] ROLOX, INC., a Kansas corporation ("Rolox"), [ix] TD
WINDOWS, INC., a Kentucky corporation ("TD Windows"), [x] THERMAL LINE
WINDOWS, INC., a North Dakota business corporation, successor in interest to
Thermal Line Windows, L.L.P., a Minnesota limited liability partnership,
Blizzard Enterprises, Inc., a Minnesota corporation, and Ice, Inc., a North
Dakota business corporation ("Thermal Line"), [xi] THERMOVIEW OF MISSOURI,
INC., a Missouri corporation ("ThermoView-Missouri"), [xii] THERMO-TILT
WINDOW COMPANY, a Delaware corporation ("Thermo-Tilt"), [xiii] THOMAS
CONSTRUCTION, INC., a Missouri corporation ("Thomas") (ThermoView, American
Home, Five Star, Key Home, Key Home Mortgage, Leingang Siding, Primax, Rolox,
TD Windows, Thermal Line, ThermoView-Missouri, Thermo-Tilt and Thomas
individually are referred to in this Joinder Agreement as an "Original
Borrower" and collectively are referred to in this Joinder Agreement as the
"Original Borrowers"), [xiv] PRECISION WINDOW MFG., INC., a Missouri
corporation ("Precision" or the "Precision Acquired Entity") and [xv] PNC
BANK, NATIONAL ASSOCIATION, a national banking association (the "Bank").
RECITALS:
A. The Original Borrowers and the Bank are parties to a certain
Loan Agreement, dated as of August 31, 1998, as amended by that certain
Joinder to Loan Documents and Amendment to Loan Documents (Thomas
Construction Inc.) (as so amended, the "Loan Agreement") (certain capitalized
terms used in this Joinder Agreement have the meanings set forth for them in
the Loan Agreement unless expressly otherwise defined herein), pursuant to
which, among other things, the Bank established a $15,000,000.00 Committed
Line of Credit in favor of the Original Borrowers.
B. As a condition of including the EBITDA of any Acquired Entity
in the calculation of the Commitment Limit, the Original Borrowers agreed to
cause each such Acquired Entity to join in the Loan Agreement, the Note, the
Security Agreement and the other Loan Documents promptly upon being acquired
by any of the Original Borrowers.
<PAGE>
C. The Original Borrowers have acquired or will soon acquire
Precision (referred to in this Joinder Agreement as the "Precision
Acquisition").
D. After the Precision Acquisition, the Originals Borrowers
desire to have the EBITDA of Precision used in the calculation of the
Commitment Limit.
E. The Bank has agreed to allow the EBITDA of Precision to be
used in the calculation of the Commitment Limit provided Precision and the
Original Borrowers enter into this Joinder Agreement, and subject to the
other provisions of the Loan Documents, Precision has agreed to join in the
Loan Agreement, the Note, the Security Agreement, and Original Borrowers and
the Bank have agreed to modify the Loan Agreement and the other Loan
Documents as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth in this Joinder Agreement and for other
good and valuable consideration, the mutuality, receipt and sufficiency of
which are hereby acknowledged, the Original Borrowers, Precision and the Bank
hereby agree as follows:
ARTICLE 1
JOINDER TO LOAN AGREEMENT
Subject to delivery to the Bank of each of the "Joinder Agreement
Documents" more particularly described in Article 6 of this Joinder Agreement:
1.1 Precision is hereby joined as a Borrower to the Loan Agreement.
1.2 Precision covenants and agrees to comply with:
A. All of the covenants contained in the "Affirmative Covenants"
Section of the Loan Agreement from the date of execution of this Joinder
Agreement until all Obligations have been fully paid and any commitments of
the Bank to the Borrowers have been terminated;
B. All of the covenants contained in the "Negative Covenants"
Section of the Loan Agreement from the date of execution of this Joinder
Agreement until all Obligations have been fully paid and any commitments of
the Bank to the Borrowers have been terminated; and
C. All of the other terms, conditions, covenants, agreements and
obligations of each Borrower to be performed under and pursuant to the Loan
Agreement.
1.3 Precision makes, as of the date of this Joinder Agreement, all of
the representations and warranties contained in the "Representations and
Warranties" Section of the Loan Agreement,
2
<PAGE>
which shall be continuing in nature and remain in full force and effect until
the Obligations are paid in full, and which shall be true and correct.
1.4 Precision acknowledges its receipt of a complete copy of the Loan
Agreement and each and every other presently existing Loan Document referred
to or referenced in the Loan Agreement.
1.5 The Loan Agreement is hereby amended by substituting the CAPITAL
STRUCTURE SCHEDULE which is attached to and made a part of this Joinder
Agreement for the CAPITAL STRUCTURE SCHEDULE originally attached to and made
a part of the Loan Agreement.
1.6 The Loan Agreement is hereby amended by substituting the
ENCUMBRANCES SCHEDULE which is attached to and made a part of this Joinder
Agreement for the ENCUMBRANCES SCHEDULE originally attached to and made a
part of the Loan Agreement.
ARTICLE 2
JOINDER TO NOTE
Subject to delivery to the Bank of each of the "Joinder Agreement
Documents" more particularly described in Article 6 of this Joinder Agreement:
2.1 Precision is hereby joined as a Borrower to the Note and jointly
and severally promises and agrees to pay the indebtedness evidenced thereby
in accordance with the provisions thereof.
2.2 Without limitation of Section 2.1 above, Precision promises and
agrees to pay to the order of the Bank, the aggregate principal sum of
Fifteen Million and No/100 Dollars ($15,000,000.00), or so much thereof as
may be advanced under the Note, together with interest thereon as provided in
the Note, in lawful money of the United States of America, in the manner set
forth in the Note, on or before the Expiration Date as that term is defined
in the Note.
2.3 Precision covenants and agrees to comply with all of the other
terms, conditions, covenants, agreements and obligations of each Borrower to
be performed under and pursuant to the Note.
2.4 Precision acknowledges its receipt of a complete copy of the Note
and each and every other Loan Document referred to or referenced in the Note.
3
<PAGE>
ARTICLE 3
JOINDER TO SECURITY AGREEMENT
Subject to delivery to the Bank of each of the "Joinder Agreement
Documents" more particularly described in Article 6 of this Joinder Agreement:
3.1 Precision is hereby joined as a Borrower to the Security Agreement.
3.2 Precision assigns and grants to the Bank, as a secured party, a
continuing lien on and security interest in the Collateral.
3.3 Precision makes, as of the date of this Joinder Agreement, all of
the representations and warranties contained in the "Representations and
Warranties" Section of the Security Agreement, which shall be continuing in
nature and remain in full force and effect until the Obligations are paid in
full, and which shall be true and correct.
3.4 Precision covenants and agrees to comply with:
A. The covenants contained in the "Grantors' Covenants" and the
"Covenants for Accounts" Sections of the Security Agreement from the date of
execution of this Joinder Agreement until all Obligations have been fully
paid and any commitments of the Bank to the Grantors have been terminated;
B. The covenants contained in the "Negative Pledge; No Transfer"
Section of the Security Agreement from the date of execution of this Joinder
Agreement until all Obligations have been fully paid and any commitments of
the Bank to the Grantors have been terminated; and
C. All of the other terms, conditions, covenants, agreements and
obligations of each Borrower to be performed under and pursuant to the
Security Agreement.
3.5 Precision acknowledges its receipt of a complete copy of the
Security Agreement and each and every other Loan Document referred to or
referenced in the Security Agreement.
ARTICLE 4
AMENDMENT TO SECURITY AGREEMENT
Subject to delivery to the Bank of each of the "Joinder Agreement
Documents" more particularly described in Article 6 of this Joinder
Agreement, the Security Agreement is hereby amended by substituting EXHIBIT
"A" TO SECURITY AGREEMENT which is attached to and made a part of
4
<PAGE>
this Joinder Agreement for EXHIBIT "A" TO SECURITY AGREEMENT originally
attached to and made a part of the Security Agreement.
ARTICLE 5
AMENDMENT TO PLEDGE AGREEMENT
Subject to delivery to the Bank of each of the "Joinder Agreement
Documents" more particularly described in Article 6 of this Joinder
Agreement, the Pledge Agreement is hereby amended as follows:
5.1 Precision Window Mfg., Inc., a Missouri corporation, is added as a
Borrower in the "Obligations Secured" Section of the Pledge Agreement.
5.2 EXHIBIT "A"TO PLEDGE AGREEMENT, which is attached to and made a
part of this Joinder Agreement, is substituted for EXHIBIT "A" TO PLEDGE
AGREEMENT originally attached to and made a part of the Pledge Agreement.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 The joinder of Precision to each of the Loan Agreement, the Note,
and the Security Agreement and the modifications to the Security Agreement,
the Pledge Agreement and the Loan Agreement described in Articles 1 through 5
of this Joinder Agreement shall become effective on that date (the "Effective
Date") on which each of the following documents (collectively, the "Joinder
Agreement Documents") has been executed by each of the parties to them and
delivered to the Bank and when the Bank determines to its satisfaction that
each other condition set forth below has been fulfilled:
A. This Joinder Agreement, duly executed by each of the Original
Borrowers, Precision, and the Bank;
B. Certified Resolutions of the Board of Directors of Precision
authorizing the execution and delivery by Precision of this Joinder
Agreement;
C. UCC-1 Financing Statements naming Precision as the Debtor and
the Bank as the Secured Party for filing in the St. Louis County, Missouri,
Recorder's Office and in the Office of the Secretary of State of Missouri;
5
<PAGE>
D. Landlord Waivers executed by each landlord of Precision;
E. Stock Certificates evidencing ThermoView's ownership of 300
shares of the voting capital stock of Precision and 11,250 of the non-voting
capital stock of Precision;
F. Stock Power executed by ThermoView;
G. Opinion of Stites & Harbison, counsel to Precision;
H. Financial Statements of Precision for the last two (2) fiscal
years of Precision;
I. Financial Statements for Precision for and through the period
ending September 30, 1998;
J. A completed ThermoView Industries, Inc. Draw Test certificate,
in the form attached to this Joinder Agreement as the DRAW TEST CERTIFICATE
EXHIBIT, dated as of the date of this Joinder Agreement; and
K. The completion of the Precision Acquisition.
ARTICLE 7
OTHER STIPULATIONS
7.1 Upon the Effective Date, the provisions of Articles 1 through 5 of
this Joinder Agreement shall become effective and modify or supersede and
replace the applicable provisions of the Loan Agreement and the other Loan
Documents recited as being modified by them and Precision shall be joined as
a party to the Loan Agreement, the Note, and the Security Agreement. From
and after the Effective Date each reference to the "Loan Agreement" and the
"Loan Documents" or words of like import shall mean and be deemed a reference
to, as applicable, the Loan Agreement and Loan Documents as modified by this
Joinder Agreement but, except as modified by this Joinder Agreement and the
other Joinder Agreement Documents, the Loan Agreement and the other Loan
Documents shall remain in full force and effect in the same form as existed
immediately prior to the Effective Date.
7.2 If each of the Joinder Agreement Documents has not been fully
executed and delivered to the Bank on or before January _____, 1999, this
Joinder Agreement shall be voidable at any time prior to the delivery of each
of such Joinder Agreement Document upon notice given by any Borrower to the
Bank.
7.3 This Joinder Agreement and the other Joinder Agreement Documents
contain the final, complete and exclusive agreement of the parties to them
with regard to their subject matter,
6
<PAGE>
may not be amended except in writing signed by each of the parties to them,
shall be binding upon and inure to the benefit of the respective successors
and assigns of each of the parties to them (subject to applicable provisions
of, as applicable, the Loan Agreement and the Loan Documents), and shall be
construed in accordance with and otherwise governed in all respects by the
laws of the Commonwealth of Kentucky. This Joinder Agreement may be executed
in counterparts, and all counterparts collectively shall constitute but one
original document. Each of the Original Borrowers and Precision hereby
agrees to reimburse the Bank for all costs and expenses incurred by the Bank
in connection with the preparation, negotiation, documentation, execution and
delivery of this Joinder Agreement and the other Joinder Agreement Documents,
including but not limited to the reasonable fees of legal counsel to Bank.
7.4 Each of the Original Borrowers join in this Joinder Agreement for
the purpose of consenting to the provisions of the foregoing Joinder
Agreement, and each of the Original Borrowers confirm and agree that its and
their respective obligations under, as applicable, the Note and the other
Loan documents shall be unimpaired by this Joinder Agreement and that no
Original Borrower has any defenses or set offs against the Bank, or its
respective officers, directors, employees, agents or attorneys with respect
to, as applicable, the Note or the other Loan Documents and that all of the
terms, conditions and covenants in the Loan Documents remain unaltered and in
full force and effect and are hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have caused this Joinder
Agreement to be duly executed as of the day and year first above written.
"ORIGINAL BORROWERS"
THERMOVIEW INDUSTRIES, INC.,
a Delaware corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
AMERICAN HOME DEVELOPERS CO., INC.,
a California corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
7
<PAGE>
FIVE STAR BUILDERS, INC., a California
corporation, successor in interest to American
Home Remodeling, a California corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
KEY HOME CREDIT, INC., a Delaware corporation
By: /s/ Leigh Ann Barney
-------------------------------------------
Leigh Ann Barney, President
KEY HOME MORTGAGE, INC., a Delaware
corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
LEINGANG SIDING AND WINDOW, INC., a
North Dakota business corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
PRIMAX WINDOW CO., a Kentucky corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
8
<PAGE>
ROLOX, INC. a Kansas corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
TD WINDOWS, INC. a Kentucky corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
THERMAL LINE WINDOWS, INC. a
North Dakota business corporation, successor in
interest to Thermal Line Windows, L.L.P., a
Minnesota limited liability partnership, Blizzard
Enterprises, Inc., a Minnesota corporation, and
Ice., Inc., a North Dakota business corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
THERMOVIEW OF MISSOURI, INC., a Missouri
corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
THERMO-TILT WINDOW COMPANY, a
Delaware corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
9
<PAGE>
THOMAS CONSTRUCTION, INC., a Missouri
corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Nelson E. Clemmens, President
"PRECISION"
PRECISION WINDOW MFG., INC., a Missouri
corporation
By: /s/ Nelson E. Clemmens
-------------------------------------------
Name: Nelson E. Clemmens
Title: President
"BANK"
PNC BANK, NATIONAL ASSOCIATION, a national
banking association
By: /s/ Gregory M. Carroll
-------------------------------------------
Gregory M. Carroll, Vice President
ATTACHMENTS:
- - EXHIBIT A TO SECURITY AGREEMENT
- - EXHIBIT A TO PLEDGE AGREEMENT
- - CAPITAL STRUCTURE SCHEDULE
- - DRAW TEST CERTIFICATE EXHIBIT
- - ENCUMBRANCES SCHEDULE
10
<PAGE>
EXHIBIT "A"
TO SECURITY AGREEMENT
Address of each Grantor's chief executive office, including the County, for
each Grantor named in A through N) below is 1101 Herr Lane, Louisville,
Jefferson County, Kentucky 40222.
1. ThermoView
2. American Home
3. Five Star
4. Key Home
5. Key Home Mortgage
6. Leingang Siding
7. Primax
8. Rolox
9. TD Windows
10. Thermal Line
11. ThermoView-Missouri
12. Thermo-Tilt
13. Thomas
14. Precision
11
<PAGE>
Address for books and records, if different:
15. ThermoView
16. American Home
20501 Ventura Blvd., Suites 116 and 340
Woodland Hills, CA 91365
17. Five Star
8445 Camino Santa Fe
Suite 103
San Diego, CA 92121
18. Key Home
1035 Frederica Street
Owensboro, KY 42301
19. Key Home Mortgage
1035 Frederica Street
Owensboro, KY 42301
20. Leingang Siding
2605 Twin City Drive
P.O. Box 579
Mandan, ND 58554
21. Primax
5611 Fern Valley Road
Louisville, KY 40228
22. Rolox
4002 Main Street
Grandview, MO 64030
23. TD Windows
1720 Research Drive
Louisville, KY 40299
24. Thermal Line
3601 30th Avenue N.W.
Box 579
Mandan, ND 58554
12
<PAGE>
25. ThermoView-Missouri
1917 Beltway
St. Louis, MO 63114
26. Thermo-Tilt
2800 Warehouse Road
Owensboro, KY 42301
27. Thomas
13397 Lakefront Drive
Earth City, Missouri 63045
28. Precision
7208 Weil Avenue
St. Louis, Missouri 63119
13
<PAGE>
Addresses of other Collateral locations, including Counties and name and
address of landlord or owner if location is not owned by the applicable
Grantor:
A. ThermoView
29. American Home
30. Five Star
31. Key Home
32. Key Home Mortgage
33. Leingang Siding
34. Primax
35. Rolox
36. TD Windows
37. Thermal Line
38. ThermoView-Missouri
39. Thermo-Tilt
40. Thomas
41. Precision
[See attached schedule.]
14
<PAGE>
Other names or tradenames now or formerly used by the Grantors:
A ThermoView
42. American Home
43. Five Star
[DBA Pacific Exteriors]
44. Key Home
45. Key Home Mortgage
46. Leingang Siding
[Leingang Construction and Steel Siding]
47. Primax
48. Rolox
[Rolox at Kansas City, MO and Rolox at Wichita]
49. TD Windows
[Allhom Eagle Windows and Doors, Inc.]
50. Thermal Line
51. ThermoView-Missouri
[NuView Industries, Inc.]
52. Thermo-Tilt
53. Thomas
54. Precision
15
<PAGE>
EXHIBIT A
TO
PLEDGE AGREEMENT
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION OF SECURITIES CERTIFICATE NUMBER(S)
- -------- ------------------------- ---------------------
<S> <C> <C>
100 Shares of the common stock 2
of American Home
100 Shares of the common stock 2
of Five Star
1,000 Shares of the voting common stock 1
of Thermal Line
100 Shares of the common stock 2
of Key Home
100 Shares of the common stock 2
of Key Home Mortgage
24,408 Shares of the common stock 2
of Leingang Siding
100 Shares of the common stock 2
of Primax
100 Shares of the common stock 2
of Rolox
100 Shares of the common stock 1
of TD Windows
100 Shares of the common stock 1
of ThermoView-Missouri
100 Shares of the common stock ____
of Thermo-Tilt
16,875 Shares of the common stock 11
of Thomas
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION OF SECURITIES CERTIFICATE NUMBER(S)
- -------- ------------------------- ---------------------
<S> <C> <C>
300 Shares of the voting common
stock of Precision 7
11,250 Shares of the non-voting
common stock of Precision 11
</TABLE>
17
<PAGE>
CAPITAL STRUCTURE SCHEDULE
TO
AGREEMENT
ThermoView Industries, Inc.
<TABLE>
<CAPTION>
COMPANY AUTHORIZED SHARES ISSUED AND OUTSTANDING
- ------- ----------------- ----------------------
<S> <C> <C>
ThermoView - Common 100,000,000 _____________
ThermoView - Preferred 50,000,000 3,380,000**
American Home 1,000 100
Five Star 1,000 100
Key Home 10,000 1,000
Leingang Siding 25,000 24,408
Primax 1,000 100
Rolox 1,000 100
TD Windows 1,000 100
Thermal Line 2,500 voting common 1,000
47,500 non-voting common 0
Thermo-Tilt 20,000,000 100*
ThermoView-Missouri 1,000 100
Key Home Mortgage 10,000 1,000
Thomas Construction, Inc. 30,000 16,875
Precision Window Mfg., Inc. 15,000 voting common 300
15,000 non-voting common 11,250
</TABLE>
* 5,381,475 shares were canceled for the 100 shares of Thermo-Tilt
** 2,980,000 shares of Series A Preferred Stock and 400,000 shares of Series B
Preferred Stock
18
<PAGE>
DRAW TEST CERTIFICATE EXHIBIT
TO
JOINDER AGREEMENT
(Attach Form of Draw Test Certificate)
19
<PAGE>
ENCUMBRANCES SCHEDULE
TO
AGREEMENT
(Describe additional Liens and Encumbrances)
- -------------------------------------------------------------------------------
SCHEDULE OF PERMITTED ENCUMBRANCES
<TABLE>
<CAPTION>
FILE DATE FILE NO. TYPE ADDITIONAL INFORMATION COMMENTS
<S> <C> <C> <C> <C>
AMERICAN HOME REMODELING
04/19/95 9511460165 UCC-1 Copelco Capital, Inc. Lease: ETS 4-station
telemarketing system
07/31/95 9521460825 UCC-1 Milguard PMSI:
Manufacturing, Inc. Inventory-aluminum
windows and doors
06/30/97 9718360563 UCC-1 Green Tree Vendor LEASE: Predictive
Services Corporation dialing hardware
FIVE STAR BUILDERS, INC.
01/08/96 9600960766 UCC-1 Copelco Capital, Inc. LEASE: Notice
marketing hardware
10/18/96 9629660662 UCC-1 Copelco Capital, Inc. LEASE: Notice
marketing hardware
03/03/97 9706660394 UCC-1 Sun Data, Inc. LEASE: Notice
marketing hardware
04/11/97 97105C0221 Assig Norwest Equipment Assignment at
Finance, Inc. 03/03/97 #9706660394
03/13/97 9707760731 UCC-1 Matsushita Electric Telephone equipment
Corporation of America
08/03/98 9821860024 UCC-1 Matsushita Electric Telephone Equipment
Corporation
PRIMAX WINDOW CO.
11/25/97 973170560564 TLS Bank One 1998 Ford Windstar
04/24/98 972810560378 TLS Bank One 1997 Ford cargo van
</TABLE>
- -------------------------------------------------------------------------------
20
<PAGE>
- -------------------------------------------------------------------------------
SCHEDULE OF PERMITTED ENCUMBRANCES
<TABLE>
<CAPTION>
FILE DATE FILE NO. TYPE ADDITIONAL INFORMATION COMMENTS
<S> <C> <C> <C> <C>
09/10/98 49863 TLS Ford Motor Credit 1990 Ford F-250
AMERICAN HOME REMODELING D/B/A PACIFIC EXTERIORS, INC.
03/21/94 94055064 UCC-1 Eberhard Equipment Heavy
equipment-tractor
06/06/94 94112915 UCC-1 Ford Motor Credit Heavy
Company equipment-tractor
10/27/94 9432260059 UCC-1 Ford Motor Credit Heavy
Company equipment-tractor
10/27/94 9432260338 UCC-1 Associates Commercial Massey Ferguson skip
Corp. loader
10/23/95 9529760567 UCC-1 Ford New Holland Ford heavy
Credit Company equipment-tractor,
loader, hydraulic
scraper
TD WINDOWS (ALLHOM EAGLE WINDOWS & DOORS, INC.)
09/01/98 9807781 TLS Chelsea Building Equipment
Products, Inc.
06/17/97 T734237 TLS Huntington Acceptance 1997 Chevy 1500
THERMAL LINE WINDOWS, L.L.P.
03/14/96 1832278 UCC-1 Norwest Bank North Equipment
Dakota, NA
01/12/98 98-000741420 UCC-1 Norwest Equipment LEASE: Complast
Finance Manuf. Equipment
THERMO-TILT WINDOW COMPANY
08/05/96 979393 UCC-1 Ford Motor Credit TLS: 1997 F-150 truck
Company
06/02/97 989114 UCC-1 Ford Motor Credit TLS: 1997 F-150 truck
Company
09/26/97 993247 UCC-1 National City Bank TLS: 1992 Ford pickup
</TABLE>
- -------------------------------------------------------------------------------
21
<PAGE>
- -------------------------------------------------------------------------------
SCHEDULE OF PERMITTED ENCUMBRANCES
<TABLE>
<CAPTION>
FILE DATE FILE NO. TYPE ADDITIONAL INFORMATION COMMENTS
<S> <C> <C> <C> <C>
09/26/97 993248 UCC-1 National City Bank TLS: 1990 Chevy van
11/07/97 994777 UCC-1 The Owensboro TLS: 1994 Chevy S-10
National Bank truck
01/09/98 996591 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
01/09/98 996592 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
01/09/98 996593 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
01/27/98 997130 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
01/27/98 997131 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
01/27/98 997132 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
02/23/98 997955 UCC-1 Lincolnland Bank TLS: 1998 Dodge Ram
truck
THERMOVIEW INDUSTRIES, INC.
06/21/98 98-06463 UCC-1 LCDA, Inc. Telephone equipment
THOMAS CONSTRUCTION, INC.
12/22/94 015682 UCC-1 Clarklift of PMSI: Forklift
St. Louis Inc.
08/22/96 10082 UCC-1 Ameritech Credit LEASE: Equipment
Corporation
04/12/97 3996 UCC-3 Ameritech Credit Amendment
Corporation
03/21/97 3494 UCC-1 Ikon Office Solutions LEASE: Equipment
03/24/97 3523 UCC-1 Forklifts of PMSI: Forklift
St. Louis Inc.
</TABLE>
- -------------------------------------------------------------------------------
22
<PAGE>
- -------------------------------------------------------------------------------
SCHEDULE OF PERMITTED ENCUMBRANCES
<TABLE>
<CAPTION>
FILE DATE FILE NO. TYPE ADDITIONAL INFORMATION COMMENTS
<S> <C> <C> <C> <C>
05/14/97 5795 UCC-1 Ikon Office Solutions LEASE: Equipment
11/05/97 13265 UCC-1 Ikon Office Solutions LEASE: Equipment
12/19/94 2485452 UCC-1 Clarklift of PMSI: Forklift
St. Louis Inc.
08/19/96 2698058 UCC-1 Ameritech Credit LEASE: Equipment
Corporation
03/27/97 2771989 UCC-3 Ameritech Credit Amendment
Corporation
03/21/97 2768931 UCC-1 Ikon Office Solutions LEASE: Equipment
03/21/97 2770518 UCC-1 Forklifts of PMSI: Forklift
St. Louis Inc.
05/12/97 2788911 UCC-1 Ikon Office Solutions LEASE: Equipment
11/03/97 2847843 UCC-1 Ikon Office Solutions LEASE: Equipment
07/16/92 2152423 UCC-1 Household Retail LOC: No
Services, Inc. outstandings; Lien to
be terminated
06/27/97 2804790 UCC-3 Household Retail Continuation
Services, Inc.
PRECISION WINDOW MFG., INC.
04/21/94 2395368 UCC-1 Tremco, Inc. PMSI: Equipment
04/20/94 4767 UCC-1 Tremco, Inc. PMSI: Equipment
</TABLE>
- -------------------------------------------------------------------------------
LEGEND:
LOC = Line of Credit
TLS = Title Lien Statement
Lease = Equipment Leased - Notice Only
PMSI = Purchase Money Security Interest
23
<PAGE>
JOINDER TO LOAN DOCUMENTS
AND AMENDMENT TO LOAN DOCUMENTS
(Thermo-Shield)
THIS JOINDER TO LOAN DOCUMENTS AND AMENDMENT TO LOAN DOCUMENTS
(the "Joinder Agreement") is made and entered into as of July 8, 1999, by and
among [i] THERMOVIEW INDUSTRIES, INC., a Delaware corporation ("ThermoView"),
[ii] AMERICAN HOME DEVELOPERS CO., INC., a California corporation ("American
Home"), [iii] FIVE STAR BUILDERS, INC., a California corporation, successor
in interest to American Home Remodeling ("Five Star"), [iv] KEY HOME CREDIT,
INC., a Delaware corporation ("Key Home"), [v] KEY HOME MORTGAGE, INC., a
Delaware corporation ("Key Home Mortgage"), [vi] LEINGANG SIDING AND WINDOW,
INC., a North Dakota business corporation ("Leingang Siding"), [vii] PRIMAX
WINDOW CO., a Kentucky corporation ("Primax"), [viii] PRECISION WINDOW MFG.,
INC., a Missouri corporation ("Precision"), [ix] ROLOX, INC., a Kansas
corporation ("Rolox"), [x] TD WINDOWS, INC., a Kentucky corporation ("TD
Windows"), [xi]THERMAL LINE WINDOWS, INC., a North Dakota corporation,
formerly known as Ice Inc., successor in interest to Thermal Line Windows,
LLP, and Blizzard Enterprises, Inc. ("Thermal Line"), [xii] THERMOVIEW OF
MISSOURI, INC., a Missouri corporation ("ThermoView-Missouri"), [xiii]
THERMO-TILT WINDOW COMPANY, a Delaware corporation ("Thermo-Tilt"), [xiv]
THOMAS CONSTRUCTION, INC., a Missouri corporation ("Thomas") (ThermoView,
American Home, Five Star, Key Home, Key Home Mortgage, Leingang Siding,
Primax, Rolox, TD Windows, Thermal Line, ThermoView-Missouri Thermo-Tilt, and
Thomas individually are referred to in this Joinder Agreement as an "Original
Borrower" and collectively are referred to in this Joinder Agreement as the
"Original Borrowers"), [xv] THERMO-SHIELD OF AMERICA (ARIZONA), INC., an
Arizona corporation ("TSAAI"), [xvi] THERMO-SHIELD OF AMERICA (MICHIGAN),
INC., a Michigan corporation ("TSAMI"), [xvii] THERMO-SHIELD COMPANY, LLC, an
Illinois limited liability company ("TSC"), [xviii] THERMO-SHIELD OF AMERICA
(WISCONSIN), LLC, a Wisconsin limited liability company ("TSAW"), (TSAAI,
TSAMI, TSC and TSAW each are referred to herein as a "Thermo-Shield Acquired
Entity" and collectively the "Thermo-Shield Acquired Entities"), [xix]
THERMOVIEW ADVERTISING GROUP, INC., a Delaware corporation ("TAG") (TAG and
the Thermo-Shield Acquired Entities are sometimes referred to herein
individually as a "Joined Entity" and collectively as the "Joined Entities"),
and [xx] PNC BANK, NATIONAL ASSOCIATION, a national banking association (the
"Bank").
RECITALS:
A. The Original Borrowers and the Bank are parties to a
certain Loan Agreement, dated as of August 31, 1998 (the "Loan Agreement")
(certain capitalized terms used in this Joinder Agreement have the meanings
set forth for them in the Loan Agreement unless expressly otherwise defined
herein), pursuant to which, among other things, the Bank established a
$15,000,000.00 Committed Line of Credit in favor of the Original Borrowers.
<PAGE>
B. As a condition of including the EBITDA of any Acquired
Entity in the calculation of the Commitment Limit, the Original Borrowers
agreed to cause each such Acquired Entity to join in the Loan Agreement, the
Note, the Security Agreement and the other Loan Documents promptly upon being
acquired by any of the Original Borrowers.
C. The Original Borrowers have acquired the Thermo-Shield
Acquired Entities and certain other assets used by the Thermo-Shield Acquired
Entities (collectively referred to in this Joinder Agreement as the
"Thermo-Shield Acquisition").
D. The Original Borrowers have formed TAG.
E. The Original Borrowers desire to have the EBITDA of the
Joined Entities used in the calculation of the Commitment Limit.
F. The Original Borrowers have also requested that the
Bank amend the Loan Agreement as more particularly described in this Joinder
Agreement.
G. The Bank has agreed to allow the EBITDA of the Joined
Entities to be used in the calculation of the Commitment Limit provided the
Joined Entities and the Original Borrowers enter into this Joinder Agreement,
and subject to the other provisions of the Loan Documents, the Joined
Entities have each agreed to join in, as applicable, the Loan Agreement, the
Note, the Pledge Agreement, and the Security Agreement, and Original
Borrowers and the Bank have each agreed to modify the Loan Agreement and the
other Loan Documents as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements set forth in this Joinder Agreement and for
other good and valuable consideration, the mutuality, receipt and sufficiency
of which are hereby acknowledged, the Original Borrowers, the Joined Entities
and the Bank hereby agree as follows:
ARTICLE 1
JOINDER TO LOAN AGREEMENT
Subject to delivery to the Bank of each of the "Joinder
Agreement Documents" more particularly described in Article 9 of this Joinder
Agreement:
1.1 Each of the Joined Entities are hereby joined as a Borrower to
the Loan Agreement.
1.2 Each of the Joined Entities covenants and agrees to comply
with:
A. All of the covenants contained in the "Affirmative
Covenants" Section of the Loan Agreement from the date of execution of this
Joinder Agreement until all Obligations have been fully paid and any
commitments of the Bank to the Borrowers have been terminated;
2
<PAGE>
B. All of the covenants contained in the "Negative
Covenants" Section of the Loan Agreement from the date of execution of this
Joinder Agreement until all Obligations have been fully paid and any
commitments of the Bank to the Borrowers have been terminated; and
C. All of the other terms, conditions, covenants,
agreements and obligations of each Borrower to be performed under and
pursuant to the Loan Agreement.
1.3 Each of the Joined Entities makes, as of the date of this
Joinder Agreement, all of the representations and warranties contained in the
"Representations and Warranties" Section of the Loan Agreement, which shall
be continuing in nature and remain in full force and effect until the
Obligations are paid in full, and which shall be true and correct.
1.4 Each of the Joined Entities acknowledges its respective
receipt of a complete copy of the Loan Agreement and each and every other
presently existing Loan Document referred to or referenced in the Loan
Agreement.
ARTICLE 2
JOINDER TO NOTE
Subject to delivery to the Bank of each of the "Joinder Agreement
Documents" more particularly described in Article 9 of this Joinder Agreement:
2.1 Each of the Joined Entities are hereby joined as a Borrower to
the Note and each jointly and severally promises and agrees to pay the
indebtedness evidenced thereby in accordance with the provisions thereof.
2.2 Without limitation of Section 2.1 above, each of the Joined
Entities promises and agrees to pay to the order of the Bank, the aggregate
principal sum of Fifteen Million and No/100 Dollars ($15,000,000.00), or so much
thereof as may be advanced under the Note, together with interest thereon as
provided in the Note, in lawful money of the United States of America, in the
manner set forth in the Note, on or before the Expiration Date as that term is
defined in the Note.
2.3 Each of the Joined Entities covenants and agrees to comply with
all of the other terms, conditions, covenants, agreements and obligations of
each Borrower to be performed under and pursuant to the Note.
2.4 Each of the Joined Entities acknowledges its respective receipt
of a complete copy of the Note and each and every other Loan Document referred
to or referenced in the Note.
3
<PAGE>
ARTICLE 3
JOINDER TO SECURITY AGREEMENT
Subject to delivery to the Bank of each of the "Joinder
Agreement Documents" more particularly described in Article 9 of this Joinder
Agreement:
3.1 Each of the Joined Entities are hereby joined as a Borrower to
the Security Agreement.
3.2 Each of the Joined Entities hereby assigns and grants to the
Bank, as a secured party, a continuing lien on and security interest in the
Collateral.
3.3 Each of the Joined Entities makes, as of the date of this
Joinder Agreement, all of the representations and warranties contained in the
"Representations and Warranties" Section of the Security Agreement, which
shall be continuing in nature and remain in full force and effect until the
Obligations are paid in full, and which shall be true and correct.
3.4 Each of the Joined Entities covenants and agrees to comply
with:
A. The covenants contained in the "Grantors' Covenants"
and the "Covenants for Accounts" Sections of the Security Agreement from the
date of execution of this Joinder Agreement until all Obligations have been
fully paid and any commitments of the Bank to the Grantors have been
terminated;
B. The covenants contained in the "Negative Pledge; No
Transfer" Section of the Security Agreement from the date of execution of
this Joinder Agreement until all Obligations have been fully paid and any
commitments of the Bank to the Grantors have been terminated; and
C. All of the other terms, conditions, covenants,
agreements and obligations of each Borrower to be performed under and
pursuant to the Security Agreement.
3.5 Each of the Joined Entities acknowledges its respective
receipt of a complete copy of the Security Agreement and each and every other
Loan Document referred to or referenced in the Security Agreement.
ARTICLE 4
JOINDER TO PLEDGE AGREEMENT
Subject to delivery to the Bank of each of the "Joinder
Agreement Documents" more particularly described in Article 9 of this Joinder
Agreement:
4
<PAGE>
4.1 TSAAI and TSAMI are each hereby joined as a Pledgor to the
Pledge Agreement.
4.2 TSAAI and TSAMI each assigns and grants to the Bank, as a
secured party, a continuing lien on and security interest in the Collateral.
4.3 TSAAI and TSAMI each makes, as of the date of this Joinder
Agreement, all of the representations and warranties contained in the
"Representations and Warranties" Section of the Pledge Agreement, which shall
be continuing in nature and remain in full force and effect until the
Obligations are paid in full, and which shall be true and correct.
4.4 TSAAI and TSAMI each covenants and agrees to comply with:
A. The covenants contained in the "Covenants" Section of
the Pledge Agreement from the date of execution of this Joinder Agreement
until all Obligations have been fully paid and any commitments of the Bank to
the Pledgors have been terminated;
B. All of the other terms, conditions, covenants,
agreements and obligations of each Borrower to be performed under and
pursuant to the Pledge Agreement.
4.5 TSAAI and TSAMI each acknowledges its respective receipt of a
complete copy of the Pledge Agreement and each and every other Loan Document
referred to or referenced in the Pledge Agreement.
4.6 From and after the Effective Date, each reference in the
Pledge Agreement or any other Loan Document to the term "Pledgor" shall mean
and be deemed a reference to each of ThermoView, TSAAI and TSAMI.
ARTICLE 5
AMENDMENT TO SECURITY AGREEMENT
Subject to delivery to the Bank of each of the "Joinder
Agreement Documents" more particularly described in Article 9 of this Joinder
Agreement, the Security Agreement is hereby amended by substituting EXHIBIT
"A"TO SECURITY AGREEMENT which is attached to and made a part of this Joinder
Agreement for EXHIBIT "A" TO SECURITY AGREEMENT originally attached to and
made a part of the Security Agreement.
5
<PAGE>
ARTICLE 6
AMENDMENT TO PLEDGE AGREEMENT
Subject to delivery to the Bank of each of the "Joinder
Agreement Documents" more particularly described in Article 9 of this Joinder
Agreement, the Pledge Agreement is hereby amended as follows:
6.1 Thermo-Shield of America (Arizona), Inc., an Arizona
corporation ("TSAAI"), Thermo-Shield of America (Michigan), Inc., a Michigan
corporation ("TSAMI"), Thermo-Shield Company, LLC, an Illinois limited
liability company ("TSC"), Thermo-Shield of America (Wisconsin), LLC, a
Wisconsin limited liability company ("TSAW"), and ThermoView Advertising
Group, Inc., a Delaware corporation ("TAG"), are each added as a Borrower in
the "Obligations Secured" Section of the Pledge Agreement. July 8, 1999
6.2 By adding a new Section 3.7 to the Pledge Agreement reading in
its entirety as follows:
3.7. The membership interests in each of TSC and TSAW
that are being pledged pursuant to this Agreement constitute one hundred
percent (100%) of the membership interests of each of TSC and TSAW.
6.3 EXHIBIT "A"TO PLEDGE AGREEMENT, which is attached to and made
a part of this Joinder Agreement, is substituted for EXHIBIT "A" TO PLEDGE
AGREEMENT originally attached to and made a part of the Pledge Agreement.
ARTICLE 7
AMENDMENT TO LOAN AGREEMENT
Subject to delivery to the Bank of each of the "Joinder
Agreement Documents" more particularly described in Article 9 of this Joinder
Agreement, the Loan Agreement is hereby amended as follows:
7.1 By deleting Section 4B. of the Loan Agreement and substituting
a new Section 4B. reading in its entirety as follows:
B. FINANCIAL INFORMATION.
[1] MONTHLY INFORMATION. Commencing with the month ending
June 30, 1999, Borrowers will deliver to Bank as soon as practicable
after the end of each month, but in any event within thirty (30) days
thereafter: [i] an unaudited
6
<PAGE>
consolidated balance sheet of Borrowers at the end of such month;
[ii] unaudited consolidated statements of income, retained earnings and
cash flows of Borrowers for such month and for the portion of such year
ending with such month; [iii] an acquisition pipeline report; and
[iv] a report (now known as the Earn-Out Forecast) detailing all
anticipated payments for all Earn-Outs, as that term is defined in
this Agreement.
[2] QUARTERLY INFORMATION. Borrowers will deliver to Bank as
soon as practicable after the end of each of the first three quarterly
fiscal periods in each fiscal year of ThermoView, but in any event
within forty-five (45) days thereafter, [i] an unaudited consolidated
balance sheet of Borrowers as at the end of such quarter, and [ii]
unaudited consolidated statements of income, retained earnings and cash
flows of Borrowers for such quarter and (in the case of the second and
third quarters) for the portion of the fiscal year ending with such
quarter, setting forth in comparative form in each case the projected
consolidated figures for such period and the actual consolidated figures
for the comparable period of the prior fiscal year. Such statements
shall be [a] prepared in accordance with GAAP consistently applied, [b]
in reasonable detail, [c] certified by the principal financial or
accounting officer of ThermoView and [d] accompanied by a statement in
reasonable detail, certified by the Chief Executive Officer or Chief
Financial Officer of ThermoView showing the calculations used in
determining compliance with each of the financial covenants set forth in
this Agreement.
[3] ANNUAL INFORMATION. Borrowers will deliver to Bank as
soon as practicable after the end of each fiscal year of Borrowers, but
in any event within ninety (90) days thereafter, [i] an audited
consolidated balance sheet of Borrowers as at the end of such year, and
[ii] audited consolidated statements of income, retained earnings and
cash flows of Borrowers for such year; setting forth in each case in
comparative form the figures for the previous year. Such statements
shall be [a] prepared in accordance with GAAP consistently applied,
[b] in reasonable detail and [c] certified by Ernst & Young LLP or such
other firm of independent certified public accountants of recognized
national standing selected by ThermoView and reasonably acceptable to
Bank.
[4] FILINGS. Borrowers will deliver to Bank, promptly upon
their becoming available, one copy of each report, notice or proxy
statement sent by ThermoView to its stockholders generally, and of each
regular or periodic report (pursuant to the Securities Exchange Act of
1934, as amended, and all rules and regulations promulgated thereunder)
and any registration statement, prospectus or other writing (other than
transmittal letters) (including, without limitation, by electronic
means) pursuant to the Securities Act of 1933, as amended, and all rules
and regulations promulgated thereunder, filed by Company with [i] the
U.S. Securities and Exchange Commission, or any successor thereto or
[ii] any securities exchange on which shares of Common Stock of Company
are listed.
7
<PAGE>
[5] CUSTOMER COMPLAINTS; OTHER INFORMATION. ThermoView will
promptly notify Bank of any material customer complaints concerning any
Borrower's products and services. If requested by Bank, ThermoView will
deliver to Bank such other information respecting any such Borrower's
business, financial condition or prospects as Bank may, from time to
time, reasonably request.
7.2 By deleting Section 4C. of the Loan Agreement and substituting a
new Section 4C. reading in its entirety as follows:
C. ANNUAL FINANCIAL STATEMENTS. Intentionally deleted.
7.3 By deleting Section 4I. of the Loan Agreement and substituting a
new Section 4I. reading in its entirety as follows:
I. FINANCIAL COVENANTS. Comply with each of the following financial
covenants, determined in accordance with GAAP:
[1] FUNDED DEBT TO MODIFIED BORROWER EBITDA. The ratio,
calculated as of the end of each fiscal quarter of Borrowers beginning September
30, 1999 (each a "CALCULATION DATE"), of the consolidated (and combined, if
applicable) Funded Debt of Borrowers as of each Calculation Date divided by the
consolidated (and combined, if applicable) Modified Borrower EBITDA for
Borrowers for the four (4) fiscal quarters of Borrowers immediately preceding
the applicable Calculation Date shall not be greater than 4.25 to 1.00.
[2] SENIOR DEBT TO MODIFIED BORROWER EBITDA. The ratio as of
each Calculation Date of the consolidated (and combined, if applicable) Senior
Debt of Borrowers as of each Calculation Date divided by the consolidated (and
combined, if applicable) Modified Borrower EBITDA for Borrowers for the four (4)
fiscal quarters of Borrowers immediately preceding the applicable Calculation
Date shall not be greater than 3.50 to 1.00.
[3] FIXED CHARGE COVERAGE. The ratio as of each Calculation
Date of the consolidated (and combined, if applicable) Modified Borrower EBITDA
LESS the amount of any cash taxes ("CASH TAXES") LESS the amount of all
Earn-Outs, as that term is defined herein, not financed with the proceeds of
loans or other borrowings from any person or entity ("UNFINANCED EARN-OUTS")
LESS the amount of any Capital Expenditures, as that term is defined herein, of
the Borrowers not financed with the proceeds of loans or other borrowings from
any person or entity ("UNFINANCED CAPITAL EXPENDITURES"), which Cash Taxes,
Unfinanced Earn-Outs, and Unfinanced Capital Expenditures were incurred during
the immediately preceding four (4) fiscal quarters of the Borrowers, divided by
the sum of , for the same period, consolidated (and combined, if applicable)
current maturities of Funded Debt for Borrowers PLUS any and all dividends paid
or accrued by the Borrowers PLUS all consolidated interest expenses paid or
accrued by the Borrowers, shall not be less than 1.25 to 1.00 as of the
Calculation Date occurring on September 30, 1999, and thereafter until, but not
including, the Calculation Date occurring on December 31, 1999; 1.50 to 1.00 as
of the Calculation Date occurring on December 31, 1999, and thereafter until,
but not including, the Calculation Date occurring on March 31, 2000 ; 1.75 to
1.00 as of the Calculation Date occurring
8
<PAGE>
on March 31, 2000, and as of all Calculation Dates thereafter.
For purposes of each of the above financial covenants, the
following terms shall have the following meanings:
[a] "BASE EARNINGS" is defined as the consolidated
(and combined, if applicable) sum of all earnings before interest,
taxes, depreciation and amortization LESS any extraordinary gain, PLUS
expenses, calculated and estimated by Borrowers in a manner and amount
acceptable to Bank in each case, incurred by each Borrower, if and to
the extent applicable, that reasonably are expected no longer to be
incurred because of operating efficiencies realized as a result of and
following each such entity having become a Borrower ("NON-RECURRING
EXPENSES"), and before giving effect to the Corporate Income and
Corporate Overhead, each hereinafter defined.
[b] "CAPITAL EXPENDITURES" is defined as all payments
for any fixed assets, or improvements or for replacements, substitutions
or additions thereto, that have a useful life of more than one year and
which are required to be capitalized under GAAP.
[c] "EBITDA" is defined as the sum of [i] Base
Earnings of Borrowers, PLUS [ii] an amount, representing certain
non-cash charges to income incurred by Borrowers on or before July 8,
1999, in respect of stock options heretofore issued by Borrowers (the
"STOCK OPTION CHARGES"), not to exceed [a] $6,120,000 for the
Calculation Date occurring on September 30, 1999, until, but not
including, the Calculation Date occurring on December 31, 1999, [b]
$620,000 for the Calculation Date occurring on December 31, 1999, until,
but not including, the Calculation Date occurring on March 31, 2000, and
[c] $0.00 for all Calculation Dates occurring on and after March 31,
2000.
[d] "FUNDED DEBT" is defined as the consolidated (and
combined, if applicable) sum of all line borrowings, plus current (i.e.
less than or equal to one (1) year) and non-current maturities of long
term debt of each of the Borrowers (including but not limited to any
obligations of any Borrower that are determined based on the future
performance of any Acquired Entity ("EARN-OUTS") and which Earn-Outs are
not paid in full within thirty (30) days of the date when due and
payable (including after any applicable requirement for notice and an
opportunity to cure expressly provided in the applicable instrument or
document governing such obligation) ("MATURED EARN-OUTS")) to the Bank
or any other person or entity. For purposes of this calculation, Funded
Debt shall be deemed to include, at all times, the actual principal
amount of the GE Subordinated Debt due and owing without regard to any
carrying value thereof shown on the books and records of the Borrowers.
[e] "SENIOR DEBT" is defined as all Funded Debt that
is not Subordinated Debt.
9
<PAGE>
[f] "SUBORDINATED DEBT" is defined as all Funded Debt
the payment of which and security for which have been subordinated to
all indebtedness of whatsoever nature of any Borrower to the Bank
pursuant to documentation acceptable in form and substance to the Bank.
[g] "MODIFIED BORROWER EBITDA" is defined as the
EBITDA of the Borrowers for which both the Funded Debt to Modified
Borrower EBITDA and Senior Debt to Modified Borrower EBITDA financial
covenants are being calculated, except without giving effect to the
EBITDA of any Borrower (each an "UNAUDITED BORROWER") for which the Bank
has not received both [a] audited financial statements in form and
detail acceptable to the Bank, as well as [b] other due diligence
information concerning such Borrower as Bank may request, in form and
substance acceptable to the Bank plus [i] fifty percent (50%) of the
EBITDA of each Unaudited Borrower.
7.4 By deleting Section 4J. of the Loan Agreement and substituting a
new Section 4J. reading in its entirety as follows:
J. NET WORTH. Borrowers will maintain at all times a
consolidated (and combined, if applicable) minimum Net Worth in an amount
equal to ninety percent (90%) of Borrowers' actual book net worth as
indicated in Borrowers' consolidated (and combined, if applicable) Financial
Statements dated as of March 31, 1999 (the "BASE NET WORTH"), plus, for each
fiscal year of Borrowers ending after June 30, 1999, an amount equal to the
sum of [i] seventy-five percent (75%) of Borrowers' consolidated (and
combined, if applicable) net income (without giving effect to losses) for
each such fiscal year and [ii] one hundred percent (100%) of the net proceeds
of any equity offering for Borrowers for each such fiscal year. As used in
this financial covenant the parties agree that the [i] term "Net Worth" means
stockholders' equity in the Borrowers and [ii] Base Net Worth as of March 31,
1999, was $35,939,958.40 (i.e. ninety percent (90%) of $39,922,176).
7.5 By deleting Section 4N. of the Loan Agreement and substituting
a new Section 4N. reading in its entirety as follows:
N. FINANCIAL PROJECTIONS; BUDGET. Within fifteen
(15) days prior to the beginning of each fiscal year of ThermoView
provide the Bank with the following:
[1] projected consolidated balance sheets of
each Borrower, if any, for such fiscal year, on a monthly basis;
[2] projected consolidated cash flow
statements of each Borrower, if any, including summary details of
cash disbursements, for such fiscal year, on a monthly basis;
[3] projected consolidated income statements
of each Borrower, if any, for such fiscal year, on a monthly
basis; and
10
<PAGE>
[4] an annual budget for each Borrower for
such fiscal year;
in each case, approved by the Board of Directors of each Borrower,
together with appropriate supporting details.
7.6 By deleting Section 4O. of the Loan Agreement and substituting a
new Section 4O. reading in its entirety as follows:
O. KEY-MAN LIFE INSURANCE. Provide the Bank with evidence of
key-man life insurance insuring the lives of Steven Hoffman and Nelson
Clemmens who are members of the Borrowers' executive management on or
before July 31, 1999.
7.7 By adding a new Section 4R. to the Loan Agreement reading in its
entirety as follows:
R. THERMO-SHIELD - AMERICAN NATIONAL BANK. Pay in full that
certain loan from American National Bank to TSC and cause all liens
associated with such loan to be released on or before August 9, 1999,
and until such payment in full and termination of the associated liens
the EBITDA of TSC shall be excluded for purposes of calculating the
Borrowers' compliance with the financial covenants contained herein.
7.8 By deleting Section 5A. of the Loan Agreement and substituting a
new Section 5A. reading in its entirety as follows:
A. INDEBTEDNESS. Incur any indebtedness for borrowed
money (including but not limited to capitalized leases) other than:
[i] the Loan and any subsequent indebtedness to the Bank; [ii] existing
indebtedness disclosed on the Historical Financial Statements referred
to in the "Financial Statements" Section of this Agreement; [iii]
subordinated indebtedness (the "GE SUBORDINATED DEBT") to GE Capital
Equity Investments, Inc. ("GE") issued pursuant to that certain
Securities Purchase Agreement dated as of July 8, 1999 (the "GE
AGREEMENT"), and the Loan Documents, as that term is defined in the GE
Agreement, executed and delivered by the Borrowers in connection with
the GE Agreement (collectively, the "GE LOAN DOCUMENTS") and [iv]
indebtedness that is subordinated in form and substance acceptable to
the Bank.
7.9 By deleting Section 5B. of the Loan Agreement and substituting a
new Section 5B. reading in its entirety as follows:
11
<PAGE>
B. LIENS AND ENCUMBRANCES. Except for [i] liens and
encumbrances in favor of the Bank, [ii] liens and encumbrances in favor
of GE pursuant to the GE Loan Documents, and [iii] except as provided in
the "Title to Assets" Section of this Agreement, create, assume or
permit to exist any mortgage, pledge, encumbrance or other security
interest or lien upon any assets now owned or hereafter acquired or
enter into any arrangement for the acquisition of property subject to
any conditional sales agreement.
7.10 By deleting Section 5F. of the Loan Agreement and substituting a
new Section 5F. reading in its entirety as follows:
F. CHANGE IN BUSINESS, MANAGEMENT OR OWNERSHIP.
Except for the issuance of [i] the 10% Cumulative Convertible Series A
Preferred Stock ("SERIES A PREFERRED STOCK"), [ii] the 10% Cumulative
Convertible Series B Preferred Stock ("SERIES B PREFERRED STOCK"), [iii]
the 9.6% Cumulative Convertible Series C Preferred Stock ("SERIES C
PREFERRED STOCK"), and [iv] the Cumulative Convertible Series D
Preferred Stock ("SERIES D PREFERRED STOCK") on terms and conditions
acceptable to the Bank, make or permit any material change [a] in the
nature of its respective business as carried on as of the date hereof,
[b] in the composition of its respective current executive management,
or [c] in its respective equity ownership.
7.11 By deleting Section 5G. of the Loan Agreement and substituting a
new Section 5G. reading in its entirety as follows:
G. DIVIDENDS. Except for those dividends payable
pursuant to [i] the Series A Preferred Stock, [ii] the Series B
Preferred Stock, [iii] the Series C Preferred Stock, and [iv] the Series
D Preferred Stock, declare or pay any dividends on or make any
distribution with respect to any class of its equity or ownership
interest, or purchase, redeem, retire or otherwise acquire any of its
equity, except for the amount of federal and state income tax of the
principals of any Borrower attributable to the earnings of any such
Borrower where any such Borrower is an S corporation.
7.12 By adding a new Section 5H. to the Loan Agreement reading in its
entirety as follows:
H. CHANGE IN GE LOAN DOCUMENTS. Make or permit any
change in or modification to the GE Loan Documents without the Bank's
prior written consent, provided such consent is not unreasonably
withheld as to any change in or modification to the GE Loan Documents
which is not adverse to the Bank. It is understood and agreed that any
change in or modification to [i] any of the covenants contained in
Sections 5.1(h) or 5.2(e) of the GE Agreement or [ii] the GE Loan
Documents that results in such GE Loan Documents being more restrictive
than such GE Loan Documents are as of July 8, 1999, will be deemed to be
adverse and
12
<PAGE>
any such purported adverse change in or modification to the GE Loan
Documents will be void.
7.13 By adding a new Section 5I. to the Loan Agreement reading in its
entirety as follows:
I. AGREEMENTS REGARDING LOAN DOCUMENTS. Enter into
any agreement with GE or any other person or entity prohibiting or
otherwise restricting the amendment or other modification of this
Agreement or any of the other Loan Documents.
7.14 By deleting Section 6C. of the Loan Agreement and substituting a
new Section 6C. reading in its entirety as follows:
C. OTHER DEFAULT. The occurrence of an Event of
Default as defined in the Note, any of the Security Documents, or the GE
Loan Documents.
7.15 By substituting the CAPITAL STRUCTURE SCHEDULE which is attached
to and made a part of this Joinder Agreement for the CAPITAL STRUCTURE SCHEDULE
originally attached to and made a part of the Loan Agreement.
7.16 By substituting the ENCUMBRANCES SCHEDULE which is attached to
and made a part of this Joinder Agreement for the ENCUMBRANCES SCHEDULE
originally attached to and made a part of the Loan Agreement.
ARTICLE 8
WAIVER OF COVENANT DEFAULT
Subject to delivery to the Bank of each of the "Joinder Agreement
Documents" more particularly described in Article 9 of this Joinder Agreement,
the Bank hereby grants a waiver of Borrowers' non-compliance with the financial
covenants contained in the Section 4I and Section 4J of the Loan Agreement and
of the Events of Default that would otherwise result from a violation of those
Sections, solely for the period January 1, 1999 to July 8, 1999. The Borrowers
agree that they will hereafter comply fully with these provisions, as amended,
and all other provisions of the Loan Agreement and the Loan Documents, which
remain in full force and effect.
ARTICLE 9
CONDITIONS PRECEDENT
9.1 The joinder of, as applicable, each of the Joined Entities to
each of the Loan Agreement, the Note, the Pledge Agreement and the Security
Agreement and the modifications to the Security Agreement, the Pledge
Agreement and the Loan Agreement described in Articles 1 through 8 of this
Joinder Agreement shall become effective on that date (the "Effective Date")
on
13
<PAGE>
which each of the following documents (collectively, the "Joinder Agreement
Documents") has been executed by each of the parties to them and delivered to
the Bank and when the Bank determines to its satisfaction that each other
condition set forth below has been fulfilled:
A This Joinder Agreement, duly executed by each of the
Original Borrowers, each of the Joined Entities, and the Bank;
B Certified Resolutions of, as applicable, the Board of
Directors or managers of each of the Joined Entities authorizing the
execution and delivery by, as applicable, each of the Joined Entities of this
Joinder Agreement;
C Certified Resolutions of the Board of Directors of [i]
ThermoView, [ii] American Home, [iii] American Home Remodeling, [iv] Five
Star, [v] Key Home, [vi] Leingang Siding, [vii] Primax, [viii] Rolox, [ix] TD
Windows, [x] Thermo View-Missouri, and [xi] Thermo-Tilt, and [xii] Thomas,
authorizing the execution and delivery by each of those entities of this
Joinder Agreement (the "Resolutions");
D UCC-1 Financing Statement naming TSAAI as the Debtor
and the Bank as the Secured Party for filing in the Office of the Secretary
of State of Arizona.
E UCC-1 Financing Statement naming TSAMI as the Debtor
and the Bank as the Secured Party for filing in the Office of the Secretary
of State of Michigan.
F UCC-1 Financing Statements naming TSC as the Debtor and
the Bank as the Secured Party for filing in [i] the Office of the Secretary
of State of Illinois and [ii] the Office of the Secretary of State of Indiana.
G UCC-1 Financing Statement naming TSAW as the Debtor and
the Bank as the Secured Party for filing in the Office of the Secretary of
State of Wisconsin.
H UCC-1 Financing Statement naming TAG as the Debtor and
the Bank as the Secured Party for filing in the Office of the Jefferson
County, Kentucky, Court Clerk.
I Landlord Waivers executed by each landlord of each of
the Joined Entities;
J Stock Certificates evidencing ThermoView's ownership of
3,000 shares of the common stock of TSAAI;
K Stock Certificates evidencing ThermoView's ownership of
1,000 shares of the common stock of TSAMI;
L Stock Certificates evidencing ThermoView's ownership of
100 shares of the common stock of TAG;
14
<PAGE>
M Stock Powers executed by ThermoView;
N Opinion of Stites & Harbison, counsel to the Joined
Entities;
O Financial Statements of each of the Thermo-Shield
Acquired Entities for the last two (2) fiscal years of each of the Thermo-Shield
Acquired Entities [i] prepared on an audited basis in accordance with GAAP by an
independent certified public accountant chosen by the Borrowers and acceptable
to the Bank and [ii] containing the unqualified opinion of such independent
certified public accountant and its examination shall have been made in
accordance with GAAP consistently applied from period to period; and
P A completed ThermoView Industries, Inc. Draw Test
certificate, in the form attached to this Joinder Agreement as the DRAW TEST
CERTIFICATE EXHIBIT, dated as of the date of this Joinder Agreement.
ARTICLE 10
OTHER STIPULATIONS
10.1 Upon the Effective Date, [i] the provisions of Articles 1
through 7 of this Joinder Agreement shall become effective and modify or
supersede and replace the applicable provisions of the Loan Agreement and the
other Loan Documents recited as being modified by them and each of the Joined
Entities shall be joined as a party to the Loan Agreement, the Note, and the
Security Agreement, and [ii] the provisions of Articles 8 and 9 of this
Joinder Agreement shall become effective and modify or supersede and replace
the applicable provisions of the Loan Agreement and the other Loan Documents
recited as being modified by them or waive compliance with certain provisions
of the Loan Agreement and the other Loan Documents for the period set forth
herein. From and after the Effective Date each reference to the "Loan
Agreement" and the "Loan Documents" or words of like import shall mean and be
deemed a reference to, as applicable, the Loan Agreement and Loan Documents
as modified by this Joinder Agreement but, except as modified by this Joinder
Agreement and the other Joinder Agreement Documents, the Loan Agreement and
the other Loan Documents shall remain in full force and effect in the same
form as existed immediately prior to the Effective Date.
10.2 If each of the Joinder Agreement Documents has not been fully
executed and delivered to the Bank on or before July 9, 1999, this Joinder
Agreement shall be voidable at any time prior to the delivery of each of such
Joinder Agreement Document upon notice given by any Borrower to the Bank.
10.3 This Joinder Agreement and the other Joinder Agreement
Documents contain the final, complete and exclusive agreement of the parties
to them with regard to their subject matter, may not be amended except in
writing signed by each of the parties to them, shall be binding upon and
inure to the benefit of the respective successors and assigns of each of the
parties to them
15
<PAGE>
(subject to applicable provisions of, as applicable, the Loan Agreement and
the Loan Documents), and shall be construed in accordance with and otherwise
governed in all respects by the laws of the Commonwealth of Kentucky. This
Joinder Agreement may be executed in counterparts, and all counterparts
collectively shall constitute but one original document. Each of the
Original Borrowers and each of the Joined Entities hereby agrees to reimburse
the Bank for all costs and expenses incurred by the Bank in connection with
the preparation, negotiation, documentation, execution and delivery of this
Joinder Agreement and the other Joinder Agreement Documents, including but
not limited to the reasonable fees of legal counsel to Bank.
10.4 Each of the Original Borrowers join in this Joinder Agreement
for the purpose of consenting to the provisions of the foregoing Joinder
Agreement, and each of the Original Borrowers confirms and agrees that its
and their respective obligations under, as applicable, the Note and the other
Loan documents shall be unimpaired by this Joinder Agreement and that no
Original Borrower has any defenses or set offs against the Bank, or its
respective officers, directors, employees, agents or attorneys with respect
to, as applicable, the Note or the other Loan Documents and that all of the
terms, conditions and covenants in the Loan Documents remain unaltered and in
full force and effect and are hereby ratified and confirmed.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Joinder
Agreement to be duly executed as of the day and year first above written.
"ORIGINAL BORROWERS"
THERMOVIEW INDUSTRIES, INC.,
a Delaware corporation
By: /s/ Nelson E. Clemmens
------------------------------------
Nelson E. Clemmens, President
AMERICAN HOME DEVELOPERS CO., INC., a California
corporation
By: /s/ Nelson E. Clemmens
------------------------------------
Nelson E. Clemmens, President
FIVE STAR BUILDERS, INC., a California
corporation, successor in interest to American Home
Remodeling
By: /s/ Nelson E. Clemmens
------------------------------------
Nelson E. Clemmens, President
KEY HOME CREDIT, INC., a
Delaware corporation
By: /s/ Leigh Ann Barney
------------------------------------
Leigh Ann Barney, President
KEY HOME MORTGAGE, INC., a Delaware
corporation
By: /s/ Nelson E. Clemmens
------------------------------------
Nelson E. Clemmens, President
<PAGE>
LEINGANG SIDING AND WINDOW, INC., a
North Dakota business corporation
By: /s/ Nelson E. Clemmens
------------------------------------
Nelson E. Clemmens, President
PRIMAX WINDOW CO., a Kentucky corporation
By: /s/ Nelson E. Clemmens
------------------------------------
Nelson E. Clemmens, President
PRECISION WINDOW MFG., INC., a Missouri
corporation
By: /s/ Nelson E. Clemmens
------------------------------------
Nelson E. Clemmens, President
ROLOX, INC. a Kansas corporation
By: /s/ Nelson E. Clemmens
------------------------------------
Nelson E. Clemmens, President
TD WINDOWS, INC. a Kentucky corporation
By: /s/ Nelson E. Clemmens
------------------------------------
Nelson E. Clemmens, President
<PAGE>
THERMAL LINE WINDOWS, INC. a
North Dakota corporation, formerly known as Ice
Inc., successor in interest to Blizzard Enterprises,
Inc. and Thermal Line Windows, LLP
By: /s/ Nelson E. Clemmens
------------------------------------
Nelson E. Clemmens, President
THERMOVIEW OF MISSOURI, INC., a
Missouri corporation
By: /s/ Nelson E. Clemmens
------------------------------------
Nelson E. Clemmens, President
THERMO-TILT WINDOW COMPANY, a
Delaware corporation
By: /s/ Nelson E. Clemmens
------------------------------------
Nelson E. Clemmens, President
THOMAS CONSTRUCTION, INC., a Missouri
corporation
By: /s/ Nelson E. Clemmens
------------------------------------
Nelson E. Clemmens, President
"THERMO-SHIELD ACQUIRED ENTITIES"
THERMO-SHIELD OF AMERICA (ARIZONA), INC., an Arizona
corporation
By: /s/ Nelson E. Clemmens
------------------------------------
Nelson E. Clemmens, President
<PAGE>
THERMO-SHIELD OF AMERICA
(MICHICAN), INC., a Michigan corporation
By: /s/ Nelson E. Clemmens
------------------------------------
Nelson E. Clemmens, President
THERMO-SHIELD COMPANY, LLC,
an Illinois limited liability company
By: /s/ Nelson E. Clemmens
------------------------------------
Nelson E. Clemmens, Manager and President
THERMO-SHIELD OF AMERICA
(WISCONSIN), LLC, a Wisconson limited liability company
By: /s/ Nelson E. Clemmens
------------------------------------
Nelson E. Clemmens, Manager and President
"BANK"
PNC BANK, NATIONAL ASSOCIATION, a national banking
association
By: /s/ Gregory M. Carroll
------------------------------------
Gregory M. Carroll, Vice President
ATTACHMENTS:
- - EXHIBIT A TO SECURITY AGREEMENT
- - EXHIBIT A TO PLEDGE AGREEMENT
- - CAPITAL STRUCTURE SCHEDULE
- - DRAW TEST CERTIFICATE EXHIBIT
- - ENCUMBRANCES SCHEDULE
<PAGE>
EXHIBIT "A"
TO SECURITY AGREEMENT
Address of each Grantor's chief executive office, including the County, for
each Grantor named in A through P) below is 1101 Herr Lane, Louisville,
Jefferson County, Kentucky 40222.
1. ThermoView
2. American Home
3. American Home Remodeling
4. Blizzard Enterprises
5. Five Star
6. Ice
7. Key Home
8. Key Home Mortgage
9. Leingang Siding
10. Primax
11. Rolox
12. TD Windows
13. Thermal Line
14. ThermoView-Missouri
15. Thermo-Tilt
16. Thomas
17. TSAAI
18. TSAMI
19. TSC
20. TSAW
<PAGE>
21. TAG
<PAGE>
Address for books and records, if different:
22. ThermoView
23. American Home
20501 Ventura Blvd., Suites 116 and 340
Woodland Hills, CA 91365
24. American Home Remodeling
16147 Valerio Street
Van Nuys, CA 91406
25. Blizzard Enterprises
3601 30th Avenue NW
Box 579
Mandan, ND 58554
26. Five Star
8445 Camino Santa Fe
Suite 103
San Diego, CA 92121
27. Ice
3601 30th Avenue NW
Box 579
Mandan, ND 58554
28. Key Home
1035 Frederica Street
Owensboro, KY 42301
29. Key Home Mortgage
1035 Frederica Street
Owensboro, KY 42301
30. Leingang Siding
2605 Twin City Drive
P.O. Box 579
Mandan, ND 58554
31. Primax
5611 Fern Valley Road
Louisville, KY 40228
32. Rolox
<PAGE>
4002 Main Street
Grandview, MO 64030
33. TD Windows
1720 Research Drive
Louisville, KY 40299
34. Thermal Line
3601 30th Avenue N.W.
Box 579
Mandan, ND 58554
35. ThermoView-Missouri
1917 Beltway
St. Louis, MO 63114
36. Thermo-Tilt
2800 Warehouse Road
Owensboro, KY 42301
37. Thomas
13397 Lakefront Drive
Earth City, Missouri 63045
38. TSAAI
2010 E. University Drive
Suite #20, Tempe, Arizona 85281
39. TSAMI
24780 Crestview Court
Farmington Hills, Michigan _____
40. TSC
7755 East 89th Street 661 Glenn Avenue
Indianapolis, Indiana 46256 Wheeling, Illinois _____
41. TSAW
7020 S. 13th Street
Oak Creek, Wisconsin _____
42. TAG
3701 Taylorsville Road
Louisville, Kentucky 40220
<PAGE>
Addresses of other Collateral locations, including Counties and name and address
of landlord or owner if location is not owned by the applicable Grantor:
A ThermoView
43. American Home
44. American Home Remodeling
45. Blizzard Enterprises
46. Five Star
47. Ice
48. Key Home
49. Key Home Mortgage
50. Leingang Siding
51. Primax
52. Rolox
53. TD Windows
54. Thermal Line
55. ThermoView-Missouri
56. Thermo-Tilt
57. Thomas
58. TSAAI
59. TSAMI
60. TSC
61. TSAW
62. TAG
<PAGE>
[See attached schedule.]
<PAGE>
Other names or tradenames now or formerly used by the Grantors:
A ThermoView
63. American Home
64. American Home Remodeling
[DBA Pacific Exteriors]
65. Blizzard Enterprises
66. Five Star
67. Ice
68. Key Home
69. Key Home Mortgage
70. Leingang Siding
[Leingang Construction and Steel Siding]
71. Primax
72. Rolox
[Rolox at Kansas City, MO and Rolox at Wichita]
73. TD Windows
[Allhom Eagle Windows and Doors, Inc.]
74. Thermal Line
75. ThermoView-Missouri
[NuView Industries, Inc.]
76. Thermo-Tilt
77. Thomas
78. TSAAI
79. TSAMI
80. TSC
<PAGE>
81. TSAW
82. TAG
<PAGE>
EXHIBIT A
TO
PLEDGE AGREEMENT
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION OF SECURITIES CERTIFICATE NUMBER(S)
- -------- ------------------------- ---------------------
<S> <C> <C>
100 Shares of the Common Stock 2
of American Home
100 Shares of the Common Stock 2
of Five Star
100 Shares of the Common Stock 2
of Key Home
100 Shares of the Common Stock 2
of Key Home Mortgage
24,408 Shares of the Common Stock 2
of Leingang Siding
300 Shares of the Series A Common 7
Stock of Precision
11,250 Shares of the Series B Common 11
Stock of Precision
100 Shares of the Common Stock 2
of Primax
100 Shares of the Common Stock 2
of Rolox
100 Shares of the Common Stock 1
of TD Windows
100 Shares of the Common Stock 1
of ThermoView-Missouri
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION OF SECURITIES CERTIFICATE NUMBER(S)
- -------- ------------------------- ---------------------
<S> <C> <C>
100 Shares of the Common Stock 11
of Thermo-Tilt
1,000 Shares of the Common Stock 3
of Thermal Line
16,875 Shares of the Common Stock 12
of Thomas
3,000 Shares of the Common Stock A4
of TSAAI
1,000 Shares of the Common Stock A3
of TSAMI
100 Shares of the Common Stock ___
of TAG
1% Membership Interest in TSC N/A
1% Membership Interest in TSAW N/A
99% Membership Interest in TSC N/A
99% Membership Interest in TSAW
</TABLE>
<PAGE>
CAPITAL STRUCTURE SCHEDULE
TO AGREEMENT
ThermoView Industries, Inc.
<TABLE>
<CAPTION>
COMPANY AUTHORIZED SHARES ISSUED AND OUTSTANDING
------- ----------------- ----------------------
<S> <C> <C>
ThermoView - Common 100,000,000 14,513,726
ThermoView - Preferred 50,000,000 3,386,000
American Home 1,000 100
Five Star 1,000 100
Key Home 10,000 100
Leingang Siding 25,000 24,408
Precision 15,000 Series A 300
15,000 Series B 11,250
Primax 1,000 100
Rolox 1,000 100
TD Windows 1,000 100
Thermal Line 2,500 voting common 1,000
47,500 non-voting common 0
Thermo-Tilt 20,000,000 2,000,100*
ThermoView-Missouri 1,000 100
Key Home Mortgage 10,000 100
Thomas Construction, Inc. 30,000 16,875
Precision Window Mfg., Inc. 15,000 voting common 300
15,000 non-voting common 11,250
TSAAI 50,000 voting common 3,000
Series A
50,000 non-voting common 0
Series B
TSAMI
60,000 voting common 1,000
TAG 1,000 100
</TABLE>
<PAGE>
* 5,381,475 shares were canceled for the 100 shares of Thermo-Tilt and
2,000,000 shares of Thermo-Tilt are uncertificated
** 2,980,000 shares of Series A Preferred Stock, 400,000 shares of Series B
Preferred Stock, and 6,000 shares of Series C Preferred Stock
<PAGE>
DRAW TEST CERTIFICATE EXHIBIT
TO
JOINDER AGREEMENT
(Attach Form of Draw Test Certificate)
<PAGE>
ENCUMBRANCES SCHEDULE
TO
AGREEMENT
(Describe additional Liens and Encumbrances - See Attached Schedule)
<PAGE>
THERMOVIEW ADVERTISING GROUP, INC.,
a Delaware corporation
By: /s/ Charlton C. Hundley
-----------------------------------------
Charlton C. Hundley, Secretary
<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is dated
as of April 23, 1999, among ThermoView Industries, Inc., a Delaware
corporation (the "COMPANY"), and the various purchasers identified and listed
on Schedule I hereto (each referred to herein as a "PURCHASER" and,
collectively, the "PURCHASERS.")
WHEREAS, the Company and the Purchasers are executing and
delivering this Agreement in reliance upon the exemption from securities
registration afforded by Rule 506 under Regulation D as promulgated by the
United States Securities and Exchange Commission (the "COMMISSION") under
Section 4(2) of the Securities Act of 1933, as amended (the "SECURITIES ACT")
or other applicable exemptions under federal and state securities laws;
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers, and the
Purchasers desire to acquire from the Company, 6,000 shares of the Company's
Series C Convertible Preferred Stock, par value $.001 per share, liquidation
value $1,000.00 per share (the "Securities"), and warrants (the "WARRANTS")
to purchase up to $6,000,000 of the Company's common stock, par value $.001
per share (the "COMMON STOCK"); and
WHEREAS, contemporaneously with the execution and delivery of
this Agreement, the parties hereto are executing and delivering a
Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT") pursuant
to which the Company has agreed to provide certain registration rights under
the Securities Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
NOW THEREFORE, in consideration of the promises and mutual
covenants and agreements hereinafter, the Company and the Purchasers hereby
agree as follows:
ARTICLE I.
PURCHASE AND SALE OF THE SECURITIES AND WARRANTS
1.1 PURCHASE AND SALE. Subject to the terms and conditions set
forth herein, the Company shall issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, shall purchase from the Company on the
Closing Date (as defined below), the Securities and Warrants as set forth for
such Purchaser on SCHEDULE I. The Securities shall have the respective
rights, preferences and privileges set forth in the Certificate of
Designation (the "CERTIFICATE OF DESIGNATION"), the form of which is attached
hereto as EXHIBIT A, which shall be approved by the Purchasers and the
Company's Board of Directors and filed on or prior to the Closing by the
Company with the Secretary of State of Delaware.
1.2 CLOSING. The closing of the purchase and sale of the
Securities and the issuance of the Warrants (the "CLOSING") shall take place
at the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 590 Madison
Avenue, New York, New York 10022, or by transmission by
<PAGE>
facsimile and overnight courier, immediately following the execution hereof
or such later date or different location as the parties shall agree, but not
prior to the date that the conditions set forth in Section 4.1 have been
satisfied or waived by the appropriate party (the "CLOSING DATE"). At the
Closing:
(i) Each Purchaser shall deliver, as directed by the Company,
its portion of the purchase price as set forth next to its name on
SCHEDULE I in United States dollars in immediately available funds to an
account or accounts designated in writing by the Company;
(ii) The Company shall deliver to each Purchaser the
certificates representing the number of Securities purchased by such
Purchaser as set forth on SCHEDULE I hereto;
(iii) The Company shall deliver to each Purchaser a Warrant, in
the form of EXHIBIT B hereto, representing the right to acquire the
number of shares of Common Stock purchased by such Purchaser as set forth
on SCHEDULE I hereto;
(iv) The Company shall pay to Brown Simpson Asset Management,
LLC ("BROWN SIMPSON") a commitment fee of $50,000 in United States
dollars in immediately available funds to an account designated in
writing by Brown Simpson, of which $15,000 has been delivered to Brown
Simpson upon the signing of the term sheet and $35,000 of which shall be
delivered at the Closing; and
(v) The parties shall execute and deliver each of the documents
referred to in Section 4.1 hereof.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company hereby makes the following representations and warranties to each of the
Purchasers:
a. ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. Except as set forth on SCHEDULE 2.1(a),
the Company has no subsidiaries (collectively, the "SUBSIDIARIES"). Each of
the Subsidiaries (which for purposes of this Agreement means any entity in
which the Company, directly or indirectly, owns the majority of such entity's
capital stock or holds an equivalent equity or similar interest) is a
corporation duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization (as
applicable), with the full corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Each of the Company and the Subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing as a foreign corporation
in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, would
not,
2
<PAGE>
individually or in the aggregate, (x) adversely affect the legality, validity
or enforceability of any of this Agreement or the Transaction Documents (as
defined in Section 2.1(b)) or any of the transactions contemplated hereby or
thereby, (y) have or result in a material adverse effect on the results of
operations, assets, prospects, or financial condition of the Company and its
Subsidiaries, taken as a whole or (z) impair the Company's ability to perform
fully on a timely basis its obligations under any Transaction Document (any
of (x), (y) or (z), being a "MATERIAL ADVERSE EFFECT").
b. AUTHORIZATION; ENFORCEMENT. The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by this Agreement and the Certificate of
Designation, the Warrants and the Registration Rights Agreement
(collectively, the "TRANSACTION DOCUMENTS"), and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of each of
this Agreement and the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action and no further action
is required by the Company, its Board of Directors or its stockholders. Each
of this Agreement and the Transaction Documents has been duly executed by the
Company and when delivered in accordance with the terms hereof will
constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. Neither the Company nor
any Subsidiary is in any material violation of any of the provisions of its
respective articles or certificates of incorporation, bylaws or other charter
documents such that any right of a holder of the Securities would be
affected. Prior to the Closing Date the Certificate of Designation has been
filed with the Secretary of State of Delaware and will be in full force and
effect, enforceable against the Company in accordance with the terms thereof,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating
to, or affecting generally the enforcement of, creditors' rights and remedies
or by other equitable principles of general application.
c. CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company is as set forth in SCHEDULE 2.1(c). All of such
outstanding shares of capital stock have been, or upon issuance will be,
validly authorized and issued, fully paid and nonassessable and were issued
in accordance with the registration or qualification provisions of the
Securities Act, or pursuant to valid exemptions therefrom. Except as
disclosed in SCHEDULE 2.1(c), (i) no shares of the Company's capital stock
are subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company, nor is any holder of the
Common Stock entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company by virtue of any Transaction
Document, (ii) there are no outstanding options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for, or giving any
Person (as defined below) any right to subscribe for or acquire, any shares
of capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of
its Subsidiaries is or may become bound to issue additional shares of capital
stock of the Company or any of its Subsidiaries or options, warrants, scrip
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible
3
<PAGE>
into, any shares of capital stock of the Company or any of its Subsidiaries,
(iii) there are no outstanding debt securities, (iv) there are no agreements
or arrangements under which the Company or any of its Subsidiaries is
obligated to register the sale of any of their securities under the
Securities Act (except the Registration Rights Agreement), (v) there are no
outstanding securities of the Company or any of its Subsidiaries which
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of
its Subsidiaries is or may become bound to redeem a security of the Company
or any of its Subsidiaries, (vi) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the shares of Common Stock as described in this Agreement, (vii)
the Company does not have any stock appreciation rights or "phantom stock"
plans or agreements or any similar plan or agreement and (viii) no Person (as
defined below) or group of related Persons beneficially owns (as determined
pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT")) or has the right to acquire by agreement
with or by obligation binding upon the Company beneficial ownership of in
excess of 5% of the Common Stock. "PERSON" means an individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or
an agency or subdivision thereof) or other entity of any kind.
d. AUTHORIZATION AND VALIDITY; ISSUANCE OF SHARES. The
shares of Common Stock issuable upon conversion of the Securities and
exercise of the Warrants (collectively, the "UNDERLYING SHARES") are and will
continue until issuance to be duly authorized and reserved for issuance and
the shares of Common Stock issued upon conversion of the Securities (the
"CONVERSION SHARES") and exercise of the Warrants (the "WARRANT SHARES") will
be validly issued, fully paid and non-assessable, free and clear of all
liens, encumbrances and Company rights of first refusal, other than liens and
encumbrances created by the Purchasers (collectively, "LIENS") and will not
be subject to any preemptive or similar rights.
e. NO CONFLICTS. The execution, delivery and performance
of this Agreement and each of the Transaction Documents by the Company and
the consummation by the Company of the transactions contemplated hereby and
thereby (including the issuance of the Underlying Shares) do not and will not
(i) conflict with or violate any provision of the Company's Certificate of
Incorporation, as amended and as in effect on the date hereof (the
"CERTIFICATE OF INCORPORATION"), and the Company's Bylaws, as in effect on
the date hereof (the "BYLAWS") or other organizational documents of the
Company or any of the Subsidiaries, (ii) subject to obtaining the consents
referred to in Section 2.1(f), conflict in any material way with, or
constitute a material default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture, patent, patent license or instrument (evidencing a Company or
Subsidiary debt or otherwise) to which the Company or any Subsidiary is a
party or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) result in a material violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company or any Subsidiary is
subject (including Federal and state securities laws and regulations)
applicable to the Company or any of its Subsidiaries, or by which any
material property or asset of the Company or any Subsidiary is bound or
affected.
4
<PAGE>
f. CONSENTS AND APPROVALS. Except as specifically set
forth on SCHEDULE 2.1(f), neither the Company nor any Subsidiary is required
to obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal, state,
local or other governmental authority, regulatory or self regulatory agency,
or other Person in connection with the execution, delivery and performance by
the Company of this Agreement or the Transaction Documents, other than (i)
the filing of a registration statement with the Commission, which shall be
filed in accordance with and in the time periods set forth in the
Registration Rights Agreement, (ii) any filings, notices or registrations
under applicable federal and state securities laws (including Form D's and
Form U-2's) and (iii) the approval of the Company's Board of Directors and
the filings of the Certificate of Designation with the Secretary of State of
Delaware, which filing and approval shall be effected on or prior to the
Closing Date (together with the consents, waivers, authorizations, orders,
notices and filings referred to on SCHEDULE 2.1(f), the "REQUIRED
APPROVALS").
g. LITIGATION; PROCEEDINGS. Except as specifically set
forth on SCHEDULE 2.1(g), there is no action, suit, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries or any
of their respective properties before or by any court, governmental or
administrative agency or regulatory authority (federal, state, county, local
or foreign) which (i) adversely affects or challenges the legality, validity
or enforceability of any of this Agreement or the Transaction Documents or
(ii) could reasonably be expected to, individually or in the aggregate, have
a Material Adverse Effect.
h. NO DEFAULT OR VIOLATION. Neither the Company nor any
Subsidiary (i) is in default under or in violation of any indenture, loan or
other credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound, (ii) is in violation
of any order of any court, arbitrator or governmental body applicable to it
or (iii) is in violation of any statute, rule or regulation of any
governmental authority to which it is subject which could reasonably be
expected to, individually or in the aggregate, have a Material Adverse
Effect. The business of the Company and its Subsidiaries is not being
conducted, and shall not be conducted, in violation of any law, ordinance,
rule or regulation of any governmental entity, except where such violations
have not resulted or would not reasonably result, individually or in the
aggregate, in a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is in breach of any agreement where such breach, individually or
in the aggregate, would have a Material Adverse Effect.
i. DISCLOSURE; ABSENCE OF CERTAIN CHANGES. None of this
Agreement, the Schedules to this Agreement, the Transaction Documents or any
other written or formally presented information, report, financial statement,
exhibit, schedule or document furnished by or on behalf of the Company in
connection with the negotiation of the transactions contemplated hereby
contained, contains, or will contain at the time it was or is so furnished
any untrue statement of a material fact or omitted, omits or will omit at
such time to state any material fact necessary in order to make the
statements made herein and therein, in light of the circumstances under which
they were made, not misleading. Except as disclosed on SCHEDULE 2.1(i),
since December 31, 1998, there has been no material adverse change and no
material adverse development in the business, properties, operations,
financial condition, liabilities or results of operations or, insofar as can
reasonably be foreseen, prospects of the Company or the
5
<PAGE>
Subsidiaries. The Company has not taken any steps, and does not currently
expect to take any steps, to seek protection pursuant to any bankruptcy law
nor does the Company or any of its Subsidiaries have any knowledge or reason
to believe that its creditors intend to initiate involuntary bankruptcy
proceedings. No event, liability, development or circumstance has occurred
or exists, or is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective businesses, properties, operations or
financial condition or, insofar as can reasonably be foreseen, prospects,
which could reasonably be expected to, individually or in the aggregate, have
a Material Adverse Effect.
j. PRIVATE OFFERING. The Company and all Persons acting on
its behalf have not made, directly or indirectly, and will not make, offers
or sales of any securities or solicited any offers to buy any security under
circumstances that would require registration of the Securities, the
Warrants, the Conversion Shares, the Warrant Shares or the Underlying Shares
or the issuance of such securities under the Securities Act. The offer, sale
and issuance of the Securities, the Warrants, the Conversion Shares and the
Warrant Shares to the Purchasers will not be integrated with any other offer,
sale and issuance of the Company's securities (past, current, or future)
under the Securities Act or any regulations of any exchange or automated
quotation system on which any of the securities of the Company are listed or
designated or for purposes of any stockholder approval provision applicable
to the Company or its securities. Subject to the accuracy and completeness
of the representations and warranties of the respective Purchasers contained
in Section 2.2 hereof, the offer, sale and issuance by the Company to the
Purchasers of the Securities, the Warrants and the Underlying Shares is
exempt from the registration requirements of the Securities Act.
k. CONTRACTS. SCHEDULE 2.1(k) sets forth a list of the
following contracts and other agreements to which the Company and its
Subsidiaries are a party or by or to which the Company or its Subsidiaries
are bound or subject:
(i) any agreement that individually requires aggregate
expenditures by the Company in any one year of more than $100,000;
(ii) any indenture, trust agreement, loan agreement or note that
involves or evidences outstanding indebtedness, or liabilities for
borrowed money in excess of $100,000;
(iii) any lease, sublease, installment purchase or similar
arrangement for the purchase, use or occupancy of personal property that
individually requires aggregate expenditures by the Company in any one
year of more than $100,000;
(iv) any agreement of surety, guarantee or indemnification,
other than (a) an agreement in the ordinary course of business with
respect to obligations in an aggregate amount not in excess of $100,000,
or (b) indemnification provisions contained in leases not otherwise
required to be disclosed;
(v) any employment agreements or bonus plans, relating to the
compensation of (a) officers or (b) other employees earning more than
$100,000 per year; and
6
<PAGE>
(vi) any agreement containing covenants of the Company not to
compete in any line of business, in any geographic area or with any
person, or covenants of any other person not to compete with the Company
or in any line of business of the Company;
Complete and correct copies of all of the contracts and other
agreements set forth in SCHEDULE 2.1(k) have been or will promptly be
provided to the Purchasers. All contracts and other agreements set forth in
SCHEDULE 2.1(k) are valid, existing, in full force and effect, and are
binding upon the Company and/or its Subsidiaries and the other parties
thereto in accordance with their terms. The Company and/or its Subsidiaries
are not in default, in any material respect, under any such contracts, nor
does any condition exist that with notice or lapse of time or both would
constitute a default thereunder, nor, to the knowledge of the Company, is any
other party to any such contract or other agreement in default thereunder.
l. INVESTMENT COMPANY. The Company is not, and is not
controlled by or under common control with an affiliate (an "AFFILIATE") of
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
m. BROKER'S FEES. Except for the fees payable solely by
the Company to Brown Simpson Management pursuant to Section 6.6 hereof and to
EBI Securities Corporation, no fees or commissions or similar payments with
respect to the transactions contemplated by this Agreement or the Transaction
Documents have been paid or will be payable by the Company to any broker,
financial advisor, finder, investment banker, or bank. The Purchasers shall
have no obligation with respect to any fees or with respect to any claims
made by or on behalf of other Persons for fees of a type contemplated in this
Section 2.1(m) that may be due in connection with the transactions
contemplated by this Agreement and the Transaction Documents.
n. FINANCIAL STATEMENTS. The Company has delivered to the
Purchasers balance sheet of the Company as at December 31, 1998 and the
related statement of income, changes in stockholders' equity, and cash flow
for the fiscal year then ended, together with the report thereon of Ernst &
Young, independent certified public accountants. Such financial statements
and notes fairly present the financial condition and the results of
operations, changes in stockholders' equity, and cash flow of the Company as
at December 31, 1998 and for the periods referred to in such financial
statements, all in accordance with United States generally accepted
accounting principals ("GAAP"), and the financial statements referred to in
this Section reflect the consistent application of such accounting principles
throughout the period involved. No financial statements of any Person other
than the Company are required by GAAP to be included in the consolidated
financial statements of the Company.
o. OTCBB COMPLIANCE. The principal market on which the
Common Stock is currently traded is the OTCBB. The Company is not aware of
any facts which would reasonably lead to delisting or suspension of the
Common Stock by the OTCBB. After giving effect to the transactions
contemplated by this Agreement and the Transaction Documents, the Company is
and will be in compliance with all requirements of the OTCBB.
p. INTELLECTUAL PROPERTY RIGHTS. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all
trademarks, trademark applications, trade names and service marks, whether or
not registered, and all patents, patent applications, copyrights,
7
<PAGE>
inventions, licenses, approvals, governmental authorizations, trade secrets
and intellectual property rights (collectively, "INTELLECTUAL PROPERTY
RIGHTS") which are necessary for use in connection with their respective
businesses as now conducted. Except as set forth on SCHEDULE 2.1(p), none of
the Company's Intellectual Property Rights have expired or terminated, or are
expected to expire or terminate within two years from the date of this
Agreement. Neither the Company nor any of its Subsidiaries has, to their
knowledge, infringed or is infringing on any of the Intellectual Property
Rights of any Person and, except as set forth on SCHEDULE 2.1(p), there is no
claim, action or proceeding which has been made or brought against, or to the
Company's knowledge, is being made, brought or threatened against, the
Company or its Subsidiaries regarding the infringement of any of the
Intellectual Property Rights, and the Company and its Subsidiaries are
unaware of any facts or circumstances which might give rise to any of the
foregoing, except where any of the foregoing would not have a Material
Adverse Effect. The Company and its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties.
q. EMPLOYEE RELATIONS. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of
the Company or any of its Subsidiaries, is any such dispute threatened.
Except as set forth on SCHEDULE 2.1(q) neither the Company nor any of its
Subsidiaries is a party to a collective bargaining agreement, and the Company
and its Subsidiaries believe that relations with their employees are good.
Except as set forth on SCHEDULE 2.1(q), since December 31, 1998 no executive
officer (as defined in Rule 501(f) under the Securities Act) has notified the
Company that such officer intends to leave the Company or otherwise terminate
such officer's employment with the Company.
r. REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except as
described on SCHEDULE 2.1(r) hereto, (i) the Company has not granted or
agreed to grant to any Person any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the Commission
or any other governmental authority which has not been satisfied and (ii) no
Person, including, but not limited to, current or former stockholders of the
Company, underwriters, brokers or agents, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate
in the transactions contemplated by this Agreement or any Transaction
Document.
s. TITLE. Except as disclosed on SCHEDULE 2.1(s), the
Company and the Subsidiaries have good and marketable title in fee simple to
all real property and personal property owned by them which is material to
the business of the Company and its Subsidiaries, in each case free and clear
of all Liens, except for Liens that do not materially adversely affect the
value of such property and do not interfere with the use made and proposed to
be made of such property by the Company and the Subsidiaries. Any real
property and facilities held under lease by the Company and the Subsidiaries
are held by them under valid, subsisting and, to the Company's best
knowledge, enforceable leases with such exceptions as are not material and do
not interfere with the use made and proposed to be made of such property and
buildings by the Company and the Subsidiaries.
t. PERMITS. The Company and the Subsidiaries possess all
certificates, authorizations, licenses, easements, consents, approvals,
orders and permits necessary to own, lease and operate their respective
properties and to conduct their respective businesses as
8
<PAGE>
currently conducted except where the failure to possess such permits would
not, individually or in the aggregate, have a Material Adverse Effect
("MATERIAL PERMITS"), and there is no proceeding pending, or, to the
knowledge of the Company, threatened relating to the revocation,
modification, suspension or cancellation of any Material Permit. Neither the
Company nor any of the Subsidiaries is in conflict with or default or
violation of any Material Permit.
u. INSURANCE. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as management of the Company believes to
be prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has
any reason to believe that it will not be able to renew its existing
insurance coverages as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business,
at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the
Company and its Subsidiaries, taken as a whole.
v. INTERNAL ACCOUNTING CONTROLS. The Company and each of
the Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with United States generally accepted accounting
principles and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
w. TAX STATUS; FIRPTA. Except as set forth on SCHEDULE
2.1(w), the Company and each of the Subsidiaries has made or filed all
federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject (unless and only to the
extent that the Company and each of its Subsidiaries has set aside on its
books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on
such returns, reports and declarations, except those being contested in good
faith (which are set forth on SCHEDULE 2.1(w) hereof), and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of
the Company know of no basis for any such claim. The Company is not a
"United States real property holding corporation" within the meaning of
Section 847(c)(2) of the Internal Revenue Code of 1986, as amended.
x. TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 2.1(x), and other than the grant of stock options and warrants
disclosed on SCHEDULE 2.1(c), none of the officers, directors, or employees
of the Company is presently a party to any transaction with the Company or
any of its Subsidiaries (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring
9
<PAGE>
payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or entity in
which any officer, director, or any such employee has a substantial interest
or is an officer, director, trustee or partner.
y. APPLICATION TO TAKEOVER PROTECTION. The Company and its
Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination or
other similar anti-takeover provision under the Certificate of Incorporation,
Bylaws or the laws of the State of Delaware which is or could become
applicable to the Purchasers or the Transaction Documents as a result of the
transactions contemplated by this Agreement or the Transaction Documents.
None of the transactions contemplated by this Agreement or the Transaction
Documents, including the conversion of the Securities and the exercise of the
Warrants, will trigger any poison pill provisions of any of the Company's
stockholders' rights or similar agreements.
z. ENVIRONMENTAL LAWS. Except as set forth on SCHEDULE
2.1(z), the Company and its Subsidiaries (i) are in compliance with any and
all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permits, licenses or other approvals except where the
failure of any of the foregoing would not result in a Material Adverse Effect.
aa. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any
of its Subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any of its Subsidiaries has, in the
course of its actions for, or on behalf of, the Company used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or employee form
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment
to any foreign or domestic government official or employee.
bb. SOLICITATION MATERIALS; CERTAIN INFORMATION. The
Company has not (i) distributed any offering materials in connection with the
offering and sale of the Securities or the Warrants, other than the Schedules
to this Agreement, any amendments and supplements thereto and the materials
listed on SCHEDULE 2.1(bb), or (ii) solicited any offer to buy or sell the
Securities or the Warrants by means of any form of general solicitation or
advertising. Neither the Company, nor any of its Affiliates, nor any Person
acting on its or their behalf, has engaged or will engage in any form of
general solicitation or general advertising (within the meaning of Regulation
D under the Securities Act) in connection with the offer or sale of the
Securities or Warrants. The Company acknowledges that the Purchasers will be
trading in the securities of the Company in reliance on the foregoing
representation and warranty.
cc. ACKNOWLEDGEMENT OF DILUTION. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares and Warrant Shares upon conversion of the
Securities or exercise of the
10
<PAGE>
Warrants. The Company further acknowledges that its obligation to issue
Conversion Shares and Warrant Shares upon conversion of the Securities or
exercise of the Warrants in accordance with this Agreement, the Certificate
of Designation and the Warrants is absolute and unconditional regardless of
the dilutive effect that such issuance may have on the ownership interests of
other stockholders of the Company, except as any underwriters may require
with respect to any delay of any registration of the Securities pursuant to
the terms of the Registration Rights Agreement..
dd. ACKNOWLEDGEMENT REGARDING PURCHASERS' PURCHASE OF
SECURITIES. The Company acknowledges and agrees that the Purchasers are
acting solely in the capacity of arm's length purchasers with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement
and the transactions contemplated hereby and any statement made by any
Purchaser or any of their respective representatives or agents in connection
with this Agreement and the transactions contemplated hereby is not advice or
a recommendation and is merely incidental to the Purchasers' purchaser of the
securities. The Company further represents to each Purchaser that the
Company's decision to enter into this Agreement has been based solely on the
independent evaluation of the transactions contemplated hereunder by Company
and its representatives.
ee. SOLVENCY. The Company (both before and after giving
effect to the transactions contemplated by this Agreement) is solvent (I.E.,
its assets have a fair market value in excess of the amount required to pay
its liabilities on its existing debts as they become absolute and matured)
and currently the Company has no information that would lead it to reasonably
conclude that the Company would not have the ability to, nor does it intend
to take any action that would impair its ability to, pay its debts from time
to time incurred in connection therewith as such debts mature. The Company
did not receive a qualified opinion from its auditors with respect to its
most recent fiscal year end and does not anticipate or know of any basis upon
which its auditors might issue a qualified opinion in respect of its current
fiscal year.
ff. OTHER AGREEMENTS. The Company has not, directly or
indirectly, made any agreements with any Purchasers relating to the terms and
conditions of the transactions contemplated by the Transaction Documents
except as set forth in the Transaction Documents.
The Purchasers acknowledge and agree that the Company makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.1.
2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each of the
Purchasers, severally and not jointly, hereby represents and warrants to the
Company as follows:
a. ORGANIZATION; AUTHORITY. Such Purchaser is a
corporation or a limited duration company or a limited liability company or
limited partnership duly formed, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or formation with the
requisite power and authority, corporate or otherwise, to enter into and to
consummate the transactions contemplated hereby and by the Transaction
Documents and otherwise to carry out its obligations hereunder and
thereunder. The purchase by such Purchaser of the Securities and the
Warrants hereunder has been duly authorized by all necessary action on the
part of such
11
<PAGE>
Purchaser. Each of this Agreement and the Registration Rights Agreement has
been duly executed and delivered by such Purchaser and constitutes the valid
and legally binding obligation of such Purchaser, enforceable against such
Purchaser in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights generally and to
general principles of equity.
b. INVESTMENT INTENT. Such Purchaser is acquiring the
Securities and the Warrants for its own account and not with a present view
to or for distributing or reselling the Securities, the Warrants, the
Conversion Shares or the Warrant Shares or any part thereof or interest
therein in violation of the Securities Act; PROVIDED, HOWEVER, that by making
the representations herein, such Purchaser does not agree to hold any of the
Securities, the Warrants, the Conversion Shares or the Warrant Shares for any
minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the Securities Act.
c. PURCHASER STATUS. At the time such Purchaser was
offered the Securities and the Warrants, and at the Closing Date, (i) it was
and will be an "accredited investor" as defined in Rule 501 under the
Securities Act and (ii) such Purchaser, either alone or together with its
representatives, had and will have such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, the Warrants, the Warrant Shares and the Conversion Shares.
d. RELIANCE. Such Purchaser understands and acknowledges
that (i) the Securities and the Warrants are being offered and sold to such
Purchaser without registration under the Securities Act in a private
placement that is exempt from the registration provisions of the Securities
Act under Section 4(2) of the Securities Act or Regulation D promulgated
thereunder or other applicable federal and state securities laws and (ii) the
availability of such exemptions depends in part on, and the Company will rely
upon the accuracy and truthfulness of, the representations set forth in this
Section 2.2 and such Purchaser hereby consents to such reliance.
e. INFORMATION. Such Purchaser and its advisors, if any,
have been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities and Warrants which have been requested by such Purchaser or its
advisors. Such Purchaser and its advisors, if any, have been afforded the
opportunity to ask questions of the Company. Neither such inquiries nor any
other due diligence investigation conducted by Purchaser or any of its
advisors or representatives shall modify, amend or affect Purchaser's right
to rely on the Company's representations and warranties contained in Section
2.1 above or representations and warranties of the Company contained in any
other Transaction Document. Such Purchaser understands that its investment
in the Securities and Warrants involves a significant degree of risk.
f. GOVERNMENTAL REVIEW. Such Purchaser understands that no
United States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of the
Securities or Warrants.
12
<PAGE>
g. RESIDENCY. Such Purchaser is a resident of the
jurisdiction set forth immediately below such Purchaser's name on Schedule II
hereto.
The Company acknowledges and agrees that the Purchasers make no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III.
OTHER AGREEMENTS
3.1 TRANSFER RESTRICTIONS.
a. If any Purchaser should decide to dispose of the
Securities, the Warrants, the Conversion Shares or the Warrant Shares held by
it, such Purchaser understands and agrees that it may do so only pursuant to
(i) an effective registration statement under the Securities Act, (ii) to the
Company or (iii) an available exemption from the registration requirements of
the Securities Act or Rule 144 promulgated under the Securities Act ("RULE
144"). The Company shall announce any material non-public information that
it legally is required to announce on or prior to the Effectiveness Date (as
defined in the Registration Rights Agreement) of the registration statement
filed pursuant to the Registration Rights Agreement and shall not enter into
any subsequent non-disclosure agreements that would prevent it from
announcing any such information that otherwise legally could have been
announced on or prior to the Effectiveness Date, unless confidential
treatment for such information is granted by the Commission. In connection
with any transfer of any Securities, Warrants, Conversion Shares or Warrant
Shares other than pursuant to an effective registration statement, Rule
144(k) or to the Company, the Company may require the transferor thereof to
provide to the Company a written opinion of counsel experienced in the area
of United States securities laws selected by the transferor, the form and
substance of which opinion shall be customary for opinions of counsel in
comparable transactions, to the effect that such transfer does not require
registration of such transferred securities under the Securities Act;
PROVIDED, HOWEVER, that if the Securities, Warrants, Conversion Shares or
Warrant Shares may be sold pursuant to Rule 144(k), no written opinion of
counsel shall be required from the Purchaser if such Purchaser provides
reasonable assurances that such security can be sold pursuant to Rule 144(k).
Notwithstanding the foregoing, the Company hereby consents to and agrees to
register on its books any transfer by any Purchaser to an Affiliate of such
Purchaser, provided that the transferee certifies to the Company that it is
an "accredited investor" as defined in Rule 501(a) under the Securities Act.
Any such transferee shall agree in writing to be bound by the terms of this
Agreement and the Transaction Documents and shall have the rights of a
Purchaser under this Agreement and the Transaction Documents. If a Purchaser
provides the Company with an opinion of counsel, the form and substance of
which opinion shall be customary for opinions of counsel in comparable
transactions, to the effect that a public sale, assignment or transfer of the
Securities, the Conversion Shares, the Warrants and the Warrant Shares may be
made without registration under the Securities Act or the Purchaser provides
the Company with reasonable assurances that the Securities, the Warrants, the
Conversion Shares and the Warrant Shares can be sold pursuant to Rule 144(k)
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit
the transfer, and, in the case of the
13
<PAGE>
Conversion Shares and the Warrant Shares, promptly instruct its transfer
agent to issue one or more certificates in such name and in such
denominations as specified by such Purchaser and without any restrictive
legend. Notwithstanding the foregoing or anything else contained herein to
the contrary, the securities may be pledged as collateral in connection with
a BONA FIDE margin account or other lending arrangement.
b. Each Purchaser agrees to the imprinting, so long as is
required by this Section 3.1(b) or applicable state and federal securities
laws, of the following legend on the Securities, the Warrants, the Conversion
Shares and the Warrant Shares:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
Neither the Securities, the Warrants, the Conversion Shares, nor
the Warrant Shares shall contain the legend set forth above (or any other
legend) (i) at any time while a registration statement is effective under the
Securities Act covering such security, (ii) if in the written opinion of
counsel to the Purchaser experienced in the area of United States securities
laws (the form and substance of which opinion shall be customary for opinions
of counsel in comparable transactions), such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission) or
(iii) if such Securities, Warrants, Conversion Shares or Warrant Shares may
be sold pursuant to Rule 144(k). The Company agrees that it will provide
each Purchaser, upon request, with a certificate or certificates representing
Securities, Warrants, Conversion Shares or Warrant Shares, free from such
legend at such time as such legend is no longer required. If such
certificate or certificates had previously been issued with such a legend or
any other legend, the Company shall, upon request, issue such certificate or
certificates free of any legend hereunder in exchange for the certificate or
certificates bearing such legend.
3.2 STOP TRANSFER INSTRUCTION. The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company which enlarge the restrictions on transfer set forth in Section 3.1.
3.3 FURNISHING OF INFORMATION. As long as any Purchaser owns the
Securities, the Warrants, the Conversion Shares or the Warrant Shares, if the
Company is not required to file reports pursuant to Section 13(a) or 15(d) of
the Exchange Act, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act,
as well as any other information required thereby, in the time period that
such
14
<PAGE>
filings would have been required to have been made under the Exchange Act.
The Company shall deliver its first quarterly financial report to the
Purchasers no later than June 15, 1999. If at any time while any Purchaser
owns the Securities, the Warrants, the Conversion Shares or the Warrant
Shares the Company is at any time required to register its Common Stock
under Section 12(g) of the Exchange Act or to file reports pursuant to
Section 13, 14, or 15(d) of the Exchange Act, then the Company will cause the
Common Stock to continue at all times to be registered under Section 12(g) of
the Exchange Act, will timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed
by the Company after the date hereof pursuant to Section 13, 14 or 15(d) of
the Exchange Act and promptly furnish, but in no event later than two (2)
business days after the filing thereof with the Commission, the Purchasers
with true and complete copies of all such filings, and will not take any
action or file any document (whether or not permitted by the Exchange Act or
the rules thereunder) to terminate or suspend such reporting and filing
obligations. The Company further covenants that it will take such further
action as any holder of the Securities, the Warrants, the Conversion Shares or
the Warrant Shares may reasonably request, all to the extent required from
time to time to enable such Person to sell the Securities, the Warrants, the
Conversion Shares, or the Warrant Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act. Upon the request of any such Person,
the Company shall deliver to such Person a written certification of a duly
authorized officer as to whether it has complied with such requirements.
3.4 BLUE SKY LAWS. In accordance with the Registration Rights
Agreement, the Company shall (i) qualify the Conversion Shares and the
Warrant Shares under the securities or "blue sky" laws of such jurisdictions
as the Purchasers may request (or to obtain an exemption from such
qualification), (ii) shall provide evidence of any such action so taken to
each Purchaser on or prior to the Closing Date and (iii) shall continue such
qualification at all times through the resale of all Conversion Shares or
Warrant Shares, but in any event not past the fourth anniversary of the
Closing Date.
3.5 INTEGRATION. The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities, the Warrants, the Conversion Shares or the
Warrant Shares in a manner that would require the registration under the
Securities Act of the sale of the Securities, the Warrants, the Conversion
Shares or the Warrant Shares to any Purchaser or cause the offering of such
securities to be integrated with any other offering of securities by the
Company for the purpose of any stockholder approval provision applicable to
the Company or its securities.
3.6 RESERVATION OF CONVERSION SHARES AND WARRANT SHARES. The
Company at all times shall reserve a sufficient number of shares of its
authorized but unissued Common Stock to provide for 150% of the full
conversion of the outstanding Securities (including the payment of all
dividends thereon) and exercise of the outstanding Warrants. Shares of
Common Stock reserved for issuance upon conversion of the Securities and the
exercise of the Warrants shall be allocated pro rata to each of the
Purchasers in accordance with the amount of Securities and Warrants issued
and delivered to such Purchaser at the Closing. If at any time the number of
shares of Common Stock authorized and reserved for issuance is insufficient
to cover 150% of the number of Conversion Shares and Warrant Shares issued
and issuable upon conversion of the
15
<PAGE>
Securities and exercise of the Warrants (based on the Conversion Price (as
defined in the Certificate of Designation) of the Securities in effect from
time to time and the Exercise Price (as defined in the Warrants) of the
Warrants in effect from time to time) without regard to any limitation on
conversions or exercises, the Company will promptly take all corporate action
necessary to authorize and reserve 150% of such shares pursuant to Section
3(b) of the Registration Rights Agreement, including, without limitation,
calling a special meeting of stockholders to authorize additional shares to
meet the Company's obligations under this Section 3.6(b), in the case of an
insufficient number of authorized shares, and using its best efforts to
obtain stockholder approval of an increase in such authorized number of
shares.
3.7 NOTICE OF BREACHES.
a. The Company and each Purchaser shall give prompt written
notice to the other of any breach by it of any representation, warranty or
other agreement contained in this Agreement or in the Transaction Documents,
as well as any events or occurrences arising after the date hereof and prior
to the Closing Date, which would reasonably be likely to cause any
representation or warranty or other agreement of such party, as the case may
be, contained herein to be incorrect or breached as of the Closing Date
provided such notice will not constitute material non-public information.
However, no disclosure by either party pursuant to this Section 3.7 shall be
deemed to cure any breach of any representation, warranty or other agreement
contained herein or in the Transaction Documents.
b. Notwithstanding the generality of Section 3.7(a), the
Company shall promptly notify, provided such notification will not constitute
material non-public information, each Purchaser of any notice or claim
(written or oral) that it receives from any lender of the Company or any
Subsidiary to the effect that the consummation of the transactions
contemplated hereby and by the Registration Rights Agreement violates or
would violate any written agreement or understanding between such lender and
the Company or any Subsidiary, and the Company shall promptly furnish by
facsimile to the Purchasers a copy of any written statement in support of or
relating to such claim or notice.
c. The default by any Purchaser of any of its obligations,
representations or warranties under this Agreement or the Transaction
Documents shall not be imputed to, and shall have no effect upon, any other
Purchaser or affect the Company's obligations under this Agreement or any
Transaction Document to any non-defaulting Purchaser.
3.8 FORM D. The Company agrees to file a Form D with respect to
the Securities and Warrants as required by Rule 506 under Regulation D and to
provide a copy thereof to each Purchaser promptly after such filing.
3.9 FUTURE FINANCINGS. Except for (i) issuance of the Underlying
Shares; (ii) shares of Common Stock deemed to have been issued by the Company
in connection with any plan which has been approved by the Board of Directors
of the Company prior to the date hereof, pursuant to which the Company's
securities may be issued to any employee, officer, director or consultant of
the Company; (iii) shares of Common Stock issuable upon the exercise of any
options or warrants outstanding on the date hereof and listed in Schedule
2.1(c) hereto; (iv) shares of Common Stock issued or deemed to have been
issued as consideration for an acquisition
16
<PAGE>
(including earn-out payments funded with stock, which payments are set forth
on SCHEDULE 3.9 hereof) by the Company of a division, assets or business (or
stock constituting any portion thereof) from another Person; (v) the issuance
of any securities (including, but not limited to, subordinated debt,
preferred stock or warrants) to General Electric Capital Corporation or its
affiliates (collectively, "GE") in connection with certain financing
currently being negotiated by the Company and GE (which negotiation has not
been finalized as of the Closing Date); or (vi) securities to be issued by
the Company or selling stockholders in connection with a public offering by
the Company, if the Company agrees to issue shares of Common Stock or other
securities convertible into or exchangeable or exercisable for Common Stock
(the "NEW SECURITY") while any Securities are outstanding at (a) an effective
price per share which is less or may be less (including, without limitation,
any security which is convertible into or exchangeable or exercisable for
Common Stock at a price which may change with the market price of the Common
Stock) than the Conversion Price (as defined in the Certificate of
Designation) of the Securities as of the date thereof or (b) an effective
price per share greater than the Conversion Price but less than the Average
Price (as defined in the Certificate of Designation) on the date of such
issuance or sale (either of (a) or (b) a "FUTURE FINANCING"), the Company
shall provide to the Purchasers by 5:00 p.m. (New York time) on or before the
third (3rd) Trading Day (as defined below) after the decision to issue the
New Security has been made, written notice of the Future Financing containing
in reasonable detail (i) the proposed terms of the Future Financing, (ii) the
amount of the proceeds that will be raised and (iii) the Person with whom
such Future Financing shall be effected, and attached to which shall be a
term sheet or similar document relating thereto (the "FUTURE FINANCING
NOTICE"). Upon receiving the Future Financing Notice, each Purchaser shall
have the pro rata right (based on the principal amount of the Securities held
by such Purchaser relative to the aggregate principal amount of Securities
outstanding) to purchase, on the same terms as the Future Financing, an
amount of New Securities having a purchase price which shall not exceed the
sum of (i) the number of shares of Common Stock issuable upon conversion of
the Security (ii) the number of shares of Common Stock which is the product
of the Exercise Price (as defined in the Warrants) multiplied by that number
of shares of Common Stock underlying the outstanding Warrants. In the event
a Purchaser desires to exercise the right granted under this Section 3.9,
such Purchaser must notify the Company on or prior to the fifth (5th)Trading
Day after such Purchaser has received the Future Financing Notice. In the
event the terms and conditions of a proposed Future Financing are amended in
any respect after delivery of the Future Financing Notice but prior to the
closing of the proposed Future Financing to which such Future Financing
Notice relates, the Company shall deliver a new notice to each Purchaser
describing the amended terms and conditions of the proposed Future Financing
and each Purchaser thereafter shall have an option during the five (5)
Trading Days period following delivery of such new notice to purchase its pro
rata share (based on the Purchaser's percentage of the principal amount of
the outstanding Securities such Purchaser owns) of the New Securities being
offered on the same terms as contemplated by such proposed Future Financing,
as amended. The foregoing sentence shall apply to successive amendments to
the terms and conditions of any proposed Future Financing. In the event one
or more Purchasers elects not to exercise its rights granted hereby, the
Company shall permit those Purchasers electing to exercise the right granted
under this Section 3.9 to purchase, on a pro rata basis equal to its
percentage ownership of the then outstanding principal amount of the
Securities, the sum of the number of shares of Common Stock that the other
Purchaser(s) were eligible to purchase, if they had exercised their right
hereunder. Those Purchasers desiring to
17
<PAGE>
purchase additional shares of Common Stock must notify the Company of their
intention to do so within five (5) Trading Days after the Company has
informed the Purchasers of their right to purchase additional shares of
Common Stock. Within five (5) Trading Days of the termination of the final
notice period, the transactions contemplated by this Section 3.9 shall close,
subject to the completion of mutually satisfactory documentation, and the
Company shall tender to each Purchaser certificates representing the New
Securities that it agreed to purchase and the Purchasers shall make payment
for the entire purchase price in immediately available funds at the closing
of such sale. "TRADING DAY" shall mean a day on which the OTCBB (or in the
event the Common Stock is not traded on the OTCBB, such other securities
market on which the Common Stock is listed) is open for trading.
3.10 USE OF PROCEEDS. The Company shall use the proceeds from the
sale of the Securities and the exercise of the Warrants for the repayment of
short-term indebtedness, working capital and pending acquisitions.
3.11 TRANSACTIONS WITH AFFILIATES. So long as any Securities or
Warrants are outstanding, the Company shall not, and shall cause each of its
Subsidiaries not to, enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors or persons who were officers or directors at any time
during the previous two years, stockholders who beneficially own 5% or more
of the Common Stock, or Affiliates or any individual related by blood,
marriage or adoption to any such individual or with any entity in which any
such entity or individual owns a 5% or more beneficial interest (each a
"RELATED PARTY"), except for (a) customary employment arrangements and
benefit programs on reasonable terms, (b) any agreement, transaction,
commitment or arrangement on an arms-length basis on terms no less favorable
than terms which would have been obtainable from a Person other than such
Related Party, or (c) any agreement, transaction, commitment or arrangement
which is approved by a majority of the disinterested directors of the
Company. For purposes hereof, any director who is also an officer of the
Company or any Subsidiary of the Company shall not be a disinterested
director with respect to any such agreement, transaction, commitment or
arrangement. "AFFILIATE" for purposes of this section only means, with
respect to any person or entity, another person or entity that, directly or
indirectly, (i) has a 5% or more equity interest in that person or entity,
(ii) has 5% or more common ownership with that person or entity, (iii)
controls that person or entity, or (iv) shares common control with that
person or entity. "CONTROL" or "CONTROLS" for purposes of this section means
that a person or entity has the power, direct or indirect, to conduct or
govern the policies of another person or entity.
3.12 TRANSFER AGENT INSTRUCTIONS. At the Closing the Company shall
issue irrevocable instructions to its transfer agent (and shall issue to any
subsequent transfer agent as required), to issue certificates, registered in
the name of each such Purchaser or its respective nominee(s), for the
Conversion Shares and/or the Warrant Shares in such amounts as specified from
time to time by each Purchaser to the Company in a form acceptable to such
Purchasers (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). So long as
required pursuant to Section 3.1(b), all such certificates shall bear the
restrictive legend specified in Section 3.1(b) of this Agreement. The
Company warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 3.12, and stop transfer
instructions to give effect to Section 3.1 hereof (in the case of the
Conversion Shares and the Warrant Shares, prior to registration of the
18
<PAGE>
Conversion Shares under the Securities Act) will be given by the Company to
its transfer agent and that the Securities, the Warrants, the Conversion
Shares and the Warrant Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement and the Transaction Documents. If a Purchaser provides the Company
with an opinion of counsel, the form and substance of which opinion shall be
customary for opinions of counsel in comparable transactions, to the effect
that a public sale, assignment or transfer of the Securities, the Conversion
Shares, the Warrants and the Warrant Shares may be made without registration
under the Securities Act or the Purchaser provides the Company with
reasonable assurances that the Warrants, the Conversion Shares and the
Warrant Shares can be sold pursuant to Rule 144(k) without any restriction as
to the number of securities acquired as of a particular date that can then be
immediately sold, the Company shall permit the transfer, and, in the case of
the Conversion Shares and the Warrant Shares, promptly instruct its transfer
agent to issue one or more certificates in such name and in such
denominations as specified by such Purchaser and without any restrictive
legend. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Purchasers by violating the
intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 3.12 will be inaequate and agrees, in the event of a beach
or threatened breach by the Company of the provisions of this Section 3.12,
that the Purchasers, shall be entitled, in addition to all other available
remedies, to an order and/or injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic
loss and without any bond or other security being required.
3.13 PRESS RELEASE. Subject to the provisions of Section 6.10
hereof, prior to the opening of OTCBB on April 27, 1999, the Company shall
file a press release in form and substance acceptable to the Purchasers.
3.14 FINANCIAL INFORMATION. The Company agrees to send the
following to each Purchaser prior to and during the Effectiveness Period (as
defined in the Registration Rights Agreement): (i) within three (3) business
days after the filing thereof with the SEC, a copy of its Annual Reports on
Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form
8-K and any registration statements or amendments (other than on Form S-8)
filed pursuant to the Securities Act, if any, (ii) on the same day as the
release thereof, facsimile copies of all press releases issued by the Company
or any of its Subsidiaries, and (iii) copies of any notices and other
information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to
the stockholders.
3.15 ORDINARY COURSE BROKERAGE AND TRADING. Subject to compliance
with all applicable securities laws, no Purchaser shall be prohibited from
engaging in its ordinary course brokerage and trading activities in respect
of the Company's Common Stock; PROVIDED that the personnel engaged in such
activities have not been involved with the transactions contemplated hereby
and have not been provided with confidential information with respect to the
Company.
3.16 BEST EFFORTS. Each of the parties hereto shall use its best
efforts to satisfy each of the conditions to be satisfied by it as provided
in Article IV of this Agreement.
19
<PAGE>
3.17 CORPORATE EXISTENCE. Until such time as all of the Purchasers
provide the Company with written notice that they do not beneficially own any
Securities or Warrants, the Company shall maintain its corporate existence
and shall not sell all or substantially all of the Company's assets, except
in the event of a merger or consolidation or sale of all or substantially all
of the Company's assets, where the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) (a)
is a publicly traded corporation whose common stock is listed for trading on
the Nasdaq, the New York Stock Exchange or the American Stock Exchange or (b)
redeems all of the Securities then outstanding.
3.18 NO VIOLATION OF APPLICABLE LAW. Notwithstanding any provision
of this Agreement to the contrary, if the redemption of Securities or
Underlying Shares otherwise required under this Agreement, any applicable
Certificate of Designations or the Registration Rights Agreement would be
prohibited by the relevant provisions of the General Corporation Law of the
State of Delaware, such redemption shall be effected as soon as it is
permitted under such law; provided, however, that from the fifth (5th) day
after such redemption notice until such redemption price is paid in full,
interest on any such unpaid amount shall accrue and be payable at the rate of
15% per annum in accordance with the applicable Certificate of Designation.
3.19 REPORTING REQUIREMENT. The Company covenants that it will be
subject to the periodic reporting requirements of Section 13(a) of the
Exchange Act by the Effectiveness Date (as such term is defined in the
Registration Rights Agreement).
3.20 CONVERSION OBLIGATIONS OF THE COMPANY. The Company covenants
to convert the Securities and to deliver Underlying Shares in accordance with
the terms and conditions and time period set forth in the respective
Certificate of Designation.
3.21 MATERIAL INFORMATION. The Company covenants that, subsequent
to the Filing Date (as such term is defined in the Registration Rights
Agreement), it will not provide the Purchasers or their agents or counsel
with any information that constitutes or might constitute material non-public
information. The Company further covenants that any information provided by
the Company to the Purchasers, their agents or their counsel which could be
deemed to constitute material non-public information, will cease to be
material non-public information (either through disclosure by the Company or
otherwise) by the Filing Date (as such term is defined in the Registration
Rights Agreement).
3.22 NASDAQ REPORTING REQUIREMENT. The Company covenants that by
January 31, 2000 it shall apply to become listed on the NASDAQ Stock Market.
3.23 SENIORITY; EXCLUSIVITY. Excluding any securities which may be
issued by the Company to GE, no class of equity securities of the Company
will be senior to the Securities in right of payment, whether upon
liquidation, dissolution or otherwise. The Securities shall rank PARI PASSU
with the Company's Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock. So long as any Securities issued hereunder
remain outstanding, the Company shall not exchange, redeem or covert any of
the Company's capital stock for indebtedness, including convertible debt, of
the Company. The Company shall not issue and sell any
20
<PAGE>
Securities, other than to the Purchasers pursuant to this Agreement, without
the prior written consent of each of the Purchasers.
ARTICLE IV.
CONDITIONS
4.1 CLOSING CONDITIONS.
a. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
SELL. The obligation of the Company to sell the Securities and the Warrants
hereunder is subject to the satisfaction or waiver (with prior written notice to
each Purchaser) by the Company, at or before the Closing, of each of the
following conditions:
(i) ACCURACY OF THE PURCHASERS' REPRESENTATIONS AND WARRANTIES.
The representations and warranties of each Purchaser in this Agreement
shall be true and correct in all material respects as of the date when
made (except for representations and warranties that speak as of a
specific date) and as of the Closing Date;
(ii) PERFORMANCE BY THE PURCHASERS. Each Purchaser shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Purchaser at or prior to
the Closing; and
(iii) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement or the Transaction Documents.
b. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASERS TO
PURCHASE. The obligation of each Purchaser hereunder to acquire and pay for the
Securities and Warrants is subject to the satisfaction or waiver (with prior
written notice to the Company and each other Purchaser) by such Purchaser, at or
before the Closing, of each of the following conditions:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company set forth in this
Agreement shall be true and correct in all material respects as of the
date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific
date);
(ii) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Closing;
(iii) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or
21
<PAGE>
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement
and the Transaction Documents;
(iv) NO SUSPENSIONS OF TRADING IN COMMON STOCK. The trading in
the Common Stock shall not have been suspended by the Commission or on
the OTCBB (except for any suspension of trading of limited duration
solely to permit dissemination of material information regarding the
Company);
(v) LISTING OF COMMON STOCK. The Common Stock on the Closing
Date shall be listed for trading on the OTCBB;
(vi) REQUIRED APPROVALS. All Required Approvals shall have been
obtained and copies thereof delivered to such Purchaser;
(vii) SHARES OF COMMON STOCK. The Company shall have duly
reserved the number of Underlying Shares required by this Agreement and
the Transaction Documents to be reserved for issuance upon conversion of
the Securities and the exercise of the Warrants;
(viii) CHANGE OF CONTROL. No Change of Control shall have
occurred between the date hereof and the Closing Date. "CHANGE OF
CONTROL" means the occurrence of any of (i) an acquisition after the date
hereof by an individual or legal entity or "group" (as described in Rule
13d-5(b)(1) promulgated under the Exchange Act), other than the
Purchasers or any of their Affiliates, of in excess of 33% of the voting
securities of the Company, (ii) a replacement of more than one-half of
the members of the Company's Board of Directors which is not approved by
those individuals who are members of the Board of Directors on the date
hereof in one or a series of related transactions, (iii) the merger of
the Company with or into another entity, consolidation or sale of all or
substantially all of the assets of the Company in one or a series of
related transactions or (iv) the execution by the Company of an agreement
to which the Company is a party or by which it is bound, providing for
any of the events set forth above in (i), (ii) or (iii);
(ix) TRANSFER AGENT INSTRUCTIONS. The Irrevocable Transfer Agent
Instructions, in a form acceptable to the Purchasers, shall have been
delivered to and acknowledged in writing by the Company's transfer agent
with a copy forwarded to each Purchaser; and
(x) RESOLUTIONS. The Board of Directors of the Company shall
have adopted resolutions consistent with Section 2.1(b) and in a form
reasonably acceptable to each Purchaser (the "RESOLUTIONS").
c. DOCUMENTS AND CERTIFICATES. At the Closing, the Company
shall have delivered to the Purchasers the following in form and substance
reasonably satisfactory to the Purchasers:
(i) OPINION. An opinion of the Company's legal counsel in the
form attached hereto as EXHIBIT D dated as of the Closing Date;
22
<PAGE>
(ii) SECURITY. A Security(ies) representing the principal
amount of Securities purchased by such Purchaser as set forth next to
such Purchaser's name on SCHEDULE I, registered in the name of such
Purchaser, each in form satisfactory to the Purchaser;
(iii) WARRANT. A Warrant(s) representing the Warrants purchased
by such Purchaser as set forth next to such Purchaser's name on SCHEDULE
I, registered in the name of such Purchaser;
(iv) REGISTRATION RIGHTS. The Company shall have executed and
delivered the Registration Rights Agreement;
(v) OFFICER'S CERTIFICATE. An Officer's Certificate dated the
Closing Date and signed by an executive officer of the Company confirming
the accuracy of the Company's representations, warranties and covenants
as of the Closing Date and confirming the compliance by the Company with
the conditions precedent set forth in this Section 4.1 as of the Closing
Date;
(vi) SECRETARY'S CERTIFICATE. A Secretary's Certificate dated
the Closing Date and signed by the Secretary or Assistant Secretary of
the Company certifying (A) that attached thereto is a true and complete
copy of the Certificate of Incorporation of the Company, as in effect on
the Closing Date, (B) that attached thereto is a true and complete copy
of the By-laws of the Company, as in effect on the Closing Date and (C)
that attached thereto is a true and complete copy of the Resolutions duly
adopted by the Board of Directors of the Company authorizing the
execution, delivery and performance of this Agreement and of the
Transaction Documents, and that such Resolutions have not been modified,
rescinded or revoked;
(vii) CERTIFICATES OF INCORPORATION. The Company shall have
delivered to each of the Purchasers a copy of a certificate evidencing
the incorporation and good standing of the Company and each Subsidiary,
in such corporation's state of incorporation issued by the Secretary of
State of such state of incorporation as of a date within ten days of the
Closing Date. The Company shall have delivered to each of the Purchasers
a copy of its Certificate of Incorporation as certified by the Secretary
of State of the State of Delaware within ten days of the Closing Date;
(viii) CERTIFICATES OF DESIGNATION. The Certificate of
Designation shall have been duly approved by the Company's Board of
Directors and filed with the Secretary of State of Delaware, and the
Company shall have delivered a copy thereof to the Purchaser certified as
filed by the office of the Secretary of State of Delaware.
(ix) TRANSFER AGENT LETTER. The Company shall have delivered to
each Purchaser a letter from the Company's transfer agent certifying the
number of shares of Common Stock outstanding as of a date within five
days of the Closing Date; and
(x) OTHER DOCUMENTS. The Company shall have delivered to each
Purchaser such other documents relating to the transactions contemplated
by the Transaction Documents as the Purchasers or its counsel may
reasonably request.
23
<PAGE>
ARTICLE V.
INDEMNIFICATION
5.1 INDEMNIFICATION. Except to the extent that matters which could
be covered by this Section 5 are covered by Section 5 of the Registration
Rights Agreement, in consideration of the Purchasers execution and delivery
of this Agreement and the Transaction Documents and acquiring the Securities,
Conversion Shares, Warrants and Warrant Shares thereunder and in addition to
all of the Company's other obligations under this Agreement and the
Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless each Purchaser, its Affiliates and their successors and assigns (in
accordance with the provisions of Section 6.5 hereof), each other holder of
the Underlying Shares and all of their stockholders, officers, directors,
employees and direct or indirect investors and any of the foregoing Person's
agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "INDEMNITEES") from and against any and all actions,
causes of action, suits, claims, losses, proceedings, costs (as incurred),
penalties, fees (including legal fees and expenses), liabilities and damages,
and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including interest, penalties and attorneys' fees and
disbursements (the "INDEMNIFIED LIABILITIES"), incurred by any Indemnitee as
a result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in this
Agreement or in the Transaction Documents, or any other certificate,
instrument or document contemplated hereby or thereby, (b) any breach of any
covenant, agreement or obligation of the Company contained in this Agreement
or the Transaction Documents, or any other certificate, instrument or
document contemplated hereby or thereby, or (c) any cause of action, suit or
claim brought or made, other than by the Company, against such Indemnitee and
arising out of or resulting from (i) the execution, delivery, performance or
enforcement of this Agreement or the Transaction Documents, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or Warrants
or (iii) solely the status of such Purchasers or holder of the Securities,
the Conversion Shares, the Warrants or the Warrant Shares as an investor in
the Company. The indemnification obligations of the Company under this
paragraph shall be in addition to any liability which the Company may
otherwise have, shall extend upon the same terms and conditions to any
affiliate of the Purchasers and partners, directors, agents, employees and
controlling Persons (if any), as the case may be, of the Purchasers and any
such affiliate, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company, the
Purchasers and any such affiliate and any such Person. The Company also
agrees that neither the Purchasers nor any such Affiliates, partners,
directors, agents, employees or controlling Persons shall have any liability
to the Company or any Person asserting claims on behalf of or in right of the
Company in connection with or as a result of the consummation of this
Agreement or any of the Transaction Documents except to the extent that any
losses, claims, daages, liabilities or expenses incurred by the Company
result from the gross negligence or willful misconduct of such Purchaser or
entity in connection with the transactions contemplated by this Agreement or
the Transaction Documents. To the extent that the foregoing undertaking by
the Company may be unenforceable for any reason, the Company
24
<PAGE>
shall make the maximum contribution to the payment and satisfaction of each
of the Indemnified Liabilities which is permissible under applicable law.
ARTICLE VI.
MISCELLANEOUS
6.1 ENTIRE AGREEMENT. This Agreement, together with the Exhibits
and Schedules hereto and the Transaction Documents contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with
respect to such matters.
6.2 NOTICES. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i)
upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile, provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party (if received
by 7:00 p.m. EST where such notice is received) or the first business day
following such delivery (if received after 7:00 p.m. EST where such notice is
received); or (iii) one business day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
ThermoView Industries, Inc.
1101 Herr Lane
Louisville, KY 40222
Telephone: (502) 412-5600
Facsimile: (502) 412-0301
Attention: Nelson E. Clemmens
With a copy to:
Stites & Harbison
400 West Market Street
Suite 1800
Louisville, KY 40202-3352
Attn: Alex P. Herrington, Jr., Esq.
Phone: (502) 587-3400
Fax: (502) 587-6391
25
<PAGE>
If to the Transfer Agent:
American Securities, Inc.
938 Quail Street
Suite 101
Lakewood, Colorado 80215
Phone: (303) 234-5300
Fax: (303) 234-5340
If to Brown Simpson Strategic Growth Fund, Ltd. to:
152 West 57th Street, 40th Floor
New York, New York 10029
Telephone: (212) 247-8200
Facsimile: (212) 247-1329
Attention: Paul Gustus
If to Brown Simpson Strategic Growth Fund, L.P. to:
152 West 57th Street, 40th Floor
New York, New York 10029
Telephone: (212) 247-8200
Facsimile: (212) 247-1329
Attention: Paul Gustus
With a copy, in the case of Notice to Brown Simpson Strategic
Growth Fund, Ltd. or Brown Simpson Strategic Growth Fund, L.P. to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
Telephone: (212) 872-1000
Facsimile: (212) 872-1002
Attention: James Kaye
Each party shall provide written notice to the other party of any change in
address or facsimile number in accordance with the provisions hereof.
6.3 AMENDMENTS; WAIVERS. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and each of the Purchasers or, in the case of
a waiver, by the party against whom enforcement of any such waiver is sought.
No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in
the future or a waiver of any other provision, condition or requirement
hereof, nor shall any delay or omission of either party to exercise any right
hereunder in any manner impair the
26
<PAGE>
exercise of any such right accruing to it thereafter. Notwithstanding the
foregoing, no such amendment shall be effective to the extent that it applies
to less than all of the holders of the Securities outstanding. The Company
shall not offer or pay any consideration to a Purchaser for consenting to
such an amendment or waiver unless the same consideration is offered to each
Purchaser and the same consideration is paid to each Purchaser which consents
to such amendment or waiver.
6.4 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
6.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of each of the
Purchasers. The Purchasers may assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Company,
provided, that any assignees must make the representations and warranties set
forth in Section 2.2 and otherwise comply with the terms of this Agreement
otherwise applicable to its assignor. This provision shall not limit a
Purchaser's right to transfer securities in accordance with all of the terms
of this Agreement or the Transaction Documents.
6.6 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person.
6.7 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
New York without regard to the principles of conflicts of law thereof. Each
party hereby irrevocably submits to the nonexclusive jurisdiction of the
state and federal courts sitting in the City of New York, Borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction
of any such court, that such suit, action or proceeding is improper. Each
party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address for such notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be
deemed to limit in any way any right to serve process in any manner permitted
by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
6.8 SURVIVAL. The representations and warranties of the Company
and the Purchasers contained in Sections 2.1 and 2.2, the agreements and
covenants set forth in Section 3, and the indemnification provisions set
forth in Section 5, shall survive the Closing and any conversion of the
Securities or exercise of the Warrants regardless of any investigation made
by or on behalf of the such Purchaser or by or on behalf of the Company,
except that, in the case of representations
27
<PAGE>
and warranties such survival shall be limited to the period of three (3)
years following the Closing Date on which they were made or deemed to have
been made (other than with respect to any claim by a third party against the
party to this Agreement who seeks to assert a claim based on such
representations and warranties). This section shall have no effect on the
survival of the indemnification provisions of the Registration Rights
Agreement.
6.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and
the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party, it being understood
that both parties need not sign the same counterpart. In the event that any
signature is delivered by facsimile transmission, such signature shall create
a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if
such facsimile signature page were an original thereof.
6.10 PUBLICITY. The Company and the Purchasers shall consult with
each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed, except that no prior consent shall
be required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such
public statement. The Company shall not publicly or otherwise disclose the
names of any of the Purchasers without each such Purchaser's prior written
consent. The Purchasers and their affiliated companies shall, without
further cost, have the right to use in its advertising, marketing or other
similar materials all or parts of the Company's press releases that focus on
the Transaction forming the subject matter of this Agreement or which make
reference to the Transaction. The Purchasers understand that this grant by
the Company only waives objections that the Company might have to the use of
such materials by the Purchasers and in no way constitutes a representation
by the Company that references in such materials to the activities of
third-parties have been cleared or constitute a fair use.
6.11 SEVERABILITY. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement
shall not in any way be affected or impaired thereby and the parties will
attempt to agree upon a valid and enforceable provision which shall be a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
6.12 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the
Purchasers will be entitled to specific performance of the obligations of the
Company under this Agreement or the Transaction Documents without the showing
of economic loss and without any bond or other security being required. Each
of the Company and the Purchasers (severally and not jointly) agree that
monetary damages would not be adequate compensation for any loss incurred by
reason of any breach of its obligations described in the foregoing sentence
and hereby agree to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
28
<PAGE>
6.13 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser
pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert
with respect to such obligations or the transactions contemplated by this
Agreement. Each Purchaser shall be entitled to protect and enforce its
rights, including without limitation the rights arising out of this Agreement
or out of the Transaction Documents, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any proceeding for
such purpose.
6.14 PAYMENT SET ASIDE. To the extent that the Company makes a
payment or payments to the Purchasers hereunder or pursuant to the
Transaction Documents or the Purchasers enforce or exercise their rights
hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared fraudulent or preferential, set aside, recovered from, disgorged by
or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other Person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation
or part thereof originally intended to be satisfied shall be revived and
continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.
6.15 FURTHER ASSURANCES. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out
the intent and accomplish the purposes of this Agreement and the consummation
of the transactions contemplated hereby.
6.16 FEES AND EXPENSES. Except as set forth in the Registration
Rights Agreement, each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement; provided, however, that the
Company shall pay to Brown Simpson Asset Management $50,000, of which $15,000
was paid upon the execution of the term sheet and $35,000 shall have been
paid upon the execution of this Agreement. The Company shall pay all stamp
and other taxes and duties levied in connection with the issuance of the
Conversion Shares and the Warrant Shares pursuant hereto.
[Signature Pages Follow]
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized persons
as of the date first indicated above.
THERMOVIEW INDUSTRIES, INC.
By: /s/ Nelson E. Clemmens
-------------------------------------
Name: Nelson E. Clemmens
Title: President
<PAGE>
BROWN SIMPSON STRATEGIC
GROWTH FUND, LTD.
By: /s/ Evan Levine
-------------------------------------
Name: Evan Levine
Title: Principal
BROWN SIMPSON STRATEGIC
GROWTH FUND, L.P.
By: /s/ Evan Levine
-------------------------------------
Name: Evan Levine
Title: Principal
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Name of Purchaser Purchase Price of Securities Number of Securities Number of Warrants
----------------- ---------------------------- -------------------- ------------------
<S> <C> <C> <C>
Brown Simpson $3,750,000 3,750 750,000
Strategic Growth
Fund, Ltd
Brown Simpson $2,250,000 2,250 450,000
Strategic Growth
Fund, L.P.
</TABLE>
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Name of Purchaser Address
----------------- -------
<S> <C>
Brown Simpson Strategic Growth Fund, 152 West 57th Street, 40th Floor
Ltd. New York, New York 10019
Attn: Paul Gustus
Fax: (212) 247-1329
Residence: Grand Cayman, Cayman
Islands
Brown Simpson Strategic Growth Fund, 152 West 57th Street, 40th Floor
L.P. New York, New York 10019
Attn: Paul Gustus
Fax: (212) 247-1329
Residence: New York, New York
</TABLE>
<PAGE>
Exhibit A
[Form of Series C Certificate of Designation]
<PAGE>
Exhibit B
[Form of Warrant]
<PAGE>
Exhibit C
[Registration Rights Agreement]
<PAGE>
Exhibit D
[Company's Legal Opinion]
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and entered
into as of April 23, 1999, among ThermoView Industries, Inc., a Delaware
corporation (the "COMPANY"), and the parties who have executed this Agreement
and whose names appear on Schedule I hereto (each party listed on Schedule I
hereto is sometimes individually referred to herein as a "PURCHASER" and all
such parties are sometimes collectively referred to herein as the
"PURCHASERS").
This Agreement is made pursuant to the Securities Purchase
Agreement, dated as of the date hereof among the Company and the Purchasers
(the "PURCHASE AGREEMENT").
The Company and the Purchasers hereby agree as follows:
1. DEFINITIONS
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Purchase Agreement. As used in this Agreement,
the following terms shall have the following meanings:
"ADVICE" has meaning set forth in Section 3(o) hereof.
"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "affiliated," controlling" and "controlled" have meanings
correlative to the foregoing.
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York generally are authorized or required by law or other government actions
to close.
"CLOSING DATE" shall mean the Closing Date as defined in the Purchase
Agreement.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's Common Stock, par value $.001 per
share.
"EFFECTIVENESS DATE" means the earlier of (i) the tenth day after the
Company has received notice (written or oral) from the Commission that the
Commission Staff will not be reviewing the Registration Statement or has no
further comments on the Registration Statement,
<PAGE>
or (ii) the 120th day following the Filing Date; PROVIDED, HOWEVER, that the
Effectiveness Date shall be extended to up to the 150th day following the
Filing Date if the Initial Registration Statement is not declared effective
by the Commission prior to the 120th day following the Filing Date due to
delays which are solely attributable to the Commission, so long as the
Company responds as promptly as practicable, but in no event later than 15
Business Days, to any comments received from the Commission.
"EFFECTIVENESS PERIOD" has the meaning set forth in Section 2(a)
hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EVENT" has the meaning set forth in Section 2(d) hereof.
"FILING DATE" means as soon as practicable but in no event later
than June 15, 1999; PROVIDED, HOWEVER, that "Filing Date" shall mean as soon
as practicable but in no event later than July 15, 1999 in the event that the
Company provides the Purchasers with written notice by May 15, 1999, of the
Company's good faith intention to enter into one or more merger or
acquisition transactions by June 15, 1999.
"HOLDER" or "HOLDERS" means the holder or holders, as the case may
be, from time to time of Registrable Securities.
"INDEMNIFIED PARTY" has the meaning set forth in Section 5(c)
hereof.
"INDEMNIFYING PARTY" has the meaning set forth in Section 5(c)
hereof.
"INITIAL REGISTRATION STATEMENT" has the meaning set forth in
Section 2(a) hereof.
"LOSSES" has the meaning set forth in Section 5(a) hereof.
"OTCBB" means the OTC Bulletin Board of the National Association of
Securities Dealers, Inc.
"PERSON" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"PROSPECTUS" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities
2
<PAGE>
covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.
"REGISTRABLE SECURITIES" means the shares of Common Stock issued or
issuable upon (i) conversion of or with respect to the Securities, (ii) payment
of interest or any other payments in respect of the Securities, (iii) exercise
of the Warrants, and (iv) any shares of the Company's capital stock issued with
respect to (i), (ii) or (iii) as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise.
"REGISTRATION DELAY PAYMENT" has the meaning set forth in Section 2(d)
hereof.
"REGISTRATION STATEMENT" means the Initial Registration Statement and
any additional registration statements contemplated by Sections 2(a), 2(b) and
7(d), including (in each case) the Prospectus, amendments and supplements to
such registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference in
such registration statement.
"RULE 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"RULE 158" means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SECURITIES" means the Company's Series C Preferred Stock issuable
pursuant to the Purchase Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SPECIAL COUNSEL" means one special counsel to the Holders, for which
the Holders will be reimbursed by the Company pursuant to Section 4.
"TRADING DAY" means a day on which the OTCBB (or in the event the
Common Stock is not traded on OTCBB, such other securities market on which the
Common Stock is listed) is open for trading.
"UNDERLYING SHARES" means the shares of Common Stock issuable upon
conversion of the Securities and exercise of the Warrants.
"UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement, whether on a firm commitment or best efforts basis.
3
<PAGE>
"WARRANTS" means the warrants issuable pursuant to the Purchase
Agreement.
2. REGISTRATION REQUIREMENTS
(a) On or prior to the Filing Date, the Company shall prepare and
file with the Commission a Registration Statement (the "INITIAL REGISTRATION
STATEMENT") which shall cover all Registrable Securities. The Initial
Registration Statement shall be on Form S-1 or any successor form. The
Company shall (i) not permit any securities other than the Registrable
Securities to be included in the Initial Registration Statement and (ii) use
its best efforts to cause the Initial Registration Statement to be declared
effective under the Securities Act as promptly as possible after the filing
thereof, but in any event on or prior to the Effectiveness Date, and to keep
such Initial Registration Statement continuously effective under the
Securities Act until the date which is four years after the date that such
Initial Registration Statement is declared effective by the Commission or
such earlier date when all Registrable Securities covered by such Initial
Registration Statement have been sold or may be sold without volume
restrictions pursuant to Rule 144 as determined by counsel to the Company
pursuant to a written opinion letter, addressed to the Holders and the
Company's transfer agent to such effect (the "EFFECTIVENESS PERIOD"). The
number of shares of Common Stock initially included in the Initial
Registration Statement shall be no less than 150% of the sum of the number of
Securities and Warrants that are then issuable upon conversion of the
Securities (based on the Conversion Price (as defined in the Securities) as
would then be in effect at such time) and the exercise of the Warrants,
without regard to any limitation on the Investor's ability to convert the
Securities or exercise the Warrants.
(b) In addition to the Initial Registration Statement, at any time
when there is not an effective Registration Statement covering the
Registrable Securities, if the Holders of a majority of the Registrable
Securities covered by a Registration Statement so elect on or after October
23, 2000, an offering of Registrable Securities pursuant to such Registration
Statement may be effected on no more than one (1) occasion in the form of an
Underwritten Offering. In such event, and if the managing underwriters
advise the Company and such Holders in writing that in their opinion the
amount of Registrable Securities proposed to be sold in such Underwritten
Offering exceeds the amount of Registrable Securities which can be sold in
such Underwritten Offering, there shall be included in such Underwritten
Offering the amount of such Registrable Securities which in the opinion of
such managing underwriters can be sold, and such amount shall be allocated
PRO RATA among the Holders proposing to sell Registrable Securities in such
Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holders of a majority of the Registrable
Securities included in such offering. No Holder may participate in any
Underwritten Offering hereunder unless such Holder (i) agrees to sell its
Registrable Securities on the basis provided in any underwriting agreements
approved by the Persons entitled hereunder to approve such arrangements and
(ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required under the
terms of such arrangements.
4
<PAGE>
(d) If (i) the Initial Registration Statement covering all the
applicable Registrable Securities and required to be filed by the Company
pursuant to this Agreement is not (A) filed with the Commission on or before
the Filing Date or (B) declared effective by the Commission on or before the
applicable Effectiveness Date, (ii) on any day after the Registration
Statement has been declared effective by the Commission (A) sales of all the
Registrable Securities required to be included on a Registration Statement
cannot be made pursuant to the Registration Statement (including, without
limitation, because of a failure to keep the Registration Statement
effective, to disclose such information as is necessary for sales to be made
pursuant to the Registration Statement, or to register sufficient shares of
Common Stock, but excluding any periods during which the Registrable
Securities cannot be sold due to any update or amendment of the Registration
Statement pursuant to Section 3(b) hereof, provided that such period shall
not exceed ten (10) Business Days) or (B) the Common Stock is not listed or
included for quotation on the OTCBB, the National Market System of the Nasdaq
Stock Market ("NASDAQ"), the New York Stock Exchange ("NYSE") or the American
Stock Exchange (the "AMEX") after being so listed or included for quotation
or (iii) the Company shall otherwise fail to file a Registration Statement
required by Section 2(a) hereof, (each such event specified in (i), (ii) and
(iii) above, an "EVENT"), then, as partial relief for the damages to any
Holder by reason of any such delay in or reduction of its ability to sell the
Registrable Securities (which remedy shall not be exclusive of any other
remedies available at law or in equity), the Company shall pay to each Holder
an amount in cash (a "REGISTRATION DELAY PAYMENT") equal to two percent (2%)
of the product of (y) the number of Securities held by such Holder and (z)
$1,000, multiplied by the sum of: (i) the number of months (prorated for
partial months) after the end of the Effectiveness Date and prior to the date
the Registration Statement is declared effective by the Commission, PROVIDED,
HOWEVER, that there shall be excluded from such period any delays which are
solely attributable to changes required by the Purchasers in the Registration
Statement with respect to information relating to the Purchasers, or to the
failure of the Purchasers to conduct their review of the Registration
Statement pursuant to Section 3(a), or any black-out period relating to an
update or amendment of the Registration Statement; PROVIDED, FURTHER, that
with respect to Section 2(d)(i)(B) hereof, there shall be excluded from such
period any delays which are solely attributable to the Commission during the
150-day period following the Filing Date, so long as the Company responds as
promptly as practicable, but in no event later than fifteen (15) Business
Days, to any comments received from the Commission; (ii) the number of months
(prorated for partial months) that sales cannot be made pursuant to the
Registration Statement after the Registration Statement has been declared
effective (including, without limitation, when sales cannot be made by reason
of the Company's failure to properly supplement or amend the Prospectus in
accordance with the terms of this Agreement, or otherwise, but excluding when
such sales cannot be made solely by reason of any act or omission solely
attributable to the Purchasers); and (iii) the number of months (prorated for
partial months) that the Common Stock is not listed or included for quotation
on the OTCBB, Nasdaq, NYSE or AMEX or that trading thereon is halted after
the Registration Statement has been declared effective. The Company shall
pay any Required Registration Delay Payments to each Holder in cash on the
last Business Day of each month during which an Event has occurred and is
continuing. In the event the Company fails to make a Registration Delay
Payment within fifteen (15) Business Days of the date such Registration Delay
Payment is due, such Registration Delay Payment shall bear interest at the
rate of 2.0% per month (prorated for partial months) until paid in full.
5
<PAGE>
3. REGISTRATION PROCEDURES
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date a Registration Statement on Form S-1 or its successor form, and cause
the Registration Statement to become effective and remain effective as
provided herein; PROVIDED, HOWEVER, that not less than three (3) Business
Days prior to the filing of the Registration Statement or any related
Prospectus or any amendment or supplement thereto (including any document
that would be incorporated therein by reference), the Company shall, if
reasonably practicable (i) furnish to the Holders, their Special Counsel and
any managing underwriters, copies of all such documents proposed to be filed
(including documents incorporated by reference), which documents will be
subject to the review of such Holders, their Special Counsel and such
managing underwriters, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as
shall be necessary, in the reasonable opinion of respective counsel to such
Holders and such underwriters, to conduct a reasonable investigation within
the meaning of the Securities Act. The Company shall not file the
Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities, their Special Counsel or any managing underwriters shall
reasonably object, and will not request acceleration of such Registration
Statement without prior notice to such counsel. The sections of such
Registration Statement covering information with respect to the Holders, the
Holder's beneficial ownership of securities of the Company or the Holders
intended method of disposition of Registrable Securities shall conform to the
information provided to the Company by each of the Holders.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective for the
Effectiveness Period and prepare and file with the Commission such additional
Registration Statements in order to register for resale under the Securities
Act all of the Registrable Securities; (ii) cause the related Prospectus to
be amended or supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424 (or any similar
provisions then in force) promulgated under the Securities Act; (iii) respond
as promptly as practicable, but in no event later than fifteen (15) Business
Days, to any comments received from the Commission with respect to the
Registration Statement or any amendment thereto and as promptly as possible
provide the Holders true and complete copies of all correspondence from and
to the Commission relating to the Registration Statement; and (iv) comply in
all material respects with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all Registrable Securities
covered by the Registration Statement during the applicable period in
accordance with the intended methods of disposition by the Holders thereof
set forth in the Registration Statement as so amended or in such Prospectus
as so supplemented. In the event the number of shares available under a
Registration Statement filed pursuant to this Agreement is insufficient to
cover 150% of the Registrable Securities issued or issuable upon conversion
of the Securities and exercise of the Warrants, the Company shall amend the
Registration Statement, or file a new Registration Statement (on the short
form available therefore, if applicable), or both, so as to cover 150% of the
Registrable Securities, in each case, as soon as practicable, but in any
event
6
<PAGE>
within twenty (20) Business Days after the necessity therefor arises (based
on the Conversion Price of the Securities and other relevant factors on which
the Company reasonably elects to rely). The Company shall use its best
efforts to cause such amendment and/or new Registration Statement to become
effective as soon as practicable following the filing thereof. The
provisions of Section 2(d) above shall be applicable with respect to such
obligation, with the applicable period running from the day after the date on
which the Company reasonably first determines (or reasonably should have
determined) the need therefor.
(c) Notify the Holders of Registrable Securities to be sold, their
Special Counsel and any managing underwriters as promptly as possible (and,
in the case of (i)(A) below, not less than five (5) days prior to such filing
and, in the case of (i)(C) below, not later than the first Business Day after
effectiveness) and (if requested by any such Person) confirm such notice in
writing no later than one (1) Business Day following the day (i)(A) when a
Prospectus or any Prospectus supplement or post-effective amendment to the
Registration Statement is proposed to be filed; (B) when the Commission
notifies the Company whether there will be a "review" of such Registration
Statement and whenever the Commission comments in writing on such
Registration Statement and (C) with respect to the Registration Statement or
any post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental
authority for amendments or supplements to the Registration Statement or
Prospectus or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement covering any or all of the Registrable Securities or the initiation
of any Proceedings for that purpose; (iv) if at any time any of the
representations and warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated hereby ceases to be true
and correct in all material respects; (v) of the receipt by the Company of
any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes any statement
made in the Registration Statement or Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material
respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration
Statement or the Prospectus, as the case may be, it will not 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 circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale
in any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection
with an Underwritten Offering, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment to the Registration Statement such
information as the Company reasonably agrees should be included therein and
(ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has
received notification of the matters to
7
<PAGE>
be incorporated in such Prospectus supplement or post-effective amendment;
provided, however, that the Company shall not be required to take any action
pursuant to this Section 3(e) that would, in the opinion of counsel for the
Company, violate applicable law.
(f) Furnish to each Holder, their Special Counsel, and any
managing underwriters, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested
by such Person (including those previously furnished or incorporated by
reference) promptly after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel, and
any underwriters, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request; and the Company
hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders and any underwriters in
connection with the offering and sale of the Registrable Securities covered
by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, use
its best efforts to register or qualify or cooperate with the selling
Holders, any underwriters and their Special Counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder or underwriter requests in writing, to keep each such registration
or qualification (or exemption therefrom) effective during the Effectiveness
Period and to do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by a Registration Statement; PROVIDED, HOWEVER, that the Company
shall not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified or to take any action that would subject it
to general service of process in any such jurisdiction where it is not then
so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by applicable law and the
Purchase Agreement, of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such
names as any such managing underwriters or Holders may request at least two
(2) Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as possible, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document
so that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to
state a material fact
8
<PAGE>
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(k) Cause all Registrable Securities relating to such Registration
Statement to be listed on the OTCBB and any other securities exchange,
quotation system, market or over-the-counter bulletin board, if any, on which
similar securities issued by the Company are then listed as and when required
pursuant to the Purchase Agreement.
(l) Enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in Underwritten
Offerings) and take all such other actions in connection therewith (including
those reasonably requested by any managing underwriters and the Holders of a
majority of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities, and whether or not
an underwriting agreement is entered into, (i) make such representations and
warranties to such Holders and such underwriters as are customarily made by
issuers to underwriters in underwritten public offerings, and confirm the
same if and when requested; (ii) in the case of an Underwritten Offering
obtain and deliver copies thereof to the managing underwriters, if any, or in
the case of non-Underwritten Offerings, if reasonably requested by the
selling Holders (and at the expense of such selling Holders), obtain and
deliver copies thereof to such selling Holders, of opinions of counsel to the
Company and updates thereof addressed to each such underwriter, in form,
scope and substance reasonably satisfactory to any such managing underwriters
and Special Counsel to the selling Holders covering the matters customarily
covered in opinions requested in Underwritten Offerings and such other
matters as may be reasonably requested by such Special Counsel and
underwriters; (iii) immediately prior to the effectiveness of the
Registration Statement, and, in the case of an Underwritten Offering, at the
time of delivery of any Registrable Securities sold pursuant thereto, and, in
the case of non-Underwritten Offerings, at such time as the selling Holders
may reasonably request (and at the expense of such selling Holders), obtain
and deliver copies to the Holders and the managing underwriters, if any, of
"cold comfort" letters and updates thereof from the independent certified
public accountants of the Company (and, if required, any other independent
certified public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements and financial
data is, or is required to be, included in the Registration Statement),
addressed to each of the underwriters, if any, in form and substance as are
customary in connection with Underwritten Offerings; (iv) if an underwriting
agreement is entered into, the same shall contain indemnification provisions
and procedures no less favorable to the selling Holders and the underwriters,
if any, than those set forth in Section 5 (or such other provisions and
procedures acceptable to the managing underwriters, if any, and holders of a
majority of Registrable Securities participating in such Underwritten
Offering; and (v) deliver such documents and certificates as may be
reasonably requested by the Holders of a majority of the Registrable
Securities being sold, their Special Counsel and any managing underwriters to
evidence the continued validity of the representations and warranties made
pursuant to clause 3(1)(i) above and to evidence compliance with any
customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any
disposition of Registrable Securities, and any attorney or accountant
retained by such selling Holders or underwriters, at the offices where
9
<PAGE>
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries, and cause the officers, directors, agents and employees of the
Company and its subsidiaries to supply all information in each case
reasonably requested by any such Holder, representative, underwriter,
attorney or accountant in connection with the Registration Statement;
PROVIDED, HOWEVER, that if any information is determined in good faith by the
Company in writing to be of a confidential nature at the time of delivery of
such information, then prior to delivery of such information, the Company and
the Holders shall enter into a confidentiality agreement reasonably
acceptable to the Company and the Holders providing that such information
shall be kept confidential, unless (i) disclosure of such information is
required by court or administrative order or is necessary to respond to
inquiries of regulatory authorities (PROVIDED, HOWEVER, that the Company
shall be given notice of any such pending disclosure so that the Company may
seek a protective order); (ii) disclosure of such information, in the opinion
of counsel to such Person, is required by law; (iii) such information becomes
generally available to the public other than as a result of a disclosure or
failure to safeguard by such Person; or (iv) such information becomes
available to such Person from a source other than the Company and such source
is not known by such Person to be bound by a confidentiality agreement with
the Company.
(n) Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its
securityholders earning statements satisfying the provisions of Section 11(a)
of the Securities Act and Rule 158 not later than 45 days after the end of
any 12-month period (or 90 days after the end of any 12-month period if such
period is a fiscal year) (i) commencing at the end of any fiscal quarter in
which Registrable Securities are sold to underwriters in a firm commitment or
best efforts Underwritten Offering and (ii) if not sold to underwriters in
such an offering, commencing on the first day of the first fiscal quarter of
the Company after the effective date of the Registration Statement, which
statement shall conform to the requirements of Rule 158.
(o) The Company may require each selling Holder to furnish to the
Company information regarding such Holder and the distribution of such
Registrable Securities as is required by law to be disclosed in the
Registration Statement, and the Company may exclude from such registration
the Registrable Securities of any such Holder who unreasonably fails to
furnish such information within a reasonable time after receiving such
request.
The Company shall hold in confidence and not make any disclosure of
information concerning a Holder provided to the Company unless (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees
that it shall, upon learning that disclosure of such information concerning a
Holder is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Holder prior
to making such disclosure, and allow the Holder, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
10
<PAGE>
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder
shall have the right to require (if such reference to such Holder by name or
otherwise is not required by the Securities Act or any similar Federal
statute then in force) the deletion of the reference to such Holder in any
amendment or supplement to the Registration Statement filed or prepared
subsequent to the time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated
by Section 3(c) and (ii) it and its officers, directors or Affiliates, if
any, will comply with the prospectus delivery requirements of the Securities
Act as applicable to them in connection with sales of Registrable Securities
pursuant to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence
of any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of
such Registrable Securities under the Registration Statement until such
Holder's receipt of the copies of the supplemented Prospectus and/or amended
Registration Statement contemplated by Section 3(j), or until it is advised
in writing (the "ADVICE") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement.
Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee
of a Holder in accordance with the terms of the Securities Purchase Agreement
in connection with any sale of Registrable Securities with respect to which
an Holder has entered into a contract for sale prior to the Holder's receipt
of a notice from the Company of the happening of any event of the kind
described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi) and
for which the Holder has not yet settled.
(p) The Company agrees to respond fully and completely to any and
all comments on a Registration Statement received from the Commission staff
as promptly as possible but, for non-Underwritten Offerings, in no event
later than ten (10) Business Days of the receipt of such comments, regardless
of whether such comments are in oral or written form.
(q) Within two (2) Business Days after a Registration Statement
which covers applicable Registrable Securities is ordered effective by the
Commission, the Company shall deliver, and shall cause legal counsel for the
Company to deliver, to the transfer agent for such Registrable Securities
(with copies to the Holders whose Registrable Securities are included in such
Registration Statement) confirmation that such Registration Statement has
been declared effective by the Commission in the form attached hereto as
Exhibit B.
11
<PAGE>
4. REGISTRATION EXPENSES
All fees and expenses incident to the performance of or compliance
with this Agreement by the Company shall be borne by the Company, whether or
not pursuant to an Underwritten Offering and whether or not the Registration
Statement is filed or becomes effective and whether or not any Registrable
Securities are sold pursuant to the Registration Statement. The fees and
expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without
limitation, fees and expenses (A) with respect to filings required to be made
with the OTCBB and each other securities exchange or market on which
Registrable Securities are required hereunder to be listed and (B) in
compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the Holders in connection
with Blue Sky qualifications of the Registrable Securities and determination
of the eligibility of the Registrable Securities for investment under the
laws of such jurisdictions as the managing underwriters, if any, or the
Holders of a majority of Registrable Securities may designate)), (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is requested by the managing underwriters, if any,
or by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses,
(iv) fees and disbursements of counsel for the Company and Special Counsel
for the Holders, (v) Securities Act liability insurance, if the Company so
desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement. In addition, the Company shall
be responsible for all of its internal expenses incurred in connection with
the consummation of the transactions contemplated by this Agreemen
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, and the fees and expenses incurred in connection with the listing of
the Registrable Securities on any securities exchange as required hereunder.
Notwithstanding anything contained in this Section 4 to the contrary, the
Holders shall be responsible for all fees and expenses relating to an
Underwritten Offering conducted on a best efforts basis.
5. INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold
harmless each Holder, the officers, directors, agents (including any
underwriters retained by such Holder in connection with the offer and sale of
Registrable Securities), brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and
employees of each of them, each Person who controls any such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such
controlling Person, to the fullest extent permitted by applicable law, from
and against any and all joint or several losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
attorneys' fees) and expenses (collectively, together with actions,
proceedings or inquiries by any regulatory or self-regulatory organization,
whether commenced or threatened, "LOSSES"), as incurred, arising out of or
relating to (i) any untrue or alleged untrue statement of a
12
<PAGE>
material fact contained in the Registration Statement, any Prospectus or any
form of prospectus or in any amendment or supplement thereto or in any
preliminary Prospectus, or arising out of or relating to any omission or
alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or
form of prospectus or supplement thereto, in light of the circumstances under
which they were made) not misleading (in the case of any Prospectus or form
of prospectus or supplement thereto, in light of the circumstances under
which they were made), except to the extent, but only to the extent, that
such untrue statements or omissions are based solely upon and in conformity
with information regarding such Holder furnished in writing to the Company by
such Holder expressly for use therein, which information was reasonably
relied on by the Company for use therein or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of prospectus or in any amendment or
supplement thereto (provided that the Company amended any disclosure with
respect to the method of distribution upon written notice from the Holders
that such section of the Prospectus should be revised in any way) or (ii) any
violation or alleged violation by the Company of the Securities Act, the
Exchange Act, any other law, including, without limitation, any state
securities law, or any rule or regulation thereunder relating to the offer or
sale of Registrable Securities. The Company shall not, however, be liable
for any Losses to any Holder with respect to any untrue or alleged untrue
statement of material fact or omission or alleged omission of material fact
if such statement or omissionwas made in a preliminary Prospectus and such
Holder did not receive a copy of the final Prospectus (or any amendment or
supplement thereto) at or prior to the confirmation of the sale of the
Registrable Securities in any case where such delivery is required by the
Securities Act and the untrue or alleged untrue statement of material fact or
omission or alleged omission of material fact contained in such preliminary
Prospectus was corrected in the final Prospectus (or any amendment or
supplement thereto), unless the failure to deliver such final Prospectus (as
amended or supplemented) was a result of noncompliance by the Company with
Section 3(g) of this Agreement. The Company shall notify the Holders
promptly of the institution, threat or assertion of any Proceeding of which
the Company is aware in connection with the transactions contemplated by this
Agreement.
(b) INDEMNIFICATION BY HOLDERS. Each Holder shall, severally and
not jointly, indemnify and hold harmless the Company, the directors,
officers, agents and employees, each Person who controls the Company (within
the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law, from
and against all Losses, as incurred, arising solely out of or based solely
upon any untrue statement of a material fact contained in the Registration
Statement, any Prospectus, or any form of prospectus, or arising solely out
of or based solely upon any omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading to the
extent, but only to the extent, that such untrue statement or omission is
contained in any information so furnished in writing by such Holder to the
Company specifically for inclusion in the Registration Statement or such
Prospectus and that such information was reasonably relied upon by the
Company for use in the Registration Statement, such Prospectus or such form
of prospectus or to the extent that such information relates to such Holder
or such Holder's proposed method of distribution of Registrable Securities
and was reviewed and expressly approved in writing by such Holder
13
<PAGE>
expressly for use in the Registration Statement, such Prospectus or such form
of prospectus; PROVIDED, HOWEVER, that the indemnity agreement contained in
this Section 5(b) shall not apply to amounts paid in settlement of any Losses
if such settlement is effected without the prior written consent of such
Holder. In no event shall the liability of any selling Holder hereunder be
greater in amount than the dollar amount of the net proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity
hereunder (an "INDEMNIFIED PARTY"), such Indemnified Party promptly shall
notify the Person from whom indemnity is sought (the "INDEMNIFYING PARTY") in
writing, and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; PROVIDED, HOWEVER, that the failure of any
Indemnified Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this Agreement, except
(and only) to the extent that it shall be finally determined by a court of
competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall
have failed promptly to assume the defense of such Proceeding and to employ
counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall have been advised by counsel that a
conflict of interest is likely to exist if the same counsel were to represent
such Indemnified Party and the Indemnifying Party (in which case, if such
Indemnified Party notifies 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 thereof and
such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such
Proceeding effected without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party,
unless such settlement includes an unconditional release of such Indemnified
Party from all liability on claims that are the subject matter of such
Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Business Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided,
that the Indemnifying Party may require such Indemnified Party to undertake
to reimburse all such fees and expenses to the extent it is finally
judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).
14
<PAGE>
(d) CONTRIBUTION. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or
refusal of a court of competent jurisdiction to enforce such indemnification
in accordance with its terms (by reason of public policy or otherwise), then
each Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses as
well as any other relevant equitable considerations. The relative fault of
such Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact or omission or
alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action, statement or omission. The
amount paid or payable by a party as a result of any Losses shall be deemed
to include, subject to the limitations set forth in Section 5(c), any
reasonable attorneys' or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have
been indemnified for such fees or expenses if the indemnification provided
for in this Section was available to such party in accordance with its terms.
In no event shall any selling Holder be required to contribute an amount
under this Section 5(d) in excess of the net proceeds received by such Holder
upon sale of the Registrable Securities pursuant to the Registration
Statement giving rise to such contribution obligation.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to
the Indemnified Parties.
6. RULE 144
As long as any Holder owns Registrable Securities, the Company
covenants to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act and to promptly furnish the Holders with true and complete
copies of all such filings. As long as any Holder owns Registrable
Securities, if the Company is not required to file reports pursuant to
Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to
the Holders and make publicly available in accordance with Rule 144(c)
promulgated under the Securities Act annual and quarterly financial
statements, together with a discussion and analysis of such financial
statements in form and substance substantially similar to those that would
otherwise be required to be included in reports required by Section 13(a) or
15(d) of the Exchange Act, as well as any other information required thereby,
in the time period that such filings would have been required to have been
made under the Exchange Act. The Company
15
<PAGE>
further covenants that it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable
such Person to sell Underlying Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including providing any legal opinions
referred to in the Purchase Agreement. Upon the request of any Holder, the
Company shall deliver to such Holder a written certification of a duly
authorized officer as to whether it has complied with such requirements.
7. MISCELLANEOUS
(a) REMEDIES. In the event of a breach by the Company or by a
Holder of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary damages would not
provide adequate compensation for any losses incurred by reason of a breach
by it of any of the provisions of this Agreement and hereby further agrees
that, in the event of any action for specific performance in respect of such
breach, it shall waive the defense that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. Neither the Company nor any of
its subsidiaries has, as of the date hereof, nor shall the Company or any of
its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Except as disclosed in Schedule 2.1(r) of the Purchase
Agreement, neither the Company nor any of its subsidiaries has previously
entered into any agreement granting any registration rights with respect to
any of its securities to any Person. Without limiting the generality of the
foregoing, without the written consent of the Holders of a majority of the
then outstanding Registrable Securities, the Company shall not grant to any
Person the right to request the Company to register any securities of the
Company under the Securities Act unless the rights so granted are
subordinated in all respects to the rights in full of the Holders set forth
in Section 2 herein, and are not otherwise in conflict or inconsistent with
the provisions of this Agreement. This Agreement, together with the Purchase
Agreement, contain the entire understanding of the parties with respect to
the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters.
(c) NO PIGGYBACK ON REGISTRATIONS. Except as disclosed on
Schedule 2.1(r) of the Purchase Agreement, neither the Company nor any of its
securityholders (other than the Holders in such capacity pursuant hereto) may
include securities of the Company in the Registration Statements and the
Company shall not after the date hereof enter into any agreement providing
such right to any of its securityholders, unless the right so granted is
subordinated in all respects to the rights in full of the Holders set forth
herein, and is not otherwise in conflict or inconsistent with the provisions
of this Agreement.
(d) PIGGY-BACK REGISTRATIONS. Except as provided herein if, at
any time when there is not an effective Registration Statement covering the
Registrable Securities, the Company shall determine to prepare and file with
the Commission a registration statement relating to an
16
<PAGE>
offering for its own account or the account of others under the Securities
Act of any of its equity securities, other than on Form S-4 or Form S-8 (each
as promulgated under the Securities Act) or their then equivalents relating
to equity securities to be issued solely in connection with any acquisition
of any entity or business or equity securities issuable in connection with
stock option or other employee benefit plans, the Company shall send to each
Holder of Registrable Securities written notice of such determination and, if
within ten (10) days after receipt of such notice, any such Holder shall so
request in writing, (which request shall specify the Registrable Securities
intended to be disposed of by the Purchasers), the Company will use
reasonable efforts to effect the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register by
the Holder, to the extent requisite to permit the disposition of the
Registrable Securities so to be registered, provided that if at any time
after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not to
register or to delay registration of such securities, the Company may, at its
election, give written notice of such determination to such Holder and,
thereupon, (i) in the case of a determination not to register, shall be
relieved of its obligation to register any Registrable Securities in
connection with such registration (but not from its obligation to pay
expenses in accordance with Section 4 hereof), and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering
any Registrable Securities being registered pursuant to this Section 7(d) for
the same period as the delay in registering such other securities. The
Company shall include in such registration statement all or any part of such
Registrable Securities such Holder requests to be registered; PROVIDED,
HOWEVER, that the Company shall not be required to register any Registrable
Securities pursuant to this Section 7(d) that are eligible for sale pursuant
to Rule 144(k) of the Securities Act. In the case of an underwritten public
offering, if the managing underwriter(s) or underwriter(s) should reasonably
object to the inclusion of the Registrable Securities in such registration
statement, then if the Company after consultation with the Underwriter's
representative should reasonably determine that the inclusion of such
Registrable Securities would materially adversely affect the offering
contemplated in such registration statement, and based on such determination
recommends inclusion in such registration statement of fewer Registrable
Securities then proposed to be sold by the Holders, then (x) the number of
Registrable Securities of the Holders included in such registration statement
shall be reduced pro rata among such Holders (based upon the number of
Registrable Securities requested to be included in the registration) or (y)
none of the Registrable Securities of the Holders shall be included in such
registration statement if the Company, after consultation with the
underwriter(s), recommends the inclusion of none of such Registrable
Securities; PROVIDED, HOWEVER, that if securities are being offered for the
account of other persons or entities as well as the Company, such reduction
shall not represent a greater fraction of the number of Registrable
Securities intended to be offered by the Holders than the fraction of similar
reductions imposed on such other persons or entities (other than the
Company). Notwithstanding the foregoing, the Company shall not file any
registration statement under the Securities Act (other than on Form S-4 or
Form S-8) relating to the offer and sale of any equity securities of the
Company, or offer or sell any equity securities of the Company in a
transaction exempt from registration pursuant to Regulation S under the
Securities Act, until such time as the Initial Registration Statement has
been effective for a period of sixty (60) Trading Days, which period shall be
tolled if the effectiveness of the Initial Registration Statement is
suspended for any reason whatsoever.
17
<PAGE>
(e) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless the same shall be in writing and signed by
the Company and the Holders of at least two thirds of the then outstanding
Registrable Securities; PROVIDED, HOWEVER, that for the purposes of this
sentence, Registrable Securities that are owned, directly or indirectly, by
the Company, or an Affiliate of the Company are not deemed outstanding.
Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights
of other Holders may be given by Holders of at least a majority of the
Registrable Securities to which such waiver or consent relates; PROVIDED,
HOWEVER, that the provisions of this sentence may not be amended, modified,
or supplemented except in accordance with the provisions of the immediately
preceding sentence.
(f) NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to
have been received (a) upon hand delivery (receipt acknowledged) or delivery
by telex (with correct answer back received), telecopy or facsimile (with
transmission confirmation report) at the address or number designated below
(if received by 8:00 p.m. EST where such notice is to be received), or the
first Business Day following such delivery (if received after 8:00 p.m. EST
where such notice is to be received) or (b) on the second Business Day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications are (i) if to the
Company to ThermoView Industries, Inc., 1101 Herr Lane, Louisville, Kentucky
40222 attn: Nelson E. Clemmens, fax. No. (502) 412-0301, with copies to
Sithes & Harbison, 400 West Market Street, Suite 1800, Louisville, KY, 40202,
attn: Alex P. Herrington, Jr., Esq., fax no. (502) 587-6391, and (ii) if to
any Purchaser to the address set forth on Schedule I hereto with copies to
those specified on the signature pages hereto and to Akin, Gump, Strauss,
Hauer & Feld, L.L.P., 590 Madison Avenue, New York, New York 10022, Attn:
James Kaye, Esq., fax no. (212) 872-1002 or such other address as may be
designated in writing hereafter, in the same manner, by such Person.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each
of the parties and shall inure to the benefit of each Holder. The Company
may not assign its rights or obligations hereunder without the prior written
consent of each Holder. Each Holder may assign its rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement. In
addition, the rights of each Holder hereunder, including the right to have
the Company register for resale Registrable Securities in accordance with the
terms of this Agreement, shall be automatically assignable by each Holder if:
(i) the Holder agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within
a reasonable time after such assignment, (ii) the Company is, within a
reasonable time after such transfer or assignment, furnished with written
notice of (a) the name and address of such transferee or assignee, and (b)
the securities with respect to which such registration rights are being
transferred or assigned, (iii) following such transfer or assignment the
further disposition of such securities by the transferee or assignees is
restricted under the Securities Act and applicable state securities laws,
(iv) at or before the time the Company receives the written notice
contemplated by clause (ii) of this Section, the transferee or assignee
agrees in writing with the Company to be bound by all of the
18
<PAGE>
provisions of this Agreement, and (v) such transfer shall have been made in
accordance with the applicable requirements of the Purchase Agreement. The
rights to assignment shall apply to the Holders (and to subsequent)
successors and assigns.
(h) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of
the party executing (or on whose behalf such signature is executed) the same
with the same force and effect as if such facsimile signature were the
original thereof.
(i) GOVERNING LAW. The corporate laws of the State of Delaware
shall govern all issues concerning the relative rights of the Company and the
Purchasers as its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement
shall be governed by and construed in accordance with the laws of the State
of New York, without regard to principles of conflicts of law. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consent to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at
the address for such notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law.
(j) CUMULATIVE REMEDIES. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(k) SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as
that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
(l) HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(m) SHARES HELD BY THE COMPANY AND ITS AFFILIATES. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company
or its Affiliates (other than any Holder or transferees or successors or
assigns thereof if such Holder is deemed to be an Affiliate solely by reason
of its
19
<PAGE>
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
[Signature Page Follows]
20
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
THERMOVIEW INDUSTRIES, INC.
By: /S/ Nelson E. Clemmens
---------------------------------------
Name: Nelson E. Clemmens
Title: President
BROWN SIMPSON STRATEGIC GROWTH
FUND, LTD.
By: /s/ Evan Levine
---------------------------------------
Name: Evan Levine
Title: Principal
BROWN SIMPSON STRATEGIC GROWTH
FUND, L.P.
By: /s/ Evan Levine
---------------------------------------
Name: Evan Levine
Title: Principal
21
<PAGE>
SCHEDULE I
Company
THERMOVIEW INDUSTRIES, INC.
1101 Herr Lane
Louisville, KY 40222
Attn: Nelson E. Clemmens
Fax: (502) 412-0301
PURCHASERS:
BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Fax: (212) 247-1329
BROWN SIMPSON STRATEGIC GROWTH FUND, LTD.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Fax: (212) 247-1329
<PAGE>
EXHIBIT A
PLAN OF DISTRIBUTION
The Company is registering the Registrable Securities on behalf of the
Holder. As used herein, the term Holder means the holder of the Registrable
Securities and includes donees and pledgees selling Registrable Securities
received from a named Holder after the date of this Prospectus. All costs,
expenses and fees in connection with the registration of the Registrable
Securities offered hereby will be borne by the Company. Brokerage
commissions and similar selling expenses, if any, attributable to the sale of
Registrable Securities will be borne by the Holders. Sales of Registrable
Securities may be effected by Holders from time to time in one or more types
of transactions (which may include block transactions) on the OTC Bulletin
Board, in the over-the-counter market, in negotiated transactions, through
put or call options transactions relating to the Registrable Securities,
through short sales of Registrable Securities, or a combination of such
methods of sale, at market prices prevailing at the time of sale, or at
negotiated prices. Such transactions may or may not involve brokers or
dealers. The Holders have advised the Company that they have not entered
into any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities, nor is there an
underwriter or coordinated broker acting in connection with the proposed sale
of Registrable Securities by the Holders.
The Holders may enter into hedging transactions with broker-dealers or
other financial institutions. In connection with such transactions,
broker-dealers or other financial institutions may engage in short sales of
the Registrable Securities or of securities convertible into or exchangeable
for the Registrable Securities in the course of hedging positions they assume
with Holders. The Holders may also enter into options or other transactions
with broker-dealers or other financial institutions which require the
delivery to such broker-dealers or other financial institutions of
Registrable Securities offered by this Prospectus, which Registrable
Securities such broker-dealer or other financial institution may resell
pursuant to this Prospectus (as amended or supplemented to reflect such
transaction).
The Holders may effect such transactions by selling Registrable
Securities directly to purchasers or to or through broker-dealers, which may
act as agents or principals. Such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from Holders and/or the
purchasers of Registrable Securities for whom such broker-dealers may act as
agents or to whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
The Holders and any broker-dealers that act in connection with the sale
of Registrable Securities might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any commissions received
by such broker-dealers any profit on the resale of the Registrable Securities
sold by them while acting as principals might be deemed to be underwriting
discounts or commissions under the Securities Act. The Company has agreed to
indemnify each Holder against certain liabilities, including liabilities
arising under the Securities
1
<PAGE>
Act. The Holders may agree to indemnify any agent, dealer or broker-dealer
that participates in transactions involving sales of the Registrable
Securities against certain liabilities, including liabilities arising under
the Securities Act.
The Holders may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act.
The Holders will be subject to the prospectus delivery requirements of the
Securities Act. The Company has informed the Holders that the
anti-manipulative provisions of Regulation M promulgated under the Exchange
Act may apply to their sales in the market.
Holders also may resell all or a portion of the Registrable Securities
in open market transactions in reliance upon Rule 144 under the Securities
Act, provided they meet the criteria and conform to the requirements of such
Rule.
Upon the Company being notified by a Holder that any material
arrangement has been entered into with a broker-dealer for the sale of
Registrable Securities through a block trade, special offering, exchange
distribution or secondary distribution or a purchase by a broker or dealer, a
supplement to this Prospectus will be filed, if required, pursuant to Rule
424(b) under the Securities Act, disclosing (i) the name of each such Holder
and of the participating broker-dealer(s), (ii) the number of Registrable
Securities involved, (iii) the initial price at which such Registrable
Securities were sold, (iv) the commissions paid or discounts or concessions
allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information
set out or incorporated by reference in this Prospectus and (vi) other facts
material to the transactions. In addition, upon the Company being notified by
a Holder that a donee or pledgee intends to sell more than 500 Registrable
Securities, a supplement to this Prospectus will be filed.
2
<PAGE>
EXHIBIT B
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
Attn.:
Re: ThermoView Industries, Inc.
Ladies and Gentlemen:
We are counsel to ThermoView Industries, Inc., a Delaware corporation
(the "Company"), and have represented the Company in connection with that
certain Securities Purchase Agreement (the "Purchase Agreement") entered into
by and among the Company and the buyers named therein (collectively, the
"Holders") pursuant to which the Company issued to the Holders its Series __
Preferred Stock (the "Securities")] convertible into shares of the Company's
common stock, par value $.001 per share (the "Common Stock"), and Warrants
(the "the Warrants") to acquire shares of Common Stock. Pursuant to the
Purchase Agreement, the Company also has entered into a Registration Rights
Agreement with the Holders (the "Registration Rights Agreement") pursuant to
which the Company agreed, among other things, to register the Registrable
Securities (as defined in the Registration Rights Agreement), including the
shares of Common Stock issuable upon conversion of the Securities and
exercise of the Warrants, under the Securities Act of 1933, as amended (the
"1933 Act"). In connection with the Company's obligations under the
Registration Rights Agreement, on _______________, 1999, the Company filed a
Registration Statement on Form S-1 (File No. 333-_____________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities which names each of the Holders
as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at
[ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no
knowledge, after telephonic inquiry of a member of the SEC's staff, that any
stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC
and the Registrable Securities are available for resale under the 1933 Act
pursuant to the Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
CC: [LIST NAMES OF HOLDERS]
1
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
APRIL 23, 1999
450,000 shares Warrant No. W-2
THERMOVIEW INDUSTRIES, INC.
STOCK PURCHASE WARRANT
Registered Owner: BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.
This certifies that, for value received, Thermoview Industries, Inc., a
Delaware corporation, the ("COMPANY") grants the following rights to the
Registered Owner, or assigns, of this Warrant:
1. ISSUE. Upon tender (as defined in Section 5 hereof) to the
Company, the Company, within three Business Days of the date thereof, shall
issue to the Registered Owner, or assigns, up to the number of shares
specified in Section 2 hereof of fully paid and nonassessable shares of
Common Stock that the Registered Owner, or assigns, is otherwise entitled to
purchase.
2. NUMBER OF SHARES. The total number of shares of Common Stock that
the Registered Owner, or assigns, of this Warrant is entitled to receive upon
exercise of this Warrant (the "WARRANT SHARES") is four hundred and fifty
thousand (450,000) shares, subject to adjustment from time to time as set
forth in Section 6 hereof. The Company shall at all times reserve and hold
available sufficient shares of Common Stock to satisfy all conversion and
purchase rights represented by this Warrant. The Company covenants and agrees
that all shares of Common Stock that may be issued upon the exercise of this
Warrant shall, upon issuance, be duly and validly issued, fully paid and
nonassessable, free from all taxes, liens and charges with respect to the
purchase and the issuance of the shares, and shall not have any legend or
restrictions on resale, except as required by Section 3.1(b) of the Purchase
Agreement or applicable securities laws.
<PAGE>
3. EXERCISE PRICE. The initial per share exercise price of this
Warrant, representing the price per share at which the shares of stock
issuable upon exercise of this Warrant may be purchased, is seven dollars
($7.00), subject to adjustment from time to time pursuant to the provisions
of Section 6 hereof (the "EXERCISE PRICE").
4. EXERCISE PERIOD. This Warrant may be exercised from the Closing
Date (as defined in the Purchase Agreement) up to and including April 22,
2004 (5 years less 1 day) (the "EXERCISE PERIOD"). If not exercised during
this period, this Warrant and all rights granted under this Warrant shall
expire and lapse.
5. TENDER; ISSUANCE OF CERTIFICATES.
a. This Warrant may be exercised, in whole or in part, by (i) actual
delivery of (a) an amount of cash equal to the product of the Exercise
Price and the Warrant Shares to be purchased, (b) a duly executed Warrant
Exercise Form, a copy of which is attached to this Warrant as EXHIBIT A,
properly executed by the Registered Owner, or assigns, of this Warrant, and
(c) by surrender of this Warrant, or (ii) if the resale of the Warrant
Shares by the Registered Owner is not then registered pursuant to an
effective registration statement under the Securities Act, delivery to the
Company of a written notice of an election to effect a "Cashless Exercise"
(as defined below) for the Warrant Shares specified in the Warrant Exercise
Form. The Warrant Shares so purchased shall be deemed to be issued to the
Registered Owner as of the close of business on the date on which this
Warrant shall have been surrendered, the completed Warrant Exercise Form
shall have been delivered and payment shall have been made for such shares
as set forth above. The payment and Warrant Exercise Form must be
delivered to the registered office of the Company either in person or as
provided in Section 14 hereof.
b. Commencing ninety (90) days from the Filing Date (as defined in
the Registration Rights Agreement), if, and only if, at the time of
exercise of this Warrant, the Warrant Shares are not saleable pursuant to
an effective registration statement, then in addition to the exercise of
all or a part of this Warrant by payment of the Exercise Price in cash as
provided above, and in lieu of such payment, the Registered Owner shall
have the right to effect a cashless exercise (a "CASHLESS EXERCISE"). In
the event of a Cashless Exercise the Registered Owner may exercise this
Warrant in whole or in part by surrendering this Warrant in exchange for
the number of shares of Common Stock equal to the product of (x) the number
of shares as to which this Warrant is being exercised multiplied by (y) a
fraction, the numerator of which is the Per Share Market Value of the
Common Stock less the Exercise Price then in effect and the denominator of
which is the Per Share Market Value (in each case adjusted for fractional
shares as herein provided).
c. In lieu of physical delivery of the Warrant, provided the
Company's transfer agent is participating in The Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, upon request
of the Registered Owner and in compliance with the provisions hereof, the
Company shall use its best efforts to cause its transfer agent to
electronically transmit the Warrant Shares to the Registered Owner by
crediting the account of the Registered Owner's Prime Broker with DTC
2
<PAGE>
through its Deposit Withdrawal Agent Commission system. The time period
for delivery described herein shall apply to the electronic transmittals
described herein.
d. Certificates for the Warrant Shares so purchased, representing
the aggregate number of shares specified in the Warrant Exercise Form,
shall be delivered to the Registered Owner within a reasonable time, not
exceeding three (3) Business Days, after this Warrant shall have been so
exercised. The certificates so delivered shall be in such denominations as
may be requested by the Registered Owner and shall be registered in the
name of the Registered Owner or such other name as shall be designated by
such Registered Owner. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its
expense, at the time of delivery of such certificates, deliver to the
Registered Owner a new Warrant representing the number of shares with
respect to which this Warrant shall not then have been exercised.
6. ADJUSTMENT OF EXERCISE PRICE; ADJUSTMENT OF SHARES.
a. COMMON STOCK DIVIDENDS; COMMON STOCK SPLITS; REVERSE COMMON STOCK
SPLITS. If the Company, at any time while this Warrant is outstanding, (a)
shall pay a stock dividend on its Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine
outstanding shares of Common Stock into a smaller number of shares or (d)
issue by reclassification of shares of Common Stock any shares of capital
stock of the Company, then (i) the Exercise Price shall be multiplied by a
fraction the numerator of which shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding before such event and
the denominator of which shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this
paragraph (6)(a) shall become effective immediately after the record date
for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.
b. RIGHTS; WARRANTS. If the Company, at any time while this Warrant
is outstanding, shall issue rights or warrants to all of the holders of
Common Stock entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the Exercise Price, the Exercise Price
shall be multiplied by a fraction, the denominator of which shall be the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase, and the numerator of which shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would
purchase at the Exercise Price. Such adjustment shall be made whenever
such rights or warrants are issued, and shall become effective immediately
after the record date for the determination of stockholders entitled to
receive such rights or warrants.
3
<PAGE>
c. SUBSCRIPTION RIGHTS. If the Company, at any time while this
Warrant is outstanding, shall distribute to all of the holders of Common
Stock evidence of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in
paragraphs 6(a) and (b) above), then in each such case the Exercise Price
at which the Warrant shall thereafter be exercisable shall be determined by
multiplying the Exercise Price in effect immediately prior to the record
date fixed for determination of stockholders entitled to receive such
distribution by a fraction, the denominator of which shall be the Per Share
Market Value of Common Stock determined as of the record date mentioned
above, and the numerator of which shall be such Per Share Market Value of
the Common Stock on such record date less the then fair market value at
such record date of the portion of such assets or evidence of indebtedness
so distributed applicable to one outstanding share of Common Stock as
determined by the Board of Directors in good faith; PROVIDED, HOWEVER, that
in the event of a distribution exceeding ten percent (10%) of the net
assets of the Company, such fair market value shall be determined by an
Appraiser selected in good faith by the Registered Owner of the Warrant;
and PROVIDED, FURTHER, that the Company, after receipt of the determination
by such Appraiser shall have the right to select in good faith an
additional Appraiser meeting the same qualifications in which case the fair
market value shall be equal to the average of the determinations by each
such Appraiser. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the
record date mentioned above.
d. ROUNDING. All calculations under this Section 6 shall be made to
the nearest cent or the nearest l/l00th of a share, as the case may be.
e. NOTICE OF ADJUSTMENT. Whenever the Exercise Price is adjusted
pursuant to paragraphs 6(a), (b) or (c), the Company shall promptly deliver
to the Registered Owner a notice setting forth the Exercise Price after
such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
f. REDEMPTION EVENT. In case of (A) any reclassification of the
Common Stock, (B) any Change of Control (as such term is defined in the
Purchase Agreement), (C) any compulsory share exchange pursuant to which
the Common Stock is converted into other securities, cash or property, (D)
any suspension from listing or delisting of the Common Stock from the OTCBB
or any Subsequent Market (as defined in the Purchase Agreement) on which
the Common Stock is listed for a period of five consecutive days, (E) the
Company's notice to any registered owner of the Warrant Shares, including
by way of public announcement, at any time, of its intention, for any
reason, not to comply with proper requests for the exercise of any such
Warrant Shares, or (F) a breach by the Company of any representation,
warranty, covenant or other term or condition of the Purchase Agreement,
the Registration Rights Agreement, this Warrant, the Certificate of
Designation or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated
thereby or hereby, except to the extent that such breach would not have a
Material Adverse Effect (as defined in Section 2.1(a) of the Purchase
Agreement) and except, in the case of a breach of a covenant which is
4
<PAGE>
curable, only if such breach continues for a period of at least ten days
after the Company knows or reasonably should have known of the existence of
such breach (clauses (A) through (F) above are referred to as a "REDEMPTION
EVENT"), in the case of (A), (B) and (C), the Registered Owner shall have
the right thereafter to convert the Warrant for shares of stock and other
securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such Redemption Event, and the Registered
Owner shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the
Company into which the Warrant could have been converted immediately prior
to such Redemption Event (without taking into account any limitations or
restrictions on the convertibility of the Securities) would have been
entitled; PROVIDED, HOWEVER, that in the case of a transaction specified in
(B) in which holders of the Company's Common Stock receive cash, the
Registered Owner shall have the right to convert the Warrant Shares for
such number of shares of the surviving company equal to the amount of cash
into which the Warrant is convertible divided by the fair market value of
the shares of the surviving company on the effective date of the merger;
PROVIDED, FURTHER, that on and after the date of any Redemption Event, the
Registered Owner shall have the option to require the Company to redeem,
from funds legally available therefor at the time of such redemption, its
shares of Common Stock immediately theretofore acquirable and receivable
upon the conversion of such Registered Owner's Warrants at a price per
share equal to the product of (i) the average Per Share Market Value for
the five Trading Days immediately preceding (1) the effective date, the
date of the closing, date of occurrence or the date of the announcement, as
the case may be, of the Redemption Event triggering such redemption right
or (2) the date of payment in full by the Company of the redemption price
hereunder, whichever is greater, and (ii) the number of shares of Common
Stock of the Company into which the Warrant could have been converted
immediately prior to such Redemption Event. In the case of (A), (B) and
(C), the Company shall not effect any such Redemption Event unless, prior
to the consummation thereof, each Person (other than the Company) which may
be required to deliver any stock, securities, cash or property upon the
exercise of this Warrant as provided herein shall assume, by written
instrument delivered to, and reasonably satisfactory to, the Registered
Owner of this Warrant, (a) the obligations of the Company under this
Warrant (and if the Company shall survive the consummation of such
transaction, such assumption shall be in addition to, and shall not release
the Company from, any continuing obligations of the Company under this
Warrant), (b) the obligations of the Company under the Purchase Agreement,
the Certificate of Designation and the Registration Rights Agreement and
(c) the obligation to deliver to the Registered Owner such shares of stock,
securities, cash or property as, in accordance with the foregoing
provisions of this Section 6(f), the Registered Owner may be entitled to
receive. Nothing in this Section 6(f) shall be deemed to authorize the
Company to enter into any transaction not otherwise permitted by the
Purchase Agreement. This provision shall similarly apply to successive
Redemption Events.
5
<PAGE>
g. RECLASSIFICATION, ETC. If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(ii) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
(iii) the Company shall authorize the granting to the holders of
the Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; or
(iv) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock
of the Company, any consolidation or merger to which the Company is a
party, any sale or transfer of all or substantially all of the assets
of the Company, or any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or property; or
(v) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of exercise of this Warrant, and shall cause to
be delivered to the Registered Owner, at least 15 Business Days prior to
the applicable record or effective date hereinafter specified, a notice
(provided such notice shall not include any material non-public
information) stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; PROVIDED, HOWEVER, that the failure to
mail such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in
such notice. Notwithstanding the foregoing, the Registered Owner shall be
entitled to convert the Warrant for shares of Common Stock during the
15-day period commencing on the date of such notice to the effective date
of the event triggering such notice.
h. ADJUSTMENT TO EXERCISE PRICE. If the Company, at any time while
this Warrant is outstanding, takes any of the actions described in this
Section 6(h), then, in order to prevent dilution of the rights granted
under this Warrant, the Exercise Price will be subject to adjustment from
time to time as provided in this Section 6(h).
6
<PAGE>
(i) ADJUSTMENT OF EXERCISE PRICE UPON ISSUANCE OF COMMON STOCK.
If at any time while this Warrant is outstanding the Company issues or
sells, or is deemed to have issued or sold, any shares of Common Stock
(other than the Underlying Shares or shares of Common Stock deemed to
have been issued by the Company in connection with an Approved Stock
Plan or shares of Common Stock issuable upon the exercise of any
options or warrants outstanding on the date hereof and listed in
Schedule 2.1(c) of the Purchase Agreement or shares of Common Stock
issued or deemed to have been issued as consideration for an
acquisition (including earn-out payments funded with Common Stock) by
the Company of a division, assets or business (or stock constituting
any portion thereof) from another person) for a consideration per
share less than the Exercise Price in effect immediately prior to such
issuance or sale, then immediately after such issue or sale, the
Exercise Price then in effect shall be reduced to an amount equal to
the consideration per share of Common Stock of such issuance or sale.
For the purpose of determining the adjusted Exercise Price under this
Section 6(h)(i), the following shall be applicable:
(A) ISSUANCE OF OPTIONS. If at any time while this
Warrant is outstanding the Company in any manner grants any rights or
options to subscribe for or to purchase Common Stock or any stock or
other securities convertible into or exchangeable for Common Stock
(other than the Underlying Shares or shares of Common Stock deemed to
have been issued by the Company in connection with an Approved Stock
Plan or shares of Common Stock issuable upon the exercise of any
options or warrants outstanding on the date hereof and listed in
Schedule 2.1(c) of the Purchase Agreement or shares of Common Stock
issued or deemed to have been issued as consideration for an
acquisition (including earn-out payments funded with Common Stock) by
the Company of a division, assets or business (or stock constituting
any portion thereof) from another person) (such rights or options
being herein called "OPTIONS" and such convertible or exchangeable
stock or securities being herein called "CONVERTIBLE SECURITIES") and
the price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such
Convertible Securities is less than the Exercise Price in effect
immediately prior to such grant, then the Exercise Price shall be
adjusted to equal the price per share for which Common Stock is
issuable upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities. No adjustment of the
Exercise Price shall be made upon the actual issuance of such Common
Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(B) ISSUANCE OF CONVERTIBLE SECURITIES. If at any
time while this Warrant is outstanding the Company in any manner
issues or sells any Convertible Securities and the price per share
for which Common Stock is issuable upon such conversion or exchange
(other than the Underlying Shares or shares of Common
7
<PAGE>
Stock deemed to have been issued by the Company in connection with
an Approved Stock Plan, shares of Common Stock issuable upon the
exercise of any options or warrants outstanding on the date hereof
and listed in Schedule 2.1(c) of the Purchase Agreement, or shares
of Common Stock issued or deemed to have been issued as consideration
for an acquisition (including earn-out payments funded with Common
Stock) by the Company of a division, assets or business (or stock
constituting any portion thereof) from another person) is less than
the Exercise Price in effect immediately prior to issuance or sale,
then the Exercise Price shall be adjusted to equal the price per
share for which Common Stock is issuable upon the conversion or
exchange of such Convertible Securities. No adjustment of the Exercise
Price shall be made upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any
such issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustment of the Exercise Price
had been or are to be made pursuant to other provisions of this
Section 6(h)(i), no further adjustment of the Exercise Price shall be
made by reason of such issue or sale.
(C) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If
there is a change at any time in (i) the purchase price provided for
in any Options, (ii) the additional consideration, if any, payable
upon the issuance, conversion or exchange of any Convertible
Securities or (iii) the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock, then the Exercise
Price in effect at the time of such change shall be readjusted to the
Exercise Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or
sold; provided that no adjustment shall be made if such adjustment
would result in an increase of the Exercise Price then in effect.
(D) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For
purposes of determining the adjusted Exercise Price under this
Section 6(h)(i), the following shall be applicable:
(I) CALCULATION OF CONSIDERATION RECEIVED. If any
Common Stock, Options or Convertible Securities are issued
or sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the
net amount received by the Company therefor. In case any
Common Stock, Options or Convertible Securities are issued
or sold for a consideration other than cash, the amount of
the consideration other than cash received by the Company
will be the fair value of such consideration, except where
such consideration consists of securities, in which case the
amount of consideration received by the Company will be the
arithmetic average of the Per Share Market Values of such
security for the five (5) consecutive Trading Days
immediately preceding the date of receipt thereof. In case
any Common Stock, Options or Convertible Securities are
issued to
8
<PAGE>
the owners of the non-surviving entity in connection with
any merger in which the Company is the surviving entity the
amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and
the registered owners of a majority of the Underlying Shares
of Warrants then outstanding. If such parties are unable to
reach agreement within thirty (30) days after the occurrence
of an event requiring valuation (the "VALUATION EVENT"),
the fair value of such consideration will be determined
within four (4) days of the thirtieth (30th) day following
the Valuation Event by an Appraiser selected in good faith
by the Company and agreed upon in good faith by the holders
of a majority of the Warrants then outstanding. The
determination of such Appraiser shall be binding upon all
parties absent manifest error.
(II) INTEGRATED TRANSACTIONS. In case any
Option is issued in connection with the issue or sale of
other securities of the Company, together comprising one
integrated transaction in which no specific consideration
is allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for an aggregate
consideration of $.001.
(III) TREASURY SHARES. The number of shares
of Common Stock outstanding at any given time does not
include shares owned or held by or for the account of the
Company, and the disposition of any shares so owned or held
will be considered an issue or sale of Common Stock.
(IV) RECORD DATE. If the Company takes a
record of the holders of Common Stock for the purpose of
entitling them (1) to receive a dividend or other
distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such
record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the
case may be.
(V) CERTAIN EVENTS. If any event occurs of
the type contemplated by the provisions of this Section
6(h)(i) (subject to the exceptions stated therein) but
not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity
features), then the Company's Board of Directors will make
an appropriate adjustment in the Exercise Price so as to
protect the rights of the Registered Owner, or assigns, of
this Warrant; provided, however, that no
9
<PAGE>
such adjustment will increase the Exercise Price as
otherwise determined pursuant to this Section 6(h).
(i) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the
Exercise Price as a result of the calculations made in this Section 6, this
Warrant shall thereafter evidence the right to receive, at the adjusted
Exercise Price, that number of shares of Common Stock (calculated to the
nearest one-hundredth) obtained by dividing (i) the product of the
aggregate number of shares covered by this Warrant immediately prior to
such adjustment and the Exercise Price in effect immediately prior to such
adjustment of the Exercise Price by (ii) the Exercise Price in effect
immediately after such adjustment of the Exercise Price.
(j) INCREASE IN EXERCISE PRICE. In no event shall any provision in
this Section 6 cause the Exercise Price to be greater than the Exercise
Price on the date of issuance of this Warrant.
(k) CERTAIN EXCEPTIONS. Sections 6(a) through 6(j) shall not apply
to (i) the issuance of any securities (including, but not limited to,
subordinated debt, preferred stock or warrants) to General Electric Capital
Corporation or its affiliates (collectively "GE") in connection with
financing currently being negotiated by the Company and GE but not yet
agreed upon or finalized or (ii) securities to be issued by the Company or
selling stockholders in connection with a public offering by the Company;
PROVIDED, HOWEVER, that this Section 6(k) shall be null and void if the
exercise price of any other warrants issued by the Company is reduced due
to the occurrence of an event described in Section 6(k)(i) or (ii).
7. RESTRICTION ON EXERCISE BY EITHER THE REGISTERED OWNER OR THE
COMPANY. Notwithstanding anything herein to the contrary, in no event shall
any Registered Owner or the Company have the right or be required to exercise
this Warrant if as a result of such exercise the aggregate number of shares
of Common Stock beneficially owned by such Registered Owner and its
Affiliates would exceed 4.99% of the outstanding shares of the Common Stock
following such exercise. For purposes of this Section 7, beneficial
ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended. The provisions of this Section
7 may be waived by a Registered Owner as to itself (and solely as to itself)
upon not less than 65 days prior written notice to the Company, and the
provisions of this Section 7 shall continue to apply until such 65th day (or
later, if stated in the notice of waiver).
8. OFFICER'S CERTIFICATE. Whenever the number of shares purchasable upon
exercise shall be adjusted as required by the provisions of Section 6, the
Company shall forthwith maintain at its principal office an officer's
certificate showing the adjusted number of shares determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment and the
manner of computing such adjustment. Each such officer's certificate shall be
signed by the chairman, president or chief financial officer of the Company and
by the secretary or any assistant secretary of the Company. Each such officer's
certificate shall be made
10
<PAGE>
available at all reasonable times for inspection by any Registered Owner of
the Warrants and the Company shall, forthwith after each such adjustment,
deliver a copy of such certificate to the each of the Registered Owners.
9. DEFINITIONS. Capitalized terms used herein and not otherwise
defined herein shall have the meanings given to such terms in the Purchase
Agreement. As used in this Warrant, the following terms have the following
meanings:
"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control
with such Person. For the purposes of this definition, "CONTROL," when used
with respect to any Person, means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "AFFILIATED," CONTROLLING" and "CONTROLLED" have
meanings correlative to the foregoing.
"APPRAISER" shall mean a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants
of recognized standing.
"APPROVED STOCK PLAN" shall mean any contract, plan or agreement which
has been approved by the Board of Directors of the Company, pursuant to which
the Company's securities may be issued to any employee, officer, director or
consultant.
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the state
of New York generally are authorized or required by law or other government
actions to close.
"CLOSING" has the meaning set forth in Section 1.2 of the Purchase
Agreement.
"COMMON STOCK" means the shares of the Company's Common Stock, par value
$.001 per share.
"COMPANY" means Thermoview Industries, Inc., a Delaware corporation.
"CONVERTIBLE SECURITIES" has the meaning assigned to it in Section
6(h)(i)(A) hereof.
"EXERCISE PERIOD" has the meaning assigned to it in Section 4 hereof.
"EXERCISE PRICE" has the meaning assigned to it in Section 3 hereof
"OPTIONS" has the meaning assigned to it in Section 6(h)(i)(A) hereof.
"OTCBB" means the OTC Bulletin Board of the National Association of
Securities Dealers, Inc.
"PER SHARE MARKET VALUE" means on any particular date (i) the closing
bid price per share of the Common Stock on such date on the National Market
System of the Nasdaq Stock Market or other registered national stock exchange
on which the Common Stock is then listed or if there
11
<PAGE>
is no such price on such date, then the closing bid price on such exchange or
quotation system on the date nearest preceding such date, or (ii) if the
Common Stock is not listed then on the National Market System of the Nasdaq
Stock Market or any registered national stock exchange, the closing bid price
for a share of Common Stock in the over-the-counter market, as reported by
the National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices) at the close of business on
such date, or (iii) if the Common Stock is not then publicly traded the fair
market value of a share of Common Stock as determined by an Appraiser
selected in good faith by the holder of this Warrant; PROVIDED, HOWEVER, that
the Company, after receipt of the determination by such Appraiser, shall have
the right to select, in good faith, an additional Appraiser, in which case
the fair market value shall be equal to the average of the determinations by
each such Appraiser; and PROVIDED, FURTHER that all determinations of the Per
Share Market Value shall be appropriately adjusted for any stock dividends,
stock splits or other similar transactions during such period.
"PURCHASE AGREEMENT" means that certain Securities Purchase Agreement,
dated April 23, 1999, among the Company and the Purchasers.
"PURCHASER" has the meaning set forth in the Purchase Agreement.
"REDEMPTION EVENT" has the meaning assigned to it in Section 6(f) hereof.
"REGISTERED OWNER" means the person identified on the face of this
Warrant as the registered owner hereof or such other person as shown on the
records of the Company as being the registered owner of this Warrant.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights
Agreement, dated April 23, 1999, among the Company and the Purchasers.
"TRADING DAY(S)" means any day on which the primary market on which
shares of Common Stock are listed is open for trading.
"UNDERLYING SHARES" has the meaning assigned to it in Section 2.1(d) of
the Purchase Agreement.
"WARRANT(S)" means the warrants issuable at the Closing.
12. REGISTRATION RIGHTS. The Company will undertake the registration of
the Common Stock into which such Warrants are exercisable at such times and
upon such terms pursuant to the provisions of the Registration Rights
Agreement.
13. RESERVATION OF UNDERLYING SHARES; LISTING. The Company covenants
that it will at all times reserve and keep available out of its authorized
shares of Common Stock, free from preemptive rights, solely for the purpose
of issue upon exercise of the Warrants as herein provided, such number of
shares of the Common Stock as shall then be issuable upon the exercise of all
outstanding Warrants into Common Stock. The Company covenants that all
shares of the Common Stock issued upon exercise of the Warrant which shall be
so issuable shall, when issued, be duly and validly issued and fully paid and
non-assessable. The Company
12
<PAGE>
shall promptly secure the listing of the shares of Common Stock issuable upon
exercise of the Warrant upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance upon exercise of this Warrant) and
shall maintain, so long as any other shares of Common Stock shall be so
listed, such listing of all shares of Common Stock from time to time issuable
upon the exercise of this Warrant and the Company shall so list on each
national securities exchange or automated quotation system, as the case may
be, and shall maintain such listing of, any other shares of capital stock of
the Company issuable upon the exercise of this Warrant if and so long as any
shares of the same class shall be listed on such national securities exchange
or automated quotation system.
14. NOTICES. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be deemed to have been
received (a) upon hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile (with transmission
confirmation report) at the address or number designated below (if received
by 8:00 p.m. EST where such notice is to be received), or the first Business
Day following such delivery (if received after 8:00 p.m. EST where such
notice is to be received) or (b) on the second Business Day following the
date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications are (i) if to the Company to
ThermoView Industries, Inc., 1101 Herr Lane, Louisville, KY 40222, attn:
Nelson Clemmens with copies to Stites & Harbison, 400 West Market Street,
Suite 1800, Louisville, KY, 40202, attn: Alex P. Herrington, Jr., Esq., fax
no. (502) 587-6391 and (ii) if to the Registered Owner to Brown Simpson
Strategic Growth Fund, L.P., 152 West 57th Street, 40th Floor, New York, New
York 10019, attn: Paul Gustus with copies to Akin, Gump, Strauss, Hauer &
Feld, L.L.P., 590 Madison Avenue, New York, New York 10022, attn: James Kaye,
fax no. (212) 872-1002 or such other address as may be designated in writing
hereafter, in the same manner, by such person.
15. COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. The Company covenants
that if any shares of Common Stock required to be reserved for purposes of
exercise of Warrants hereunder require registration with or approval of any
governmental authority under any Federal or state law, or any national
securities exchange, before such shares may be issued upon exercise, the
Company will use its best efforts to cause such shares to be duly registered
or approved, as the case may be.
16. FRACTIONAL SHARES. Upon any exercise hereunder, the Company shall
not be required to issue stock certificates representing fractions of shares
of the Common Stock, but may if otherwise permitted make a cash payment in
respect of any final fraction of a share based on the Per Share Market Value
at such time. If the Company elects not, or is unable, to make such a cash
payment, the Registered Owner shall be entitled to receive, in lieu of the
final fraction of a share, one whole share of Common Stock.
13
<PAGE>
17. PAYMENT OF TAX UPON ISSUE OF TRANSFER. The issuance of
certificates for shares of the Common Stock upon exercise of the Warrants
shall be made without charge to the Registered Owners thereof for any
documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate upon exercise
in a name other than that of the Registered Owner of such Warrant so
converted 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.
18. WARRANTS OWNED BY COMPANY DEEMED NOT OUTSTANDING. In determining
whether the holders of the outstanding Warrants have concurred in any
direction, consent or waiver under this Warrant, warrants which are owned by
the Company or any other obligor on the warrants or by any person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company or any other obligor on the warrants shall be
disregarded and deemed not to be outstanding for the purpose of any such
determination; provided that any Warrants owned by the Purchasers (as defined
in the Purchase Agreement) shall be deemed outstanding for purposes of making
such a determination. Warrants so owned which have been pledged in good
faith may be regarded as outstanding if the pledgee establishes to the
satisfaction of the Company the pledgee's right so to act with respect to
such warrants and that the pledgee is not the Company or any other obligor
upon the securities or any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or
any other obligor on the warrants.
19. EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not affect the construction hereof.
20. NO RIGHTS AS STOCKHOLDER. This Warrant shall not entitle the
Registered Owner to any rights as a stockholder of the Company, including
without limitation, the right to vote, to receive dividends and other
distributions, or to receive notice of, or to attend, meetings of
stockholders or any other proceedings of the Company, unless and to the
extent converted into shares of Common Stock in accordance with the terms
hereof.
21. CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment of
its charter documents or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed by it hereunder, but will at all
times in good faith assist in the carrying out of all the provisions of this
Warrant and in the taking of all such action as may reasonably be requested
by the holder of this Warrant in order to protect the exercise privilege of
the holder of this Warrant against dilution or other impairment, consistent
with the tenor and purpose of this Warrant. Without limiting the generality
of the foregoing, the Company (i) will not increase the par value of any
shares of Common Stock receivable upon the exercise of this Warrant above the
Exercise Price then in effect, and (ii) will take all such actions as may be
necessary or appropriate in order that the
14
<PAGE>
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
22. STOCKHOLDER RIGHTS PLAN. Notwithstanding the foregoing, in the
event that the Company shall distribute "poison pill" rights pursuant to a
"poison pill" stockholder rights plan (the "Rights"), the Company shall, in
lieu of making any adjustment pursuant to Section 6 hereof, make proper
provision so that each Registered Owner who exercises a Warrant after the
record date for such distribution and prior to the expiration or redemption
of the Rights shall be entitled to receive upon such exercise, in addition to
the shares of Common Stock issuable upon such exercise, a number of Rights to
be determined as follows: (i) if such exercise occurs on or prior to the date
for the distribution to the holders of Rights of separate certificates
evidencing such Rights (the "DISTRIBUTION DATE"), the same number of Rights
to which a holder of a number of shares of Common Stock equal to the number
of shares of Common Stock issuable upon such exercise at the time of such
exercise would be entitled in accordance with the terms and provisions of and
applicable to the Rights; and (ii) if such exercise occurs after the
Distribution Date, the same number of Rights to which a holder of the number
of shares into which the Warrant to be exercised was exercisable immediately
prior to the Distribution Date would have been entitled on the Distribution
Date in accordance with the terms and provisions of and applicable to the
Rights, and in each case subject to the terms and conditions of the Rights.
23. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon and
inure to the benefit of the Registered Owners and its assigns, and shall be
binding upon any entity succeeding to the Company by merger or acquisition of
all or substantially all the assets of the Company. The Company may not
assign this Warrant or any rights or obligations hereunder without the prior
written consent of the Registered Owner. The Registered Owner may assign
this Warrant without the prior written consent of the Company; subject in all
events to requirements of federal and state securities laws.
24. GOVERNING LAW. This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the nonexclusive jurisdiction of the state and
federal courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in
any such suit, action or proceeding by mailing a copy thereof to such party
at the address for such notices to it under this Warrant and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH
OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
15
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer as of the date first set forth above.
THERMOVIEW INDUSTRIES, INC.
By: /s/ Nelson E. Clemmens
--------------------------------------
Name: Nelson E. Clemmens
Title: President
16
<PAGE>
EXHIBIT A
Warrant Exercise Form
TO: THERMOVIEW INDUSTRIES, INC.
The undersigned hereby: (1) irrevocably subscribes for and offers to
purchase _______ shares of Common Stock of Thermoview Industries, Inc., pursuant
to Warrant No. ___ heretofore issued to ___________________ on ____________,
199_; (2) (a) encloses a payment in cash of $__________ for these shares at a
price of $____ per share (as adjusted pursuant to the provisions of the
Warrant); and, or (b) elects to make a cashless exercise (3) requests that a
certificate for the shares be issued in the name of the undersigned and
delivered to the undersigned at the address specified below.
Date:
----------------------------------------
Investor Name:
----------------------------------------
Taxpayer Identification
Number:
----------------------------------------
By:
----------------------------------------
Printed Name:
----------------------------------------
Title:
----------------------------------------
Address:
----------------------------------------
----------------------------------------
----------------------------------------
Cashless Exercise (Y or N): __
Note: The above signature should correspond exactly with the
name on the face of this Warrant Certificate or with the
name of assignee appearing in assignment form below.
AND, if said number of shares shall not be all the shares purchasable under
the within Warrant, a new Warrant Certificate is to be issued in the name of
said undersigned for the balance remaining of the shares purchasable
thereunder less any fraction of a share paid in cash and delivered to the
address stated above.
17
<PAGE>
FIRST AMENDMENT
TO
STOCK PURCHASE WARRANT
(WARRANT NO. W-2)
With this First Amendment to Stock Purchase Warrant (Warrant
No. W-2), dated as of July 8, 1999 (this "First Amendment"), ThermoView
Industries, Inc., a Delaware corporation (the "Company") and Brown Simpson
Strategic Growth Fund, L.P. (the "Registered Owner") hereby mutually agree to
amend that certain Stock Purchase Warrant (Warrant No. W-2), dated as of
April 23, 1999 (the "Warrant"), issued by the Company to the Registered
Owner, as follows:
A new section of the Warrant, Section 6(l) is added, as
follows:
"6(l) REDEMPTION DEMAND. Notwithstanding anything to the contrary
contained herein, the Company shall not be required to repurchase or redeem
any shares of Common Stock issuable upon exercise or conversion of this
Warrant if such repurchase or redemption would result in the occurrence of a
default or event of default under any of the Company's respective loan
documents (the "Loan Documents") with (i) PNC Bank, N.A., (ii) any successor
senior lender, or (iii) GE Capital Equity Investments, Inc.; PROVIDED,
HOWEVER, that in each such event: (a) the Company shall provide the
Registered Owner with written notice (the "Violation Notice"), within three
(3) Business Days of such Registered Owner's repurchase or redemption demand
(the "Redemption Demand"), that such repurchase or redemption would result
in the occurrence of a default or event of default under the Loan Documents,
(b) the Exercise Price shall be reduced, at the Registered Owner's option, to
the Per Share Market Value for the five (5) Trading Days immediately
preceding the date the Redemption Demand was made or the date that the
Company delivered the Violation Notice and (c) the Company shall deliver to
the Registered Owner the Officer's Certificate pursuant to Section 8 of this
Warrant, setting forth the Exercise Price as reduced pursuant to the terms
hereof."
<PAGE>
IN WITNESS WHEREOF, Company has executed this First Amendment as of the day
and year first written above.
"Company"
THERMOVIEW INDUSTRIES, INC.
By: /s/ Nelson E. Clemmens
---------------------------------------------
Name: Nelson E. Clemmens
Title: President
AGREED AND ACKNOWLEDGED:
"Registered Owner"
BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.
By: /s/ James R. Simpson
---------------------------------------------
Name: James R. Simpson
Title: Principal
-2-
<PAGE>
SECOND AMENDMENT
TO
STOCK PURCHASE WARRANT
(WARRANT NO. W-2)
With this Second Amendment to Stock Purchase Warrant (Warrant No. W-2),
dated as of August 3, 1999 (this "Second Amendment"), ThermoView Industries,
Inc., a Delaware corporation (the "Company") and Brown Simpson Strategic
Growth Fund, L.P. (the "Registered Owner") hereby mutually agree to amend
that certain Stock Purchase Warrant (Warrant No. W-2), dated as of April 23,
1999, as amended by that First Amendment to Stock Purchase Warrant, dated as
of July 8, 1999 (the "Warrant"), issued by the Company to the Registered
Owner, as follows:
2. Section 3 of the Warrant shall be amended to read as follows:
3. Exercise Price.
a. The initial per share exercise price of this Warrant,
representing the price per share at which the shares of stock issuable
upon exercise of this Warrant may be purchased, is six dollars
($6.00), subject to adjustment from time to time pursuant to the
provisions of Section 6 hereof (the "EXERCISE PRICE").
b. Registered Owner agrees to enter into a Lock-Up Agreement
in the form of EXHIBIT A hereto, on August 4, 1999 with the Lock-Up
Period commencing on the date of the closing of the initial public
offering of the Company's Common Stock and terminating on January
31, 1999.
<PAGE>
IN WITNESS WHEREOF, the company has executed this Second Amendment as of
the date and year first written above.
THERMOVIEW INDUSTRIES, INC.
By: /s/ Nelson E. Clemmens
------------------------
Name: Nelson E. Clemmens
Title: President
AGREED AND ACKNOWLEDGED:
BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.
By: /s/ James R. Simpson
--------------------------
Name: James R. Simpson
Title: Principal
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
APRIL 23, 1999
750,000 shares Warrant No. W-1
THERMOVIEW INDUSTRIES, INC.
STOCK PURCHASE WARRANT
Registered Owner: BROWN SIMPSON STRATEGIC GROWTH FUND, LTD.
This certifies that, for value received, Thermoview Industries, Inc.,
a Delaware corporation, the ("COMPANY") grants the following rights to the
Registered Owner, or assigns, of this Warrant:
1. ISSUE. Upon tender (as defined in Section 5 hereof) to the
Company, the Company, within three Business Days of the date thereof, shall
issue to the Registered Owner, or assigns, up to the number of shares
specified in Section 2 hereof of fully paid and nonassessable shares of
Common Stock that the Registered Owner, or assigns, is otherwise entitled to
purchase.
2. NUMBER OF SHARES. The total number of shares of Common Stock
that the Registered Owner, or assigns, of this Warrant is entitled to receive
upon exercise of this Warrant (the "WARRANT SHARES") is seven hundred and
fifty thousand (750,000) shares, subject to adjustment from time to time as
set forth in Section 6 hereof. The Company shall at all times reserve and
hold available sufficient shares of Common Stock to satisfy all conversion
and purchase rights represented by this Warrant. The Company covenants and
agrees that all shares of Common Stock that may be issued upon the exercise
of this Warrant shall, upon issuance, be duly and validly issued, fully paid
and nonassessable, free from all taxes, liens and charges with respect to the
purchase and the issuance of the shares, and shall not have any legend or
restrictions on resale, except as required by Section 3.1(b) of the Purchase
Agreement or applicable securities laws.
<PAGE>
3. EXERCISE PRICE. The initial per share exercise price of this
Warrant, representing the price per share at which the shares of stock
issuable upon exercise of this Warrant may be purchased, is seven dollars
($7.00), subject to adjustment from time to time pursuant to the provisions
of Section 6 hereof (the "EXERCISE PRICE").
4. EXERCISE PERIOD. This Warrant may be exercised from the
Closing Date (as defined in the Purchase Agreement) up to and including April
22, 2004 (5 years less 1 day) (the "EXERCISE PERIOD"). If not exercised
during this period, this Warrant and all rights granted under this Warrant
shall expire and lapse.
5. TENDER; ISSUANCE OF CERTIFICATES.
a. This Warrant may be exercised, in whole or in part, by (i)
actual delivery of (a) an amount of cash equal to the product of the
Exercise Price and the Warrant Shares to be purchased, (b) a duly
executed Warrant Exercise Form, a copy of which is attached to this
Warrant as EXHIBIT A, properly executed by the Registered Owner, or
assigns, of this Warrant, and (c) by surrender of this Warrant, or (ii)
if the resale of the Warrant Shares by the Registered Owner is not then
registered pursuant to an effective registration statement under the
Securities Act, delivery to the Company of a written notice of an
election to effect a "Cashless Exercise" (as defined below) for the
Warrant Shares specified in the Warrant Exercise Form. The Warrant
Shares so purchased shall be deemed to be issued to the Registered Owner
as of the close of business on the date on which this Warrant shall have
been surrendered, the completed Warrant Exercise Form shall have been
delivered and payment shall have been made for such shares as set forth
above. The payment and Warrant Exercise Form must be delivered to the
registered office of the Company either in person or as provided in
Section 14 hereof.
b. Commencing ninety (90) days from the Filing Date (as
defined in the Registration Rights Agreement), if, and only if, at the
time of exercise of this Warrant, the Warrant Shares are not saleable
pursuant to an effective registration statement, then in addition to the
exercise of all or a part of this Warrant by payment of the Exercise
Price in cash as provided above, and in lieu of such payment, the
Registered Owner shall have the right to effect a cashless exercise (a
"CASHLESS EXERCISE"). In the event of a Cashless Exercise the Registered
Owner may exercise this Warrant in whole or in part by surrendering this
Warrant in exchange for the number of shares of Common Stock equal to the
product of (x) the number of shares as to which this Warrant is being
exercised multiplied by (y) a fraction, the numerator of which is the Per
Share Market Value of the Common Stock less the Exercise Price then in
effect and the denominator of which is the Per Share Market Value (in
each case adjusted for fractional shares as herein provided).
c. In lieu of physical delivery of the Warrant, provided the
Company's transfer agent is participating in The Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, upon request
of the Registered Owner and in compliance with the provisions hereof, the
Company shall use its best efforts to cause its transfer agent to
electronically transmit the Warrant Shares to the Registered Owner by
crediting the account of the Registered Owner's Prime Broker with DTC
2
<PAGE>
through its Deposit Withdrawal Agent Commission system. The time period
for delivery described herein shall apply to the electronic transmittals
described herein.
d. Certificates for the Warrant Shares so purchased,
representing the aggregate number of shares specified in the Warrant
Exercise Form, shall be delivered to the Registered Owner within a
reasonable time, not exceeding three (3) Business Days, after this
Warrant shall have been so exercised. The certificates so delivered
shall be in such denominations as may be requested by the Registered
Owner and shall be registered in the name of the Registered Owner or such
other name as shall be designated by such Registered Owner. If this
Warrant shall have been exercised only in part, then, unless this Warrant
has expired, the Company shall, at its expense, at the time of delivery
of such certificates, deliver to the Registered Owner a new Warrant
representing the number of shares with respect to which this Warrant
shall not then have been exercised.
6. ADJUSTMENT OF EXERCISE PRICE; ADJUSTMENT OF SHARES.
a. COMMON STOCK DIVIDENDS; COMMON STOCK SPLITS; REVERSE COMMON
STOCK SPLITS. If the Company, at any time while this Warrant is
outstanding, (a) shall pay a stock dividend on its Common Stock, (b)
subdivide outstanding shares of Common Stock into a larger number of
shares, (c) combine outstanding shares of Common Stock into a smaller
number of shares or (d) issue by reclassification of shares of Common
Stock any shares of capital stock of the Company, then (i) the Exercise
Price shall be multiplied by a fraction the numerator of which shall be
the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and the denominator of which shall be the
number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this paragraph (6)(a) shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
b. RIGHTS; WARRANTS. If the Company, at any time while this
Warrant is outstanding, shall issue rights or warrants to all of the
holders of Common Stock entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the Exercise Price,
the Exercise Price shall be multiplied by a fraction, the denominator of
which shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of Common Stock offered for
subscription or purchase, and the numerator of which shall be the number
of shares of Common Stock (excluding treasury shares, if any) outstanding
on the date of issuance of such rights or warrants plus the number of
shares which the aggregate offering price of the total number of shares
so offered would purchase at the Exercise Price. Such adjustment shall
be made whenever such rights or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants.
3
<PAGE>
c. SUBSCRIPTION RIGHTS. If the Company, at any time while
this Warrant is outstanding, shall distribute to all of the holders of
Common Stock evidence of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
paragraphs 6(a) and (b) above), then in each such case the Exercise Price
at which the Warrant shall thereafter be exercisable shall be determined
by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive
such distribution by a fraction, the denominator of which shall be the
Per Share Market Value of Common Stock determined as of the record date
mentioned above, and the numerator of which shall be such Per Share
Market Value of the Common Stock on such record date less the then fair
market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding
share of Common Stock as determined by the Board of Directors in good
faith; PROVIDED, HOWEVER, that in the event of a distribution exceeding
ten percent (10%) of the net assets of the Company, such fair market
value shall be determined by an Appraiser selected in good faith by the
Registered Owner of the Warrant; and PROVIDED, FURTHER, that the Company,
after receipt of the determination by such Appraiser shall have the right
to select in good faith an additional Appraiser meeting the same
qualifications in which case the fair market value shall be equal to the
average of the determinations by each such Appraiser. Such adjustment
shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
d. ROUNDING. All calculations under this Section 6 shall be
made to the nearest cent or the nearest l/l00th of a share, as the case
may be.
e. NOTICE OF ADJUSTMENT. Whenever the Exercise Price is
adjusted pursuant to paragraphs 6(a), (b) or (c), the Company shall
promptly deliver to the Registered Owner a notice setting forth the
Exercise Price after such adjustment and setting forth a brief statement
of the facts requiring such adjustment.
f. REDEMPTION EVENT. In case of (A) any reclassification of
the Common Stock, (B) any Change of Control (as such term is defined in
the Purchase Agreement), (C) any compulsory share exchange pursuant to
which the Common Stock is converted into other securities, cash or
property, (D) any suspension from listing or delisting of the Common
Stock from the OTCBB or any Subsequent Market (as defined in the Purchase
Agreement) on which the Common Stock is listed for a period of five
consecutive days, (E) the Company's notice to any registered owner of the
Warrant Shares, including by way of public announcement, at any time, of
its intention, for any reason, not to comply with proper requests for the
exercise of any such Warrant Shares, or (F) a breach by the Company of
any representation, warranty, covenant or other term or condition of the
Purchase Agreement, the Registration Rights Agreement, this Warrant, the
Certificate of Designation or any other agreement, document, certificate
or other instrument delivered in connection with the transactions
contemplated thereby or hereby, except to the extent that such breach
would not have a Material Adverse Effect (as defined in Section 2.1(a) of
the Purchase Agreement) and except, in the case of a breach of a covenant
which is
4
<PAGE>
curable, only if such breach continues for a period of at least ten days
after the Company knows or reasonably should have known of the existence
of such breach (clauses (A) through (F) above are referred to as a
"REDEMPTION EVENT"), in the case of (A), (B) and (C), the Registered
Owner shall have the right thereafter to convert the Warrant for shares
of stock and other securities, cash and property receivable upon or
deemed to be held by holders of Common Stock following such Redemption
Event, and the Registered Owner shall be entitled upon such event to
receive such amount of securities, cash or property as the shares of the
Common Stock of the Company into which the Warrant could have been
converted immediately prior to such Redemption Event (without taking into
account any limitations or restrictions on the convertibility of the
Securities) would have been entitled; PROVIDED, HOWEVER, that in the case
of a transaction specified in (B) in which holders of the Company's
Common Stock receive cash, the Registered Owner shall have the right to
convert the Warrant Shares for such number of shares of the surviving
company equal to the amount of cash into which the Warrant is convertible
divided by the fair market value of the shares of the surviving company
on the effective date of the merger; PROVIDED, FURTHER, that on and after
the date of any Redemption Event, the Registered Owner shall have the
option to require the Company to redeem, from funds legally available
therefor at the time of such redemption, its shares of Common Stock
immediately theretofore acquirable and receivable upon the conversion of
such Registered Owner's Warrants at a price per share equal to the
product of (i) the average Per Share Market Value for the five Trading
Days immediately preceding (1) the effective date, the date of the
closing, date of occurrence or the date of the announcement, as the case
may be, of the Redemption Event triggering such redemption right or (2)
the date of payment in full by the Company of the redemption price
hereunder, whichever is greater, and (ii) the number of shares of Common
Stock of the Company into which the Warrant could have been converted
immediately prior to such Redemption Event. In the case of (A), (B) and
(C), the Company shall not effect any such Redemption Event unless, prior
to the consummation thereof, each Person (other than the Company) which
may be required to deliver any stock, securities, cash or property upon
the exercise of this Warrant as provided herein shall assume, by written
instrument delivered to, and reasonably satisfactory to, the Registered
Owner of this Warrant, (a) the obligations of the Company under this
Warrant (and if the Company shall survive the consummation of such
transaction, such assumption shall be in addition to, and shall not
release the Company from, any continuing obligations of the Company under
this Warrant), (b) the obligations of the Company under the Purchase
Agreement, the Certificate of Designation and the Registration Rights
Agreement and (c) the obligation to deliver to the Registered Owner such
shares of stock, securities, cash or property as, in accordance with the
foregoing provisions of this Section 6(f), the Registered Owner may be
entitled to receive. Nothing in this Section 6(f) shall be deemed to
authorize the Company to enter into any transaction not otherwise
permitted by the Purchase Agreement. This provision shall similarly
apply to successive Redemption Events.
5
<PAGE>
g. RECLASSIFICATION, ETC. If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(ii) the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common Stock; or
(iii) the Company shall authorize the granting to the
holders of the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any
rights; or
(iv) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the
Common Stock of the Company, any consolidation or merger to which
the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, or any compulsory
share exchange whereby the Common Stock is converted into other
securities, cash or property; or
(v) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs
of the Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of exercise of this Warrant, and shall cause
to be delivered to the Registered Owner, at least 15 Business Days prior
to the applicable record or effective date hereinafter specified, a
notice (provided such notice shall not include any material non-public
information) stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or (y)
the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and
the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share
exchange; PROVIDED, HOWEVER, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of
the corporate action required to be specified in such notice.
Notwithstanding the foregoing, the Registered Owner shall be entitled to
convert the Warrant for shares of Common Stock during the 15-day period
commencing on the date of such notice to the effective date of the event
triggering such notice.
h. ADJUSTMENT TO EXERCISE PRICE. If the Company, at any
time while this Warrant is outstanding, takes any of the actions
described in this Section 6(h), then, in order to prevent dilution of the
rights granted under this Warrant, the Exercise Price will be subject to
adjustment from time to time as provided in this Section 6(h).
6
<PAGE>
(i) ADJUSTMENT OF EXERCISE PRICE UPON ISSUANCE OF COMMON
STOCK. If at any time while this Warrant is outstanding the
Company issues or sells, or is deemed to have issued or sold, any
shares of Common Stock (other than the Underlying Shares or shares
of Common Stock deemed to have been issued by the Company in
connection with an Approved Stock Plan or shares of Common Stock
issuable upon the exercise of any options or warrants outstanding
on the date hereof and listed in Schedule 2.1(c) of the Purchase
Agreement or shares of Common Stock issued or deemed to have been
issued as consideration for an acquisition (including earn-out
payments funded with Common Stock) by the Company of a division,
assets or business (or stock constituting any portion thereof)
from another person) for a consideration per share less than the
Exercise Price in effect immediately prior to such issuance or
sale, then immediately after such issue or sale, the Exercise
Price then in effect shall be reduced to an amount equal to the
consideration per share of Common Stock of such issuance or sale.
For the purpose of determining the adjusted Exercise Price under
this Section 6(h)(i), the following shall be applicable:
(A) ISSUANCE OF OPTIONS. If at any time
while this Warrant is outstanding the Company in any manner
grants any rights or options to subscribe for or to purchase
Common Stock or any stock or other securities convertible into
or exchangeable for Common Stock (other than the Underlying
Shares or shares of Common Stock deemed to have been issued by
the Company in connection with an Approved Stock Plan or
shares of Common Stock issuable upon the exercise of any
options or warrants outstanding on the date hereof and listed
in Schedule 2.1(c) of the Purchase Agreement or shares of
Common Stock issued or deemed to have been issued as
consideration for an acquisition (including earn-out payments
funded with Common Stock) by the Company of a division, assets
or business (or stock constituting any portion thereof) from
another person) (such rights or options being herein called
"OPTIONS" and such convertible or exchangeable stock or
securities being herein called "CONVERTIBLE SECURITIES") and
the price per share for which Common Stock is issuable upon
the exercise of such Options or upon conversion or exchange of
such Convertible Securities is less than the Exercise Price in
effect immediately prior to such grant, then the Exercise
Price shall be adjusted to equal the price per share for which
Common Stock is issuable upon the exercise of such Options or
upon the conversion or exchange of such Convertible
Securities. No adjustment of the Exercise Price shall be made
upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or
upon the actual issuance of such Common Stock upon conversion
or exchange of such Convertible Securities.
(B) ISSUANCE OF CONVERTIBLE SECURITIES. If at
any time while this Warrant is outstanding the Company in any
manner issues or sells any Convertible Securities and the
price per share for which Common Stock is issuable upon such
conversion or exchange (other than the Underlying Shares or
shares of Common
7
<PAGE>
Stock deemed to have been issued by the Company in connection
with an Approved Stock Plan, shares of Common Stock issuable
upon the exercise of any options or warrants outstanding on
the date hereof and listed in Schedule 2.1(c) of the Purchase
Agreement, or shares of Common Stock issued or deemed to have
been issued as consideration for an acquisition (including
earn-out payments funded with Common Stock) by the Company of
a division, assets or business (or stock constituting any
portion thereof) from another person) is less than the
Exercise Price in effect immediately prior to issuance or
sale, then the Exercise Price shall be adjusted to equal the
price per share for which Common Stock is issuable upon the
conversion or exchange of such Convertible Securities. No
adjustment of the Exercise Price shall be made upon the actual
issue of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options
for which adjustment of the Exercise Price had been or are to
be made pursuant to other provisions of this Section 6(h)(i),
no further adjustment of the Exercise Price shall be made by
reason of such issue or sale.
(C) CHANGE IN OPTION PRICE OR RATE OF
CONVERSION. If there is a change at any time in (i) the
purchase price provided for in any Options, (ii) the
additional consideration, if any, payable upon the issuance,
conversion or exchange of any Convertible Securities or (iii)
the rate at which any Convertible Securities are convertible
into or exchangeable for Common Stock, then the Exercise Price
in effect at the time of such change shall be readjusted to
the Exercise Price which would have been in effect at such
time had such Options or Convertible Securities still
outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the
case may be, at the time initially granted, issued or sold;
provided that no adjustment shall be made if such adjustment
would result in an increase of the Exercise Price then in
effect.
(D) EFFECT ON EXERCISE PRICE OF CERTAIN
EVENTS. For purposes of determining the adjusted Exercise
Price under this Section 6(h)(i), the following shall be
applicable:
(I) CALCULATION OF CONSIDERATION RECEIVED.
If any Common Stock, Options or Convertible Securities
are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be
deemed to be the net amount received by the Company
therefor. In case any Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than
cash, the amount of the consideration other than cash
received by the Company will be the fair value of such
consideration, except where such consideration consists of
securities, in which case the amount of consideration
received by the Company will be the arithmetic average of
the Per Share Market Values of such security for the five
(5) consecutive Trading Days immediately preceding the date
of receipt thereof. In case any Common Stock, Options or
Convertible Securities are issued to
8
<PAGE>
the owners of the non-surviving entity in connection with
any merger in which the Company is the surviving entity the
amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be.
The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the
registered owners of a majority of the Underlying Shares of
Warrants then outstanding. If such parties are unable to
reach agreement within thirty (30) days after the occurrence
of an event requiring valuation (the "VALUATION EVENT"), the
fair value of such consideration will be determined within
four (4) days of the thirtieth (30th) day following the
Valuation Event by an Appraiser selected in good faith by
the Company and agreed upon in good faith by the holders of a
majority of the Warrants then outstanding. The
determination of such Appraiser shall be binding upon all
parties absent manifest error.
(II) INTEGRATED TRANSACTIONS. In case any Option
is issued in connection with the issue or sale of other
securities of the Company, together comprising one
integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for an aggregate
consideration of $.001.
(III) TREASURY SHARES. The number of shares of
Common Stock outstanding at any given time does not include
shares owned or held by or for the account of the Company,
and the disposition of any shares so owned or held will be
considered an issue or sale of Common Stock.
(IV) RECORD DATE. If the Company takes a record
of the holders of Common Stock for the purpose of entitling
them (1) to receive a dividend or other distribution payable
in Common Stock, Options or in Convertible Securities or
(2) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or
the date of the granting of such right of subscription or
purchase, as the case may be.
(V) CERTAIN EVENTS. If any event occurs of the
type contemplated by the provisions of this Section 6(h)(i)
(subject to the exceptions stated therein) but not expressly
provided for by such provisions (including, without
limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an
appropriate adjustment in the Exercise Price so as to
protect the rights of the Registered Owner, or assigns, of
this Warrant; provided, however, that no
9
<PAGE>
such adjustment will increase the Exercise Price as
otherwise determined pursuant to this Section 6(h).
(i) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of
the Exercise Price as a result of the calculations made in this Section
6, this Warrant shall thereafter evidence the right to receive, at the
adjusted Exercise Price, that number of shares of Common Stock
(calculated to the nearest one-hundredth) obtained by dividing (i) the
product of the aggregate number of shares covered by this Warrant
immediately prior to such adjustment and the Exercise Price in effect
immediately prior to such adjustment of the Exercise Price by (ii) the
Exercise Price in effect immediately after such adjustment of the
Exercise Price.
(j) INCREASE IN EXERCISE PRICE. In no event shall any provision
in this Section 6 cause the Exercise Price to be greater than the
Exercise Price on the date of issuance of this Warrant.
(k) CERTAIN EXCEPTIONS. Sections 6(a) through 6(j) shall not
apply to (i) the issuance of any securities (including, but not limited
to, subordinated debt, preferred stock or warrants) to General Electric
Capital Corporation or its affiliates (collectively "GE") in connection
with financing currently being negotiated by the Company and GE but not
yet agreed upon or finalized or (ii) securities to be issued by the
Company or selling stockholders in connection with a public offering by
the Company; PROVIDED, HOWEVER, that this Section 6(k) shall be null and
void if the exercise price of any other warrants issued by the Company
is reduced due to the occurrence of an event described in Section 6(k)(i)
or (ii).
7. RESTRICTION ON EXERCISE BY EITHER THE REGISTERED OWNER OR THE
COMPANY. Notwithstanding anything herein to the contrary, in no event shall
any Registered Owner or the Company have the right or be required to exercise
this Warrant if as a result of such exercise the aggregate number of shares
of Common Stock beneficially owned by such Registered Owner and its
Affiliates would exceed 4.99% of the outstanding shares of the Common Stock
following such exercise. For purposes of this Section 7, beneficial
ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended. The provisions of this Section
7 may be waived by a Registered Owner as to itself (and solely as to itself)
upon not less than 65 days prior written notice to the Company, and the
provisions of this Section 7 shall continue to apply until such 65th day (or
later, if stated in the notice of waiver).
8. OFFICER'S CERTIFICATE. Whenever the number of shares
purchasable upon exercise shall be adjusted as required by the provisions of
Section 6, the Company shall forthwith maintain at its principal office an
officer's certificate showing the adjusted number of shares determined as
herein provided, setting forth in reasonable detail the facts requiring such
adjustment and the manner of computing such adjustment. Each such officer's
certificate shall be signed by the chairman, president or chief financial
officer of the Company and by the secretary or any assistant secretary of the
Company. Each such officer's certificate shall be made
10
<PAGE>
available at all reasonable times for inspection by any Registered Owner of
the Warrants and the Company shall, forthwith after each such adjustment,
deliver a copy of such certificate to the each of the Registered Owners.
9. DEFINITIONS. Capitalized terms used herein and not otherwise
defined herein shall have the meanings given to such terms in the Purchase
Agreement. As used in this Warrant, the following terms have the following
meanings:
"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control
with such Person. For the purposes of this definition, "CONTROL," when used
with respect to any Person, means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "AFFILIATED," CONTROLLING" and "CONTROLLED" have
meanings correlative to the foregoing.
"APPRAISER" shall mean a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants
of recognized standing.
"APPROVED STOCK PLAN" shall mean any contract, plan or agreement which
has been approved by the Board of Directors of the Company, pursuant to which
the Company's securities may be issued to any employee, officer, director or
consultant.
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the state
of New York generally are authorized or required by law or other government
actions to close.
"CLOSING" has the meaning set forth in Section 1.2 of the Purchase
Agreement.
"COMMON STOCK" means the shares of the Company's Common Stock, par
value $.001 per share.
"COMPANY" means Thermoview Industries, Inc., a Delaware corporation.
"CONVERTIBLE SECURITIES" has the meaning assigned to it in Section
6(h)(i)(A) hereof.
"EXERCISE PERIOD" has the meaning assigned to it in Section 4 hereof.
"EXERCISE PRICE" has the meaning assigned to it in Section 3 hereof
"OPTIONS" has the meaning assigned to it in Section 6(h)(i)(A) hereof.
"OTCBB" means the OTC Bulletin Board of the National Association of
Securities Dealers, Inc.
"PER SHARE MARKET VALUE" means on any particular date (i) the closing
bid price per share of the Common Stock on such date on the National Market
System of the Nasdaq Stock Market or other registered national stock exchange
on which the Common Stock is then listed or if there
11
<PAGE>
is no such price on such date, then the closing bid price on such exchange or
quotation system on the date nearest preceding such date, or (ii) if the
Common Stock is not listed then on the National Market System of the Nasdaq
Stock Market or any registered national stock exchange, the closing bid price
for a share of Common Stock in the over-the-counter market, as reported by
the National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices) at the close of business on
such date, or (iii) if the Common Stock is not then publicly traded the fair
market value of a share of Common Stock as determined by an Appraiser
selected in good faith by the holder of this Warrant; PROVIDED, HOWEVER, that
the Company, after receipt of the determination by such Appraiser, shall have
the right to select, in good faith, an additional Appraiser, in which case
the fair market value shall be equal to the average of the determinations by
each such Appraiser; and PROVIDED, FURTHER that all determinations of the Per
Share Market Value shall be appropriately adjusted for any stock dividends,
stock splits or other similar transactions during such period.
"PURCHASE AGREEMENT" means that certain Securities Purchase Agreement,
dated April 23, 1999, among the Company and the Purchasers.
"PURCHASER" has the meaning set forth in the Purchase Agreement.
"REDEMPTION EVENT" has the meaning assigned to it in Section 6(f)
hereof.
"REGISTERED OWNER" means the person identified on the face of this
Warrant as the registered owner hereof or such other person as shown on the
records of the Company as being the registered owner of this Warrant.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights
Agreement, dated April 23, 1999, among the Company and the Purchasers.
"TRADING DAY(S)" means any day on which the primary market on which
shares of Common Stock are listed is open for trading.
"UNDERLYING SHARES" has the meaning assigned to it in Section 2.1(d)
of the Purchase Agreement.
"WARRANT(S)" means the warrants issuable at the Closing.
12. REGISTRATION RIGHTS. The Company will undertake the
registration of the Common Stock into which such Warrants are exercisable at
such times and upon such terms pursuant to the provisions of the Registration
Rights Agreement.
13. RESERVATION OF UNDERLYING SHARES; LISTING. The Company
covenants that it will at all times reserve and keep available out of its
authorized shares of Common Stock, free from preemptive rights, solely for
the purpose of issue upon exercise of the Warrants as herein provided, such
number of shares of the Common Stock as shall then be issuable upon the
exercise of all outstanding Warrants into Common Stock. The Company
covenants that all shares of the Common Stock issued upon exercise of the
Warrant which shall be so issuable shall, when issued, be duly and validly
issued and fully paid and non-assessable. The Company
12
<PAGE>
shall promptly secure the listing of the shares of Common Stock issuable upon
exercise of the Warrant upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance upon exercise of this Warrant) and
shall maintain, so long as any other shares of Common Stock shall be so
listed, such listing of all shares of Common Stock from time to time issuable
upon the exercise of this Warrant and the Company shall so list on each
national securities exchange or automated quotation system, as the case may
be, and shall maintain such listing of, any other shares of capital stock of
the Company issuable upon the exercise of this Warrant if and so long as any
shares of the same class shall be listed on such national securities exchange
or automated quotation system.
14. NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to
have been received (a) upon hand delivery (receipt acknowledged) or delivery
by telex (with correct answer back received), telecopy or facsimile (with
transmission confirmation report) at the address or number designated below
(if received by 8:00 p.m. EST where such notice is to be received), or the
first Business Day following such delivery (if received after 8:00 p.m. EST
where such notice is to be received) or (b) on the second Business Day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications are (i) if to the
Company to ThermoView Industries, Inc., 1101 Herr Lane, Louisville, KY
40222, attn: Nelson Clemmens with copies to Stites & Harbison, 400 West
Market Street, Suite 1800, Louisville, KY, 40202, attn: Alex P. Herrington,
Jr., Esq., fax no. (502) 587-6391 and (ii) if to the Registered Owner to
Brown Simpson Strategic Growth Fund, Ltd., 152 West 57th Street, 40th Floor,
New York, New York 10019, attn: Paul Gustus with copies to Akin, Gump,
Strauss, Hauer & Feld, L.L.P., 590 Madison Avenue, New York, New York 10022,
attn: James Kaye, fax no. (212) 872-1002 or such other address as may be
designated in writing hereafter, in the same manner, by such person.
15. COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. The Company
covenants that if any shares of Common Stock required to be reserved for
purposes of exercise of Warrants hereunder require registration with or
approval of any governmental authority under any Federal or state law, or any
national securities exchange, before such shares may be issued upon exercise,
the Company will use its best efforts to cause such shares to be duly
registered or approved, as the case may be.
16. FRACTIONAL SHARES. Upon any exercise hereunder, the Company
shall not be required to issue stock certificates representing fractions of
shares of the Common Stock, but may if otherwise permitted make a cash
payment in respect of any final fraction of a share based on the Per Share
Market Value at such time. If the Company elects not, or is unable, to make
such a cash payment, the Registered Owner shall be entitled to receive, in
lieu of the final fraction of a share, one whole share of Common Stock.
13
<PAGE>
17. PAYMENT OF TAX UPON ISSUE OF TRANSFER. The issuance of
certificates for shares of the Common Stock upon exercise of the Warrants
shall be made without charge to the Registered Owners thereof for any
documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate upon exercise
in a name other than that of the Registered Owner of such Warrant so
converted 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.
18. WARRANTS OWNED BY COMPANY DEEMED NOT OUTSTANDING. In
determining whether the holders of the outstanding Warrants have concurred in
any direction, consent or waiver under this Warrant, warrants which are owned
by the Company or any other obligor on the warrants or by any person directly
or indirectly controlling or controlled by or under direct or indirect common
control with the Company or any other obligor on the warrants shall be
disregarded and deemed not to be outstanding for the purpose of any such
determination; provided that any Warrants owned by the Purchasers (as defined
in the Purchase Agreement) shall be deemed outstanding for purposes of making
such a determination. Warrants so owned which have been pledged in good
faith may be regarded as outstanding if the pledgee establishes to the
satisfaction of the Company the pledgee's right so to act with respect to
such warrants and that the pledgee is not the Company or any other obligor
upon the securities or any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or
any other obligor on the warrants.
19. EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not affect the construction hereof.
20. NO RIGHTS AS STOCKHOLDER. This Warrant shall not entitle the
Registered Owner to any rights as a stockholder of the Company, including
without limitation, the right to vote, to receive dividends and other
distributions, or to receive notice of, or to attend, meetings of
stockholders or any other proceedings of the Company, unless and to the
extent converted into shares of Common Stock in accordance with the terms
hereof.
21. CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment
of its charter documents or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed by it hereunder, but will at all
times in good faith assist in the carrying out of all the provisions of this
Warrant and in the taking of all such action as may reasonably be requested
by the holder of this Warrant in order to protect the exercise privilege of
the holder of this Warrant against dilution or other impairment, consistent
with the tenor and purpose of this Warrant. Without limiting the generality
of the foregoing, the Company (i) will not increase the par value of any
shares of Common Stock receivable upon the exercise of this Warrant above the
Exercise Price then in effect, and (ii) will take all such actions as may be
necessary or appropriate in order that the
14
<PAGE>
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
22. STOCKHOLDER RIGHTS PLAN. Notwithstanding the foregoing, in the
event that the Company shall distribute "poison pill" rights pursuant to a
"poison pill" stockholder rights plan (the "Rights"), the Company shall, in
lieu of making any adjustment pursuant to Section 6 hereof, make proper
provision so that each Registered Owner who exercises a Warrant after the
record date for such distribution and prior to the expiration or redemption
of the Rights shall be entitled to receive upon such exercise, in addition to
the shares of Common Stock issuable upon such exercise, a number of Rights to
be determined as follows: (i) if such exercise occurs on or prior to the date
for the distribution to the holders of Rights of separate certificates
evidencing such Rights (the "DISTRIBUTION DATE"), the same number of Rights
to which a holder of a number of shares of Common Stock equal to the number
of shares of Common Stock issuable upon such exercise at the time of such
exercise would be entitled in accordance with the terms and provisions of and
applicable to the Rights; and (ii) if such exercise occurs after the
Distribution Date, the same number of Rights to which a holder of the number
of shares into which the Warrant to be exercised was exercisable immediately
prior to the Distribution Date would have been entitled on the Distribution
Date in accordance with the terms and provisions of and applicable to the
Rights, and in each case subject to the terms and conditions of the Rights.
23. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon and
inure to the benefit of the Registered Owners and its assigns, and shall be
binding upon any entity succeeding to the Company by merger or acquisition of
all or substantially all the assets of the Company. The Company may not
assign this Warrant or any rights or obligations hereunder without the prior
written consent of the Registered Owner. The Registered Owner may assign
this Warrant without the prior written consent of the Company; subject in all
events to requirements of federal and state securities laws.
24. GOVERNING LAW. This Warrant shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the nonexclusive jurisdiction of the state and
federal courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in
any such suit, action or proceeding by mailing a copy thereof to such party
at the address for such notices to it under this Warrant and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH
OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
15
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer as of the date first set forth above.
THERMOVIEW INDUSTRIES, INC.
By: /s/ Nelson E. Clemmens
-----------------------------------
Name: Nelson E. Clemmens
---------------------------------
Title: President
--------------------------------
16
<PAGE>
EXHIBIT A
WARRANT EXERCISE FORM
TO: THERMOVIEW INDUSTRIES, INC.
The undersigned hereby: (1) irrevocably subscribes for and offers to
purchase _______ shares of Common Stock of Thermoview Industries, Inc., pursuant
to Warrant No. ___ heretofore issued to ___________________ on ____________,
199_; (2) (a) encloses a payment in cash of $__________ for these shares at a
price of $____ per share (as adjusted pursuant to the provisions of the
Warrant); and, or (b) elects to make a cashless exercise (3) requests that a
certificate for the shares be issued in the name of the undersigned and
delivered to the undersigned at the address specified below.
Date:
---------------------------------------
Investor Name:
---------------------------------------
Taxpayer Identification
Number:
---------------------------------------
By:
---------------------------------------
Printed Name:
---------------------------------------
Title:
---------------------------------------
Address:
---------------------------------------
---------------------------------------
---------------------------------------
Cashless Exercise (Y or N): __
Note: The above signature should correspond exactly with
the name on the face of this Warrant Certificate or
with the name of assignee appearing in assignment
form below.
AND, if said number of shares shall not be all the shares purchasable under
the within Warrant, a new Warrant Certificate is to be issued in the name of
said undersigned for the balance remaining of the shares purchasable
thereunder less any fraction of a share paid in cash and delivered to the
address stated above.
17
<PAGE>
FIRST AMENDMENT
TO
STOCK PURCHASE WARRANT
(WARRANT NO. W-1)
With this First Amendment to Stock Purchase Warrant (Warrant
No. W-1), dated as of July 8, 1999 (this "First Amendment"), ThermoView
Industries, Inc., a Delaware corporation (the "Company") and Brown Simpson
Strategic Growth Fund, Ltd. (the "Registered Owner") hereby mutually agree to
amend that certain Stock Purchase Warrant (Warrant No. W-1), dated as of
April 23, 1999 (the "Warrant"), issued by the Company to the Registered
Owner, as follows:
A new section of the Warrant, Section 6(l) is added, as
follows:
"6(l) REDEMPTION DEMAND. Notwithstanding anything to the contrary
contained herein, the Company shall not be required to repurchase or redeem
any shares of Common Stock issuable upon exercise or conversion of this
Warrant if such repurchase or redemption would result in the occurrence of a
default or event of default under any of the Company's respective loan
documents (the "Loan Documents") with (i) PNC Bank, N.A., (ii) any successor
senior lender, or (iii) GE Capital Equity Investments, Inc.; PROVIDED,
HOWEVER, that in each such event: (a) the Company shall provide the
Registered Owner with written notice (the "Violation Notice"), within three
(3) Business Days of such Registered Owner's repurchase or redemption demand
(the "Redemption Demand"), that such repurchase or redemption would result
in the occurrence of a default or event of default under the Loan Documents,
(b) the Exercise Price shall be reduced, at the Registered Owner's option, to
the Per Share Market Value for the five (5) Trading Days immediately
preceding the date the Redemption Demand was made or the date that the
Company delivered the Violation Notice and (c) the Company shall deliver to
the Registered Owner the Officer's Certificate pursuant to Section 8 of this
Warrant, setting forth the Exercise Price as reduced pursuant to the terms
hereof."
<PAGE>
IN WITNESS WHEREOF, Company has executed this First Amendment as of the
day and year first written above.
"Company"
THERMOVIEW INDUSTRIES, INC.
By: /s/ Nelson E. Clemmens
-----------------------------------
Name: Nelson E. Clemmens
Title: President
AGREED AND ACKNOWLEDGED:
"Registered Owner"
BROWN SIMPSON STRATEGIC GROWTH FUND, LTD.
By: /s/ James R. Simpson
-----------------------------------
Name: James R. Simpson
Title: Principal
-2-
<PAGE>
SECOND AMENDMENT
TO
STOCK PURCHASE WARRANT
(WARRANT NO. W-1)
With this Second Amendment to Stock Purchase Warrant (Warrant No. W-1),
dated as of August 3, 1999 (this "Second Amendment"), ThermoView Industries,
Inc., a Delaware corporation (the "Company") and Brown Simpson Strategic
Growth Fund, Ltd. (the "Registered Owner") hereby mutually agree to amend
that certain Stock Purchase Warrant (Warrant No. W-1), dated as of April 23,
1999, as amended by that First Amendment to Stock Purchase Warrant, dated as
of July 8, 1999 (the "Warrant"), issued by the Company to the Registered
Owner, as follows:
1. Section 3 of the Warrant shall be amended to read as follows:
3. Exercise Price.
a. The intial per share exercise price of this Warrant,
representing the price per share at which the shares of stock
issuable upon exercise of this Warrant may be purchased, is six
dollars ($6.00), subject to adjustment from time to time pursuant
to the provisions of Section 6 hereof (the "EXERCISE PRICE").
b. Registered Owner agrees to enter into a Lock-Up Agreement
in the form of EXHIBIT A hereto, on August 4, 1999 with the Lock-Up
Period commencing on the date of the closing of the initial public
offering of the Company's Common Stock and terminating on January
31, 1999.
<PAGE>
IN WITNESS WHEREOF, the company has executed this Second Amendment as of
the date and year first written above.
THERMOVIEW INDUSTRIES, INC.
By: /s/ Nelson E. Clemmens
-------------------------------
Name: Nelson E. Clemmens
Title: President
AGREED AND ACKNOWLEDGED:
BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.
By: /s/ James R. Simpson
------------------------------
Name: James R. Simpson
Title: Principal
<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT, dated as of July 8, 1999, by and
between ThermoView Industries, Inc., a Delaware corporation ("Company"), and
GE Capital Equity Investments, Inc., a Delaware corporation ("GE Capital" or
"Purchaser").
W I T N E S S E T H :
WHEREAS, Company has agreed to issue and sell to Purchaser, and
Purchaser has agreed to purchase from Company, upon the terms and conditions
hereinafter provided, a senior subordinated promissory note in the principal
amount of $10,000,000 (the "Note"); and
WHEREAS, Company has agreed to issue to Purchaser, upon the
terms and conditions hereinafter provided, a warrant to purchase 1,666,028
shares of Common Stock (as defined herein) of Company (the "Warrant" and
together with the Note, the "Securities");
NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained, it is agreed as follows:
1. DEFINITIONS
"Affiliate" shall mean, with respect to any Person, (i) each
Person that, directly or indirectly, owns or controls, whether beneficially,
or as a trustee, guardian or other fiduciary, 5% or more of the Stock having
ordinary voting power in the election of directors of such Person, (ii) each
Person that controls, is controlled by or is under common control with such
Person or any Affiliate of such Person, (iii) each of such Person's officers,
directors, joint venturers and partners, (iv) any trust or beneficiary of a
trust of which such Person is the sole trustee or (v) any lineal descendants,
ancestors, spouse or former spouses (as part of a marital dissolution) of
such Person (or any trust for the benefit of such Person). For the purpose
of this definition, "control" of a Person shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of its
management or policies, whether through the ownership of voting securities,
by contract or otherwise.
"Agreement" shall mean this Securities Purchase Agreement
including all amendments, modifications and supplements hereto and any
appendices, exhibits and schedules hereto or thereto, and shall refer to the
Agreement as the same may be in effect at the time such reference becomes
operative.
"Balance Sheet" shall have the meaning set forth in Section
4.7(a) hereof.
<PAGE>
"Brown Simpson Warrants" shall have the meaning ascribed to
such term in Section 5.2(i).
"Business Day" shall mean any day that is not a Saturday, a
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Capital Expenditures" shall mean all payments for any fixed
assets, or improvements or for replacements, substitutions or additions
thereto, that have a useful life of more than one year and which are required
to be capitalized under GAAP.
"Capital Lease" shall mean, with respect to any Person, any
lease of any property (whether real, personal or mixed) by such Person as
lessee that, in accordance with GAAP, either would be required to be
classified and accounted for as a capital lease on a balance sheet of such
Person or otherwise be disclosed as a capital lease in a note to such balance
sheet, other than, in the case of Company or a Subsidiary of Company, any
such lease under which Company or such Subsidiary is the lessor.
"Capital Lease Obligation" shall mean, with respect to any
Capital Lease, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in
respect of such Capital Lease or otherwise be disclosed in a note to such
balance sheet.
"Cash Equivalents" shall mean (i) marketable direct obligations
issued or unconditionally guaranteed by the United States of America or any
agency thereof maturing within one year from the date of acquisition thereof;
(ii) commercial paper maturing no more than one year from the date of
creation thereof and at the time of their acquisition having the highest
rating obtainable from either Standard & Poor's Corporation or Moody's
Investors Service, Inc.; (iii) certificates of deposit, maturing not more
than one year from the date of creation thereof, issued by commercial banks
incorporated under the laws of the United States of America, each having
combined capital, surplus and undivided profits of not less than $200,000,000
and having a rating of "A" or better by a nationally recognized rating
agency; and (iv) money-market funds investing solely in the types of items
referred to above.
"Change of Control" shall mean any of the following: (a) any
person or group of persons (within the meaning of the Exchange Act) (other
than GE Capital and its Affiliates) shall have acquired beneficial ownership
(within the meaning of Rule 13d-3 promulgated by the SEC under the Exchange
Act) of 50% or more of the issued and outstanding shares of Common Stock of
Company; (b) Company shall be a party to a merger or consolidation in which
Company is not the survivor or in which Company's stockholders immediately
prior thereto own less than a majority of the outstanding voting stock of the
survivor; or (c) Company shall have sold, leased or otherwise transferred all
or substantially all of its assets.
"Charges" shall mean all federal, state, county, city,
municipal, local, foreign or other governmental (including, without
limitation, PBGC) taxes at the time due
2
<PAGE>
and payable, levies, assessments, charges, liens, claims or encumbrances upon
or relating to (i) Company's or any of its Subsidiaries' employees, payroll,
income or gross receipts, (ii) Company's or any of its Subsidiaries'
ownership or use of any of its assets, or (iii) any other aspect of Company's
or any of the Subsidiaries' business.
"Closing" shall have the meaning set forth in Section 2.2(a)
hereof.
"Closing Date" shall have the meaning set forth in Section
2.2(a) hereof.
"COBRA" shall have the meaning set forth in Section 4.19(m)
hereof.
"Common Stock" shall mean the common stock, $.001 par value per
share, of Company.
"Default" shall mean any event which, with the passage of time
or notice or both, would, unless cured or waived, become an Event of Default.
"Earn-Outs" shall have the meaning set forth in Section
5.1(h)(i).
"EBITDA" shall have the meaning set forth in Section 5.1(h)(i).
"Environmental Laws" shall mean all federal, state and local
laws, statutes, ordinances and regulations, now or hereafter in effect, and
in each case as amended or supplemented from time to time, and any judicial
or administrative interpretation thereof, including, without limitation, any
applicable judicial or administrative order, consent decree or judgment,
relative to the applicable Real Estate, relating to the regulation and
protection of human health, safety, the environment and natural resources
(including, without limitation, ambient air, surface water, groundwater,
wetlands, land surface or subsurface strata, wildlife, aquatic species and
vegetation). Environmental Laws include but are not limited to the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended (42 U.S.C. Section 9601 ET SEQ.) ("CERCLA"); the Hazardous
Material Transportation Act, as amended (49 U.S.C. Section 1801 ET SEQ.);
the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C.
Section 136 ET SEQ.); the Resource Conservation and Recovery Act, as amended
(42 U.S.C. Section 6901 ET SEQ.) ("RCRA"); the Toxic Substance Control Act,
as amended (15 U.S.C. Section 2601 ET SEQ.); the Clean Air Act, as amended
(42 U.S.C. Section 740 ET SEQ.); the Federal Water Pollution Control Act, as
amended (33 U.S.C. Section 1251 ET SEQ.); the Occupational Safety and Health
Act, as amended (29 U.S.C. Section 651 ET SEQ.) ("OSHA"); and the Safe
Drinking Water Act, as amended (42 U.S.C. Section 300f ET SEQ.), and any and
all regulations promulgated thereunder, and all analogous state and local
counterparts or equivalents and any transfer of ownership notification or
approval statutes.
"Environmental Liabilities and Costs" shall mean all
liabilities, obligations, responsibilities, remedial actions, losses,
damages, punitive damages, consequential damages, treble damages, costs and
expenses (including, without limitation, all fees, disbursements and expenses
of counsel, experts and consultants and
3
<PAGE>
costs of investigation and feasibility studies), fines, penalties, sanctions
and interest incurred as a result of any claim, suit, action or demand by any
person or entity, whether based in contract, tort, implied or express
warranty, strict liability, criminal or civil statute or common law
(including, without limitation, any thereof arising under any Environmental
Law, permit, order or agreement with any Governmental Authority) and which
relate to any health or safety condition regulated under any Environmental
Law or in connection with any other environmental matter or Spill or the
presence of a hazardous substance or threatened Spill of any Hazardous
Substance.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974 (or any successor legislation thereto), as amended from time to time
and any regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to Company, any
trade or business (whether or not incorporated) under common control with
Company and which, together with Company, are treated as a single employer
within the meaning of Sections 414(b), (c), (m) or (o) of the IRC, excluding
Purchaser and each other person which would not be an ERISA Affiliate if
Purchaser did not own any issued and outstanding shares of Stock of Company.
"Event of Default" shall have the meaning set forth in Section
7.1 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and all rules and regulations promulgated thereunder.
"Financials" shall mean the financial statements referred to in
Section 4.7(a) hereof.
"Fiscal Year" shall mean the twelve month period ending
December 31, and any change in such fiscal year for which Company provides
notice to Purchaser.
"Fixed Charges" shall mean, with respect to Company for any
period, the aggregate of all consolidated interest expenses paid or accrued,
plus scheduled payments of principal with respect to Indebtedness, in all
cases during such period by Company and its Subsidiaries.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect from time to time, except that for
purposes of the financial covenants contained in Section 5.1(h) hereof, GAAP
shall be as in effect on the date of the most recent Financials and shall be
applied in a manner consistent therewith.
"GE Capital" shall have the meaning set forth in the first
paragraph of this Agreement.
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof, and any agency, department
or other entity
4
<PAGE>
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guaranteed Indebtedness" shall mean, as to any Person, any
obligation of such Person guaranteeing any Indebtedness, lease, dividend, or
other obligation ("primary obligations") of any other Person (the "primary
obligor") in any manner including, without limitation, any obligation or
arrangement of such Person (a) to purchase or repurchase any such primary
obligation, (b) to advance or supply funds (i) for the purchase or payment of
any such primary obligation or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet condition of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation, or (d) to
indemnify the owner of such primary obligation against loss in respect
thereof.
"Guaranty" shall mean the Guaranty, dated as of the date
hereof, of each of the Subsidiaries of Company, substantially in the form of
Exhibit F hereto.
"Hazardous Substance" shall have the meaning set forth in
Section 4.10(a) hereof.
"Holder" shall have the meaning assigned to such term in
Section 8.1 hereof.
"Indebtedness" of any Person shall mean (i) all indebtedness of
such Person for borrowed money or for the deferred purchase price of property
or services (including, without limitation, reimbursement and all other
obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured, but not including obligations to trade
creditors incurred in the ordinary course of business), (ii) all obligations
evidenced by notes, bonds, debentures or similar instruments, (iii) all
indebtedness created or arising under any conditional sale or other title
retention agreements with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement
in the event of default are limited to repossession or sale of such
property), (iv) all Capital Lease Obligations, (v) all Guaranteed
Indebtedness, (vi) all Indebtedness referred to in clause (i), (ii), (iii),
(iv) or (v) above secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien
upon or in property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or
become liable for the payment of such Indebtedness, (vii) all liabilities
under Title IV of ERISA and (viii) any cash "earn-outs" then owing (whether
or not then due and payable) and calculable to be paid by Company or any of
its Subsidiaries.
"Interest Payment Date" shall have the meaning assigned to such
term in Section 2.6(a) hereof.
5
<PAGE>
"IRC" shall mean the Internal Revenue Code of 1986, as amended,
and any successor thereto.
"IRS" shall mean the Internal Revenue Service, or any successor
thereto.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing,
and the filing of, or agreement to give, any financing statement perfecting a
security interest as to assets owned by the relevant Person under the Uniform
Commercial Code or comparable law of any jurisdiction).
"Loan Documents" shall mean this Agreement, the Note, the
Security Agreement, the Pledge Agreement, the Guaranty and all other
agreements, instruments, documents and certificates, including, without
limitation, pledges, powers of attorney, consents, assignments, contracts,
notices, and all other written matter whether heretofore, now or hereafter
executed by or on behalf of Company, and delivered to Purchaser, in its
capacity as a purchaser of the Note hereunder, in connection with this
Agreement or the transactions contemplated hereby.
"Material Adverse Effect" shall mean material adverse effect on
(i) the business, assets, operations, prospects or financial or other
condition of Company and its Subsidiaries, if any, taken as a whole or (ii)
Company's ability to pay the Obligations in accordance with the terms hereof.
"Material Contracts" means (i) all of Company's and its
Subsidiaries' contracts, agreements, leases or other instruments to which
Company or any of its Subsidiaries is a party or by which Company, its
Subsidiaries or its properties are bound, which involve payments by or to
Company or its Subsidiaries of more than $100,000, (ii) all of Company's and
its Subsidiaries' loan agreements, bank lines of credit agreements,
indentures, mortgages, deeds of trust, pledge and security agreements,
factoring agreements, conditional sales contracts, letters of credit or other
debt instruments, (iii) all material operating or capital leases for
equipment to which Company or any of its Subsidiaries is a party, (iv) all
non-competition and similar agreements to which Company is a party, (v) all
contracts for the employment of any officer or employee, (vi) all consulting
agreements, (vii) any guarantees by the Company or any of its Subsidiaries,
(viii) all distributor and sales agency agreements and (ix) all other
material contracts not made in the ordinary course of business.
"Maturity Date" shall have the meaning set forth in Section
2.1(a) hereof.
"Maximum Lawful Rate" shall have the meaning set forth in
Section 2.6(e) hereof.
6
<PAGE>
"Multiemployer Plan" shall mean a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA, and to which Company, any of its
Subsidiaries or any ERISA Affiliate is making, is obligated to make, has made
or been obligated to make, contributions on behalf of participants who are or
were employed by any of them.
"Net Worth" shall mean, with respect to any Person as of any
date of determination, the book value of the assets of such Person, MINUS (a)
reserves applicable thereto, and MINUS (b) all of such Person's liabilities
on a consolidated basis (including accrued and deferred income taxes), all as
determined in accordance with GAAP.
"Note" shall mean the senior subordinated promissory note of
Company in the principal amount of $10,000,000 to be issued to Purchaser
hereunder, substantially in the form of Exhibit A hereto.
"Obligations" shall mean all amounts owing by Company to
Purchaser and any of its assignees pursuant hereto or the Note, including,
without limitation, all principal, interest, fees, expenses, attorneys' fees
and any other sum chargeable to Company under any of the Loan Documents.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any successor thereto.
"Pension Plan" shall have the meaning set forth in Section
4.19(a) hereof.
"Permitted Acquisition" shall mean any acquisition by Company
or any of its Subsidiaries of any Person or all or substantially all of the
assets of any Person which is approved by Purchaser or where:
(i) the purchase price (including liabilities assumed)
for such acquisition shall not exceed an amount equal to the EBITDA of
such Person for the 12 month period ending on the last completed month
for which financial statements are available prior to the date of such
acquisition MULTIPLIED BY 5,
(ii) such Person shall be, or the assets acquired from
such Person shall be used in, conducting business solely in the existing
lines of business of Company and its Subsidiaries,
(iii) at or prior to the closing of such acquisition,
Purchaser will be granted a perfected lien, which lien shall be junior to
any liens securing Senior Debt, in all assets acquired pursuant thereto
and, if applicable, in the assets and capital stock of any Person
acquired pursuant thereto, and Company (or the Subsidiary of Company
making such acquisition) and, if applicable, such acquired Person, shall
have executed such documents and taken such actions as may be required in
connection therewith (including, without limitation, in the case of such
acquired Person, executing and becoming a party to the Security Agreement
and the Pledge Agreement), and
7
<PAGE>
(iv) at or prior to the closing of such acquisition, any
Person that shall become a Subsidiary of Company pursuant to such
acquisition shall have executed and become a party to the Guaranty.
For the purposes of this definition of Permitted Acquisition,
"EBITDA" shall mean, with respect to any Person, the consolidated (and combined,
if applicable) sum of all earnings before interest, taxes, depreciation and
amortization LESS any extraordinary gain, PLUS expenses, calculated and
estimated by such Person and its Subsidiaries in a manner and amount acceptable
to Purchaser in each case, incurred by such Person and its Subsidiaries, if and
to the extent applicable, that reasonably are expected no longer to be incurred
because of operating efficiencies realized as a result of and following each
such entity becoming a Subsidiary of Company.
"Permitted Indebtedness" shall mean, with respect to Company,
(i) taxes or assessments or other governmental charges or levies, either not
yet due and payable or to the extent that nonpayment thereof is permitted by
the terms of this Agreement; (ii) obligations under workmen's compensation,
unemployment insurance, social security or public liability laws or similar
legislation; (iii) bids, tenders, contracts (other than contracts for the
payment of money) or leases to which Company or any of its Subsidiaries is a
party as lessee made in the ordinary course of business; (iv) public or
statutory obligations of Company or any of its Subsidiaries; (v) all deferred
taxes; and (vi) all unfunded pension fund and other employee benefit plan
obligations and liabilities but only to the extent permitted to remain
unfunded under applicable law.
"Permitted Liens" shall mean the following: (i) Liens for
taxes or assessments or other governmental charges or levies, either not yet
due and payable or to the extent that nonpayment thereof is permitted by the
terms of this Agreement; (ii) pledges or deposits securing obligations under
workmen's compensation, unemployment insurance, social security or public
liability laws or similar legislation; (iii) pledges or deposits securing
bids, tenders, contracts (other than contracts for the payment of money) or
leases to which Company or any of its Subsidiaries is a party as lessee made
in the ordinary course of business; (iv) Liens arising solely by virtue of
any statutory or common law provision relating to bankers' liens, rights of
set-off or similar rights and remedies as to deposit accounts or other funds
maintained with a creditor depository institution; (v) workers, mechanics,
suppliers, carriers, warehousemen's or other similar liens arising in the
ordinary course of business and securing indebtedness, not yet due and
payable; (vi) deposits securing or in lieu of surety, appeal or customs bonds
in proceedings to which Company or any of its Subsidiaries is a party; (vii)
Liens arising in the ordinary course of business in connection with
obligations that are not overdue or which are being contested in good faith
and by appropriate proceedings, including, but not limited to, Liens under
bid, performance and other surety bonds, appeal bonds, landlord Liens arising
under leases of real property, Liens on advance or progress payments received
from customers under contracts for the sale, lease or license of goods,
software or services and upon the products being sold or licensed, in each
case securing performance of the underlying contract or the repayment of such
advances in the event final acceptance of performance under such contracts
does not occur, and Liens upon
8
<PAGE>
funds collected temporarily from others pending payment or remittance on
their behalf; and (viii) zoning restrictions, easements, licenses, or other
restrictions on the use of real property or other minor irregularities in
title (including leasehold title) thereto, so long as the same do not
materially impair the use, value, or marketability of such real property,
leases or leasehold estates.
"Person" shall mean any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, entity or government (whether federal, state, county, city,
municipal or otherwise, including, without limitation, any instrumentality,
division, agency, body or department thereof).
"Plan" shall have the meaning set forth in Section 4.19(a)
hereof.
"Pledge Agreement" shall mean the Pledge Agreement, dated as of
the date hereof, between Company and Purchaser, substantially in the form of
Exhibit E hereto.
"PNC Bank" shall mean PNC Bank, National Association, in any
capacity under the PNC Loan Agreement.
"PNC Loan Agreement" shall mean that certain Loan Agreement,
dated August 31, 1998, among PNC Bank, Company and each of its then-existing
Subsidiaries, as amended by that certain Joinder to Loan Documents and
Amendment to Loan Documents (Thomas Construction Inc.) dated as of January 1,
1999, as further amended by that certain Joinder to Loan Documents and
Amendment to Loan Documents (Precision Window Mfg., Inc.) dated as of January
5, 1999, as further amended by that certain Joinder to Loan Documents and
Amendment to Loan Documents (Thermo-Shield) dated as of July 8, 1999, as the
same may be amended, supplemented or modified from time to time.
"PNC Senior Debt" shall mean all loans, advances, debts,
liabilities, obligations, covenants and duties owing by Company or any of its
Subsidiaries to PNC Bank of any kind or nature, present or future, whether or
not evidenced by any note, guaranty or other instrument, arising under the
PNC Loan Agreement or any agreement, instrument or document related thereto,
whether or not for the payment of money, whether arising by reason of an
extension of credit, opening of a letter of credit, loan or guarantee or in
any other manner, whether arising out of overdrafts on deposit or other
accounts or electronic funds transfers (whether through automatic clearing
houses or otherwise) or out of PNC Bank's non-receipt of or inability to
collect funds or otherwise not being made whole in connection with depository
transfer check or other similar arrangements, whether direct or indirect
(including those acquired by assignment or participation), absolute or
contingent, joint or several, due or to become due, now existing or hereafter
arising, and any amendments, extensions, renewals or increases up to an
aggregate amount not to exceed $15,000,000, or such greater amount as is
permitted to be incurred hereunder and all costs and expenses of PNC Bank
incurred in the
9
<PAGE>
documentation, negotiation, modification, enforcement, collection or
otherwise in connection with any of the foregoing, including but not limited
to reasonable attorneys' fees and expenses.
"Purchaser" shall have the meaning set forth in the first
paragraph of this Agreement.
"Qualified IPO" shall mean a sale of Common Stock pursuant to
an initial public offering of Common Stock on Form S-1 (or any equivalent
general registration form) under the Securities Act (i) at a price of not
less than $6.00 per share of Common Stock, (ii) in which the aggregate
proceeds to Company shall be not less than $15,000,000 and (iii) following
which the Common Stock will be listed on The New York Stock Exchange or The
Nasdaq National Market.
"Required Holders" shall mean Persons who hold at least a
majority of the outstanding principal amount of the Note.
"Restricted Payment" shall mean (i) the declaration of any
dividend or the incurrence of any liability to make any other payment or
distribution of cash or other property or assets in respect of Company's
Stock or (ii) any payment on account of the purchase, redemption or other
retirement of Company's Stock or any other payment or distribution made in
respect of any Stock of Company, either directly or indirectly.
"Retiree Welfare Plan" shall refer to any Welfare Plan
providing for continuing coverage or benefits for any participant or any
beneficiary of a participant after such participant's termination of
employment, other than continuation coverage provided pursuant to Section
4980B of the IRC and at the sole expense of the participant or the
beneficiary of the participant.
"SEC" shall mean the U.S. Securities and Exchange Commission,
or any successor thereto.
"Securities" shall mean, collectively, the Note and the Warrant.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and all rules and regulations promulgated thereunder.
"Security Agreement" shall mean the Security Agreement, dated
the date hereof, among Company, each of the Subsidiaries of Company and
Purchaser, substantially in the form of Exhibit D hereto.
"Senior Debt" shall mean any Indebtedness, other than the PNC
Senior Debt, of Company and its Subsidiaries for money borrowed from any bank
or financial institution other than PNC Bank generally engaged in the
business of lending money, PROVIDED that the incurrence of such Indebtedness
does not result in the occurrence of a Default or Event of Default hereunder.
10
<PAGE>
"Series C Convertible Preferred Stock" shall mean the Series C
Convertible Preferred Stock, $.001 par value per share, of the Company issued
pursuant to the Certificate of Designation of Series C Convertible Preferred
Stock of the Company filed with the Delaware Secretary of State on April 23,
1999.
"Spill" shall have the meaning set forth in Section 4.10(a)
hereof.
"Stock" shall mean all shares, options, warrants, general or
limited partnership interests, limited liability company membership interest,
participations or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity
whether voting or nonvoting, including, without limitation, common stock,
preferred stock, or any other "equity security" (as such term is defined in
Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under
the Exchange Act).
"Subordination Agreement" shall mean that certain Subordination
and Intercreditor Agreement, dated as of the date hereof, by and among
Company and its Subsidiaries, PNC Bank and the Purchaser.
"Subordinated Debt" shall have the meaning set forth in Section
8.1 hereof.
"Subsidiary" shall mean, with respect to any Person, (a) any
corporation of which an aggregate of more than 50% of the outstanding Stock
having ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether, at the time, Stock of any other
class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time, directly or
indirectly, owned legally or beneficially by such Person and/or one or more
Subsidiaries of such Person, and (b) any partnership or other entity in which
such Person and/or one or more Subsidiaries of such Person shall have an
interest (whether in the form of voting or participation in profits or
capital contribution) of more than 50%.
"Taxes" shall have the meaning set forth in Section 2.11(a)
hereof.
"Transaction Documents" shall mean this Agreement, the
Securities, the Security Agreement, the Pledge Agreement and the Guaranty.
"Warrant" shall mean the warrant to purchase initially
1,666,028 shares of Common Stock to be issued to Purchaser hereunder,
substantially in the form of Exhibit B hereto.
"Welfare Plan" shall mean any welfare plan, as defined in
Section 3(1) of ERISA, which is maintained or contributed to by Company, any
of its Subsidiaries or any ERISA Affiliate.
11
<PAGE>
"Withdrawal Liability" means, at any time, the aggregate amount
of the liabilities, if any, pursuant to Section 4201 of ERISA, and any
increase in contributions pursuant to Section 4243 of ERISA with respect to
all Multiemployer Plans.
"Year 2000 Compliant" shall have the meaning set forth in
Section 4.24(a) hereof.
References to this "Agreement" shall mean this Securities
Purchase Agreement, including all amendments, modifications and supplements
and any exhibits or schedules to any of the foregoing, and shall refer to the
Agreement as the same may be in effect at the time such reference becomes
operative.
Any accounting term used in this Agreement shall have, unless
otherwise specifically provided herein, the meaning customarily given such
term in accordance with GAAP, and all financial computations hereunder shall
be computed, unless otherwise specifically provided herein, in accordance
with GAAP consistently applied. That certain terms or computations are
explicitly modified by the phrase "in accordance with GAAP" shall in no way
be construed to limit the foregoing. The words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a
whole, including the Exhibits and Schedules hereto, as the same may from time
to time be amended, modified or supplemented, and not to any particular
section, subsection or clause contained in this Agreement. Wherever from the
context it appears appropriate, each term stated in either the singular or
plural shall include the singular and the plural, and pronouns stated in the
masculine, feminine or neuter gender shall include the masculine, the
feminine and the neuter.
2. PURCHASE OF NOTE AND WARRANT
2.1 PURCHASE OF NOTE AND WARRANT.
(a) Subject to the terms and conditions set forth in this
Agreement, Purchaser agrees to purchase from Company, and Company agrees to
issue and sell to Purchaser, on the Closing Date, the Note for an aggregate
purchase price of $10,000,000, containing the terms set forth herein and in
Exhibit A hereto. The principal amount of the Note shall be $10,000,000, and
the maturity date thereof shall be July 8, 2002 (the "Maturity Date").
(b) Subject to the terms and conditions set forth in this
Agreement, Company agrees to issue to Purchaser, on the Closing Date, the
Warrant, containing the terms set forth hereto in Exhibit B hereto.
2.2 CLOSING; FEES.
(a) The closing of the purchase and sale of the Note and the
issuance of the Warrant (the "Closing") shall take place within five Business
Days after the satisfaction or waiver of the conditions set forth in Section
6 hereof or such date and time
12
<PAGE>
as shall be mutually agreed to by the parties hereto (the "Closing Date") at
the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New
York, or such other place as shall be mutually agreed to by the parties
hereto.
(b) On the Closing Date, Company will deliver to Purchaser
(i) the Note payable to Purchaser against delivery by Purchaser of the
purchase price therefor by wire transfer of funds to the account of Company
and (ii) the Warrant.
(c) On the Closing Date, Company will pay to Purchaser an
underwriting fee of $200,000 (less any amounts previously paid to Purchaser
in respect of such fee).
2.3 OPTIONAL REDEMPTION. The Note may be redeemed at
Company's option, at any time on or after the date hereof as a whole or from
time to time in part, upon not less than 30 days' written notice to Purchaser
at the following redemption prices (expressed as percentages of principal
amount) if redeemed during the 12-month period beginning July 8 of the years
indicated:
<TABLE>
<CAPTION>
Redemption
Year Price
----
<S> <C>
1999.................................... 103%
2000.................................... 102%
2001.................................... 101%
</TABLE>
together in the case of any such redemption with accrued and unpaid interest
on the amount being redeemed through the date of redemption.
2.4 MANDATORY REDEMPTION.
(a) On the Maturity Date, Company shall redeem the entire
remaining principal balance of the Note at 100% of the redemption price,
together with accrued and unpaid interest thereon through the date of
redemption.
(b) Upon the occurrence of a Change of Control, Purchaser
may, by written notice to Company within sixty (60) days of the occurrence
thereof, require Company to redeem all or a portion of the Note at the
following redemption prices (expressed as percentages of principal amount) if
redeemed during the 12-month period beginning July 8 of the years indicated:
13
<PAGE>
<TABLE>
<CAPTION>
Redemption
Year Price
----
<S> <C>
1999................................... 103%
2000................................... 102%
2001................................... 101%
</TABLE>
together in the case of any such redemption with accrued and unpaid interest
on the amount being redeemed through the date of redemption. Company shall
give Purchaser written notice of the occurrence of a Change of Control within
ten (10) days after the occurrence thereof.
2.5 USE OF PROCEEDS. Company shall use the proceeds from
the sale of the Note hereunder for (i) the repayment of the amounts set forth
on Schedule 2.5, (ii) Permitted Acquisitions and (iii) investments in Cash
Equivalents.
2.6 INTEREST ON NOTE.
(a) Company shall pay interest to Purchaser, quarterly in
arrears on the last day of each March, June, September and December,
commencing on June 30, 1999 (each, an "Interest Payment Date"), at a rate
equal to 12% per annum, based on a year of 360 days for the actual number of
days elapsed, and based on the amounts outstanding from time to time under
the Note; PROVIDED, HOWEVER, that if Company shall not have consummated a
Qualified IPO on or prior to July 8, 2000, such rate shall be increased to
15% per annum effective as of such date.
(b) If any payment on the Note becomes due and payable on a
day other than a Business Day, the maturity thereof shall be extended to the
next succeeding Business Day and, with respect to payments of principal,
interest thereon shall be payable at the then applicable rate during such
extension.
(c) So long as any Event of Default shall be continuing, the
interest rate applicable to the Note shall be increased by 2% per annum above
the rate otherwise applicable.
(d) If and so long as Company pays or is required to pay
damages pursuant to Section 2(d) of the Registration Rights Agreement, dated
as of April 23, 1999, among Company, Brown Simpson Strategic Growth Fund,
Ltd. and Brown Simpson Strategic Growth Fund, L.P., Company shall pay to
Purchaser additional interest on the Note in an amount per month equal to 2%
of the outstanding principal amount of the Note payable on the last day of
each month.
(e) Notwithstanding anything to the contrary set forth in
this Section 2.6, if at any time until payment in full of the Note, the
interest rate payable thereon exceeds the highest rate of interest
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto (the "Maximum Lawful Rate"), then
in such event and so long as the Maximum Lawful Rate would be so
14
<PAGE>
exceeded, the rate of interest payable on the Note shall be equal to the
Maximum Lawful Rate; PROVIDED, HOWEVER, that if at any time thereafter the
interest rate payable thereon is less than the Maximum Lawful Rate, Company
shall continue to pay interest thereunder at the Maximum Lawful Rate until
such time as the total interest received by Purchaser is equal to the total
interest which it would have received had the interest rate on the Note been
(but for the operation of this paragraph) the interest rate payable since the
Closing Date. Thereafter, the interest rate payable shall be the stated
interest rate unless and until such rate again exceeds the Maximum Lawful
Rate, in which event this paragraph shall again apply. In no event shall the
total interest received by Purchaser pursuant to the terms hereof exceed the
amount which it could lawfully have received had the interest due hereunder
been calculated for the full term hereof at the Maximum Lawful Rate. In the
event the Maximum Lawful Rate is calculated pursuant to this paragraph, such
interest shall be calculated at a daily rate equal to the Maximum Lawful Rate
divided by the number of days in the year in which such calculation is made.
In the event that a court of competent jurisdiction, notwithstanding the
provisions of this Section 2.6(e), shall make a final determination that
Purchaser has received interest hereunder or under any of the Loan Documents
in excess of the Maximum Lawful Rate, Purchaser shall, to the extent
permitted by applicable law, promptly apply such excess first to any interest
due and not yet paid under the Note, then to the outstanding principal of the
Note, then to other unpaid Obligations and thereafter shall refund any excess
to Company or as a court of competent jurisdiction may otherwise order.
2.7 RECEIPT OF PAYMENTS. Company shall make each payment
under the Note not later than 2:00 P.M. (New York City time) on the day when
due in lawful money of the United States of America in immediately available
funds to Purchaser's depository bank in the United States as designated by
Purchaser from time to time for deposit in Purchaser's depositary account.
For purposes only of computing interest under the Note, all payments shall be
applied by Purchaser to the Note on the day payment has been credited by
Purchaser's depository bank to Purchaser's account in immediately available
funds.
2.8 APPLICATION OF PAYMENTS. Company irrevocably waives the
right to direct the application of any and all payments at any time or times
hereafter received by Purchaser from or on behalf of Company pursuant to the
terms of this Agreement, and Company irrevocably agrees that Purchaser shall
have the continuing exclusive right to apply any and all such payments
against the then due and payable Obligations of Company and in repayment of
the Note as it may deem advisable. In the absence of a specific
determination by Purchaser with respect thereto, the same shall be applied in
the following order: (i) then due and payable fees and expenses; (ii) then
due and payable interest payments on the Note; and (iii) then due and payable
principal payments on the Note.
2.9 SHARING OF PAYMENTS. If any holder of the Note or a
portion thereof shall obtain any payment (whether voluntary, involuntary,
through the exercise of any right of set-off, or otherwise) on account of the
Note held by it in excess of its ratable share of payments on account of the
Notes held by all holders thereof, such holder shall
15
<PAGE>
forthwith purchase from each other holder such participations in the Note
held by it as shall be necessary to cause such purchasing holder to share the
excess payment ratably with each other holder; PROVIDED, HOWEVER, that if all
or any portion of such excess payment is thereafter recovered from such
purchasing holder, such purchase shall be rescinded and such holder shall
repay to the purchasing holder the purchase price to the extent of such
recovery together with an amount equal to such holder's ratable share
(according to the proportion of (i) the amount of such holder's required
repayment to (ii) the total amount so recovered from the purchasing holder)
of any interest or other amount paid or payable by the purchasing holder in
respect of the total amount so recovered. Company agrees that any holder so
purchasing a participation from another holder pursuant to this Section 2.9
may, to the fullest extent permitted by law, exercise all its rights of
payment (including the right of set-off) with respect to such participation
as fully as if such holder were the direct creditor of Company in the amount
of such participation. Company further agrees to make all payments on the
Note to all holders thereof on a pro rata basis, based on the principal
amount of the Note held by each.
2.10 ACCESS. Purchaser and any of its officers, employees
and/or agents shall have the right, exercisable as frequently as it
determines to be appropriate, during normal business hours, to visit and
inspect the properties and facilities of Company and its Subsidiaries and to
inspect, audit and make extracts from all of Company's and its Subsidiaries'
records, files, corporate books and books of account and to discuss the
affairs, finances and accounts of Company and its Subsidiaries with the
principal officers of Company, all at such reasonable times, upon reasonable
notice and as often as Purchaser may reasonably request. Company shall
deliver any document or instrument reasonably necessary for Purchaser, as it
may request, to obtain records from any service bureau maintaining records
for Company or its Subsidiaries. Company shall instruct its and its
Subsidiaries' banking and other financial institutions to make available to
Purchaser such information and records as it may reasonably request.
2.11 TAXES.
(a) Any and all payments by Company hereunder or under the
Note shall be made, in accordance with this Section 2.11, free and clear of
and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding taxes imposed on or measured by the net income of
Purchaser, by the jurisdiction under the laws of which it is organized or any
political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred
to as "Taxes"). If Company shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder or under the Note to Purchaser,
(i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.12) Purchaser receives an amount equal to
the sum it would have received had no such deductions been made, (ii) Company
shall make such deductions, and (iii) Company shall pay the full amount
deducted to the relevant taxing or other authority in accordance with
applicable law.
16
<PAGE>
(b) In addition, Company agrees to pay any present or future
stamp or documentary taxes or any other sales, transfer, exercise, mortgage
recording or property taxes, charges or similar levies that arise from any
payment made hereunder or under the Note or from the execution, sale,
transfer, delivery or registration of, or otherwise with respect to, any of
the Transaction Documents (hereinafter referred to as "Other Taxes").
(c) Company shall indemnify Purchaser for the full amount of
Taxes or Other Taxes (including without limitation, any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 2.11) paid
by Purchaser and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted. This indemnification shall be made
within 30 days from the date Purchaser makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes,
Company shall furnish to Purchaser the original or a certified copy of a
receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement
of Company hereunder, the agreements and obligations of Company contained in
this Section 2.11 shall survive the payment in full of the Note.
2.12 ORIGINAL ISSUE DISCOUNT. Company and Purchaser hereby
acknowledge and agree that the Warrant is part of an investment unit within
the meaning of Section 1273(c)(2) of the IRC, which includes the Note being
purchased by Purchaser. Notwithstanding anything to the contrary contained
herein, Company and Purchaser hereby further acknowledge and agree that for
United States federal, state and local income tax purposes the "issue price"
of the Warrant and Note under Section 1273(b) of the IRC shall equal
$4,369,000 and $5,631,000, respectively. Company and Purchaser agree to use
the foregoing issue price for all income tax purposes with respect to this
transaction.
3. PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser makes the following representations and warranties to
Company, each and all of which shall survive the execution and delivery of
this Agreement and the Closing hereunder:
3.1 INVESTMENT INTENTION. Purchaser is acquiring the
Securities for its own account, for investment purposes and not with a view
to the distribution thereof. Purchaser will not, directly or indirectly,
offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of
the Securities (or solicit any offers to buy, purchase, or otherwise acquire
any of the Securities), except in compliance with the Securities Act.
3.2 ACCREDITED INVESTOR. Purchaser is an "accredited
investor" (as that term is defined in Rule 501 of Regulation D under the
Securities Act) and by reason of its
17
<PAGE>
business and financial experience, it has such knowledge, sophistication and
experience in business and financial matters as to be capable of evaluating
the merits and risks of the prospective investment, is able to bear the
economic risk of such investment and is able to afford a complete loss of
such investment.
3.3 CORPORATE EXISTENCE. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware.
3.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
The execution, delivery and performance by Purchaser of this Agreement and
the other Transaction Documents to be executed by it: (i) are within
Purchaser's corporate power; (ii) have been duly authorized by all necessary
corporate action; (iii) are not in contravention of any provision of
Purchaser's certificate of incorporation or by-laws; and (iv) will not
violate any law or regulation, or any order or decree of any court or
governmental instrumentality binding on Purchaser. This Agreement and the
other Transaction Documents to which Purchaser is a party have each been duly
executed and delivered by Purchaser and constitute the legal, valid and
binding obligations of Purchaser, enforceable against it in accordance with
their respective terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability,
to general principles of equity, including principles of commercial
reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
4. COMPANY'S REPRESENTATIONS AND WARRANTIES
Company makes the following representations and warranties to
Purchaser, each and all of which shall survive the execution and delivery of
this Agreement and the Closing hereunder:
4.1 AUTHORIZED AND OUTSTANDING SHARES OF CAPITAL STOCK.
After giving effect to the Closing, the authorized capital stock of Company
consists of 100,000,000 shares of Common Stock, $.001 par value per share, of
which 14,459,726 shares are issued and outstanding, and 50,000,000 shares of
preferred stock, $.001 par value per share, of which 3,386,000 shares are
issued and outstanding. All of such issued and outstanding shares are
validly issued, fully paid and non-assessable. Except as set forth on
Schedule 4.1, (i) there is no existing option, warrant, call, commitment or
other agreement to which Company is a party requiring, and there are no
convertible securities of Company outstanding which upon conversion would
require, the issuance of any additional shares of Stock of Company or other
securities convertible into shares of equity securities of Company, other
than the Warrant, and (ii) there are no agreements to which Company is a
party with respect to the voting or transfer of the Stock of Company, other
than the pledge agreement securing the PNC Senior Debt. Except as set forth
on Schedule 4.1, there are no stockholders' preemptive rights or rights of
first refusal or other similar rights with respect to the issuance of Stock
by Company. True and correct
18
<PAGE>
copies of the certificate of incorporation and by-laws of Company have been
delivered to Purchaser.
4.2 AUTHORIZATION AND ISSUANCE OF SECURITIES. The issuance
of the Securities has been duly authorized by all necessary corporate action
on the part of Company and, upon delivery to Purchaser of the Securities
against payment in accordance with the terms hereof, the Securities will have
been validly issued, free and clear of all pledges, liens, encumbrances and
preemptive rights. The issuance of shares of Common Stock upon exercise of
the Warrant has been duly authorized by all necessary corporate action on the
part of Company and, when issued upon exercise of the Warrant, such Common
Stock will have been validly issued and fully paid and non-assessable.
Company has duly reserved 1,666,028 shares of Common Stock for issuance
pursuant to the terms of the Warrant.
4.3 SECURITIES LAWS. In reliance on the investment
representations contained in Sections 3.1 and 3.2, the offer, issuance, sale
and delivery of the Securities, as provided in this Agreement, are exempt
from the registration requirements of the Securities Act and all applicable
state securities laws, and are otherwise in compliance with such laws.
Neither Company nor any Person acting on its behalf has taken or will take
any action (including, without limitation, any offering of any securities of
Company under circumstances which would require the integration of such
offering with the offering of the Securities under the Securities Act and the
rules and regulations of the SEC thereunder) which might subject the
offering, issuance or sale of the Securities, to the registration
requirements of Section 5 of the Securities Act.
4.4 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Company and
each of its Subsidiaries (i) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware in the
case of Company and as set forth on Schedule 4.5 in the case of its
Subsidiaries; (ii) is duly qualified as a foreign 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 (except
for jurisdictions in which such failure to so qualify or to be in good
standing would not have a Material Adverse Effect); (iii) has the requisite
corporate power and authority and the legal right to own, pledge, mortgage or
otherwise encumber and operate its properties, to lease the property it
operates under lease, and to conduct its business as now being conducted;
(iv) has, or has applied for, all material licenses, permits, consents or
approvals from or by, and has made all material filings with, and has given
all material notices to, all Governmental Authorities having jurisdiction, to
the extent required for such ownership, operation and conduct; (v) is in
compliance with its certificate or articles of incorporation and by-laws; and
(vi) is in compliance with all applicable provisions of law, except for such
non-compliance which would not have a Material Adverse Effect.
4.5 SUBSIDIARIES. There currently exist no Subsidiaries of
Company other than as set forth on Schedule 4.5 hereto, which sets forth such
Subsidiaries, together with their respective jurisdictions of organization,
and the authorized and outstanding capital Stock of each such Subsidiary, by
class and number and percentage of each class
19
<PAGE>
owned by Company or a Subsidiary of Company or any other Person. There are
no options, warrants, rights to purchase or similar rights covering capital
Stock for any such Subsidiary.
4.6 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
The execution, delivery and performance by Company and each of its
Subsidiaries of each Transaction Document to which it is a party and each
other instrument and document to be delivered by Company or such Subsidiary,
the issuance and sale of the Note and the consummation of the other
transactions contemplated by any of the foregoing: (i) are within Company's
and each Subsidiary's corporate power and authority; (ii) have been duly
authorized by all necessary or proper corporate action; (iii) are not in
contravention of any provision of the certificate or articles of
incorporation or by-laws of Company or any of its Subsidiaries; (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 or termination of, constitute a default under or accelerate any
performance required by, any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which Company or any of its Subsidiaries is
a party or by which Company, any of its Subsidiaries or any of their property
is bound; (vi) will not result in the creation or imposition of any Lien upon
any of the property of Company or any of its Subsidiaries other than the
Liens created pursuant to the Pledge Agreement and the Security Agreement;
and (vii) do not require the consent or approval of, or any filing with, any
Governmental Authority or any other Person (except (A) for those filings
required by the registration rights provisions of the Warrant and (B) to the
extent previously obtained or made). At or prior to the Closing Date, each
of this Agreement and the other Transaction Documents shall have been duly
executed and delivered by Company and each shall then constitute a legal,
valid and binding obligation of Company, enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally, and subject, as to enforceability, to general
principles of equity, including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
4.7 FINANCIAL STATEMENTS.
(a) The audited consolidated balance sheet of Company and
its Subsidiaries as at December 31, 1998 (the "Balance Sheet"), and the
related consolidated statements of income and cash flows for the year then
ended, with the opinion thereon of Ernst & Young LLP, and the unaudited
consolidated balance sheet of Company and its Subsidiaries as at March 31,
1999 and the related unaudited consolidated statements of income, and cash
flows for the three months then ended, copies of which have previously been
delivered to Purchaser, have been, except as noted therein, prepared in
conformity with GAAP consistently applied throughout the periods involved and
present fairly in all material respects the consolidated financial position
of Company and its Subsidiaries as at the dates thereof, and the consolidated
results of operations and cash flows for the periods then ended, subject, in
the case of the interim financial statements, to normal year-end audit
adjustments.
20
<PAGE>
(b) Except as set forth on Schedule 4.7 and other than
regularly scheduled dividends on its outstanding preferred stock, neither
Company nor any of its Subsidiaries has any material obligations, contingent
or otherwise, including, without limitation, liabilities for Charges,
long-term leases or unusual forward or long-term commitments which are not
reflected in the Balance Sheet, other than those incurred since December 31,
1998, in the ordinary course of business.
(c) Except as set forth on Schedule 4.7 and other than
regularly scheduled dividends on its outstanding preferred stock, no
dividends or other distributions have been declared, paid or made upon any
shares of capital Stock of Company, nor have any shares of capital Stock of
Company been redeemed, retired, purchased or otherwise acquired for value by
Company since December 31, 1998.
4.8 OWNERSHIP OF PROPERTY.
(a) Except as set forth on Schedule 4.8(a), neither Company
nor any of its Subsidiaries owns any real estate. Each of Company and its
Subsidiaries has good and marketable and insurable fee simple title to its
owned real property, free and clear of all Liens. Each of Company and its
Subsidiaries has valid and marketable leasehold interests in the leases
described in Schedule 4.8(b) hereto, and, except as set forth on Schedule
4.8(b), good and marketable title to, or valid leasehold interests in, all of
its other properties and assets free and clear of all Liens, except Permitted
Liens and Liens permitted pursuant to Section 5.2(f) hereof.
(b) All real property leased by Company and its Subsidiaries
is set forth on Schedule 4.8(b). Each of such leases is valid and
enforceable in accordance with its terms (subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity)) and is in full
force and effect. Company has delivered to Purchaser or has provided
Purchaser access to true and complete copies of each of such leases set forth
on Schedule 4.8(b) and all documents affecting the rights or obligations of
Company or any of its Subsidiaries, including, without limitation, any
non-disturbance and recognition agreements, subordination agreements,
attornment agreements and agreements regarding the term or rental of any of
the leases. Except as set forth on Schedule 4.8(b), none of Company, any of
its Subsidiaries nor, to its knowledge, any other party to any such lease is
in default of its obligations thereunder or has delivered or received any
notice of default under any such lease, nor has any event occurred which,
with the giving of notice, the passage of time or both, would constitute a
default under any such lease.
(c) Except as disclosed on Schedule 4.8(c), neither Company
nor any of its Subsidiaries is obligated under or a party to, any option,
right of first refusal or any other contractual right to purchase, acquire,
sell, assign or dispose of any real property owned or leased by Company or
such Subsidiary.
21
<PAGE>
4.9 MATERIAL CONTRACTS; INDEBTEDNESS. Schedule 4.9 contains
a true, correct and complete list and description of all Material Contracts.
Each Material Contract is a valid and binding agreement of Company or its
Subsidiaries (as the case may be) enforceable against Company or such
Subsidiary in accordance with its terms (subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity)), and neither
Company nor any of its Subsidiaries has any knowledge that any Material
Contract is not a valid and binding agreement against the other parties
thereto. Company and each of its Subsidiaries has fulfilled all obligations
required pursuant to the Material Contract to have been performed by Company
or such Subsidiary on its part. Except as set forth in Schedule 4.9, neither
Company nor any of its Subsidiaries is in default or breach, nor to Company's
or such Subsidiary's knowledge is any third party in default or breach, under
or with respect to any Material Contract. Except as set forth on Schedule
4.9, neither Company nor any of its Subsidiaries has any Indebtedness except
(i) Permitted Indebtedness and (ii) PNC Senior Debt.
4.10 ENVIRONMENTAL PROTECTION.
(a) Except as set forth on Schedule 4.10, all real property
owned, leased or otherwise operated by Company and its Subsidiaries (each, a
"Facility") is free of contamination from any substance, waste or material
(i) currently identified to be toxic or hazardous pursuant to, or which may
result in liability under, any Environmental Law or (ii) within the
definition of a substance which is toxic or hazardous under any Environmental
Law, including, without limitation, any asbestos, pcb, radioactive substance,
methane, volatile hydrocarbons, industrial solvents, oil or petroleum or
chemical liquids or solids, liquid or gaseous products, or any other material
or substance which has in the past or could at any time in the future cause
or constitute a health, safety, or environmental hazard to any Person or
property or result in any Environmental Liabilities and Costs ("Hazardous
Substance") of more than $100,000 or which, in either case, could have a
Material Adverse Effect. Except as set forth on Schedule 4.10, neither
Company nor any of its Subsidiaries has caused or suffered to occur any
release, spill, migration, leakage, discharge, spillage, uncontrolled loss,
seepage, or filtration of Hazard Substances at or from the Facility (a
"Spill") which could result in Environmental Liabilities and Costs in excess
of $100,000.
(b) Company and each Subsidiary has generated, treated,
stored and disposed of any Hazardous Substances in full compliance with
applicable Environmental Laws, except for such non-compliances which would
not have a Material Adverse Effect.
(c) Company and each Subsidiary has obtained, or has applied
for, and is in full compliance with and in good standing under all permits
required under Environmental Laws (except for such failures which would not
have a Material Adverse
22
<PAGE>
Effect) and neither Company nor any of its Subsidiaries has any knowledge of
any proceedings to substantially modify or to revoke any such permit.
(d) Except as set forth on Schedule 4.10, there are no
investigations, proceedings or litigation pending or, to Company's or its
Subsidiaries' knowledge, threatened affecting or against Company, any of its
Subsidiaries or the Facilities relating to Environmental Laws or Hazardous
Substances.
(e) Since December 31, 1998, except for communications in
connection with the matters listed on Schedule 4.10, neither Company nor any
of its Subsidiaries has received any communication or notice (including,
without limitation, requests for information) indicating the potential of
Environmental Liabilities and Costs against Company or its Subsidiaries.
4.11 LABOR MATTERS.
(a) There are no strikes or other labor disputes against
Company or any of its Subsidiaries pending or, to Company's or its
Subsidiaries' knowledge, threatened. Hours worked by and payment made to
employees of Company and its Subsidiaries have not been in violation of the
Fair Labor Standards Act or any other applicable law dealing with such
matters. All payments due from Company and each of its Subsidiaries on
account of employee health and welfare insurance have been paid or accrued as
a liability on the books of Company or such Subsidiary. There is no
organizing activity involving Company or any of its Subsidiaries pending or,
to Company's or its Subsidiaries' knowledge, threatened by any labor union or
group of employees. There are no representation proceedings pending or, to
Company's or its Subsidiaries' knowledge, threatened with the National Labor
Relations Board, and no labor organization or group of employees of Company
or its Subsidiaries has made a pending demand for recognition. There are no
complaints or charges against Company or any of its Subsidiaries pending or,
to Company's or its Subsidiaries' knowledge, threatened to be filed with any
federal, state, local or foreign court, governmental agency or arbitrator
based on, arising out of, in connection with, or otherwise relating to the
employment or termination of employment by Company or any of its Subsidiaries
of any individual.
(b) Except as set forth on Schedule 4.11, neither Company
nor any of its Subsidiaries is, or during the five years preceding the date
hereof was, a party to any labor or collective bargaining agreement and there
are no labor or collective bargaining agreements which pertain to employees
of Company or its Subsidiaries.
4.12 OTHER VENTURES. Except as set forth on Schedule 4.12,
neither Company nor any of its Subsidiaries is engaged in any joint venture
or partnership with any other Person.
4.13 TAXES. Except as set forth on Schedule 4.13, all
federal, state, local and foreign tax returns, reports and statements
required to be filed by Company and
23
<PAGE>
its Subsidiaries have been timely filed with the appropriate Governmental
Authority and all such returns, reports and statements are true, correct and
complete in all material respects. All Charges and other impositions due and
payable for the periods covered by such returns, reports and statements have
been paid prior to the date on which any fine, penalty, interest or late
charge may be added thereto for nonpayment thereof, or any such fine,
penalty, interest, late charge or loss has been paid. Proper and accurate
amounts have been withheld by Company and its Subsidiaries from its employees
for all periods in full and complete compliance with the tax, social security
and unemployment withholding provisions of applicable federal, state, local
and foreign law and such withholdings have been timely paid to the respective
governmental agencies. Neither Company nor any of its Subsidiaries has
executed or filed with the IRS or any other Governmental Authority any
agreement or other document extending, or having the effect of extending, the
period for assessment or collection of any Charges. No tax audits or other
administrative or judicial proceedings are pending or threatened with regard
to any Charges for which Company or any Subsidiary may be liable and no
assessment of Charges is proposed against the Company or any Subsidiary.
Neither Company nor any of its Subsidiaries has filed a consent pursuant to
IRC Section 341(f) or agreed to have IRC Section 341(f)(2) apply to any
dispositions of subsection (f) assets (as such term is defined in IRC Section
341(f)(4)). None of the property owned by Company or any of its Subsidiaries
is property which such company is required to treat as being owned by any
other Person pursuant to the provisions of Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended, and in effect immediately prior to the
enactment of the Tax Reform Act of 1986 or is "tax-exempt use property"
within the meaning of IRC Section 168(h). Neither Company nor any of its
Subsidiaries has agreed or has been requested to make any adjustment under
IRC Section 481(a) by reason of a change in accounting method or otherwise.
Neither Company nor any of its Subsidiaries has any obligation under any
written tax sharing agreement.
4.14 NO LITIGATION. Except as disclosed on Schedule 4.14, no
action, claim or proceeding is now pending or, to the knowledge of Company or
its Subsidiaries, threatened against Company or any of its Subsidiaries, at
law, in equity or otherwise, before any court, board, commission, agency or
instrumentality of any federal, state, or local government or of any agency
or subdivision thereof, or before any arbitrator or panel of arbitrators,
except those which would not reasonably be likely to result in a Material
Adverse Effect.
4.15 BROKERS. Except as set forth on Schedule 4.15, no
broker or finder acting on behalf of Company or any of its Subsidiaries
brought about the consummation of the transactions contemplated pursuant to
this Agreement and neither Company nor any of its Subsidiaries has any
obligation to any Person in respect of any finder's or brokerage fees (or any
similar obligation) in connection with the transactions contemplated by this
Agreement. Company is solely responsible for the payment of all such
finder's or brokerage fees.
24
<PAGE>
4.16 EMPLOYMENT AND LABOR AGREEMENTS. Except as set forth on
Schedule 4.16, there are no employment, consulting or management agreements
covering management of Company or any of its Subsidiaries.
4.17 PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES. Company
and each of its Subsidiaries owns all licenses, patents, patent applications,
copyrights, service marks, trademarks and registrations and applications for
registration thereof, and trade names necessary to continue to conduct its
business as heretofore conducted by it and now being conducted by it, each of
which is listed, together with Patent and Trademark Office or Copyright
Office application or registration numbers, where applicable, on Schedule
4.17 hereto. To Company's knowledge, Company and each of its Subsidiaries
conducts its businesses without infringement or claim of infringement of any
license, patent, copyright, service mark, trademark, trade name, trade secret
or other intellectual property right of others, except as set forth on
Schedule 4.17 hereto. To Company's knowledge, there is no infringement by
others of any license, patent, copyright, service mark, trademark, trade
name, trade secret or other intellectual property right of Company or any of
its Subsidiaries, except as set forth on Schedule 4.17 hereto.
4.18 NO MATERIAL ADVERSE EFFECT. Except as set forth on
Schedule 4.18 or as otherwise disclosed in the March 31, 1999 financial
statements of Company and its Subsidiaries, no event has occurred since
December 31, 1998 which has had or could be reasonably expected to have a
Material Adverse Effect.
4.19 ERISA.
(a) Schedule 4.19 sets forth: (i) all "employee benefit
plans", as defined in Section 3(3) of ERISA, and any other employee benefit
arrangements or payroll practices, including, without limitation, severance
pay, sick leave, vacation pay, salary continuation for disability, consulting
or other compensation agreements, retirement, deferred compensation, bonus,
stock purchase, hospitalization, medical insurance, life insurance and
scholarship programs (the "Plans") maintained by Company and any of its
Subsidiaries or to which Company or any its Subsidiaries contributed or is
obligated to contribute thereunder, and (ii) all "employee pension plans", as
defined in Section 3(2) of ERISA (the "Pension Plans"), maintained by
Company, any of its Subsidiaries or any of its ERISA Affiliates to which
Company, any of its Subsidiaries or any of its ERISA Affiliates contributed
or is obligated to contribute thereunder.
(b) Purchaser will not have (i) any obligation to make any
contribution to any Multiemployer Plan or (ii) any withdrawal liability from
any such Multiemployer Plan under Section 4201 of ERISA which it would not
have had if it had not purchased the Note from Company at the Closing in
accordance with the terms of this Agreement.
(c) The Pension Plans intended to be qualified under Section
401 of the IRC are so qualified and the trusts maintained pursuant thereto
are exempt from federal income taxation under Section 501 of the IRC, and
nothing has occurred with respect to the operation of the Pension Plans which
could cause the loss of such
25
<PAGE>
qualification or exemption or the imposition of any liability, penalty, or
tax under ERISA or the IRC.
(d) All contributions required by law or pursuant to the
terms of the Plans (without regard to any waivers granted under Section 412
of the IRC) to any funds or trusts established thereunder or in connection
therewith have been made by the due date thereof (including any valid
extension) and no accumulated funding deficiencies exist in any of the
Pension Plans.
(e) There is no "amount of unfunded benefit liabilities" as
defined in Section 4001(a)(18) of ERISA in any of the respective Pension
Plans. Each of the respective Pension Plans are fully funded in accordance
with the actuarial assumptions used by the PBGC to determine the level of
funding required in the event of the termination of the Pension Plan and all
benefit liabilities do not exceed the assets of such Pension Plans.
(f) There has been no "reportable event" as that term is
defined in Section 4043 of ERISA and the regulations thereunder with respect
to the Pension Plans which would require the giving of notice, or any event
requiring disclosure under Sections 4041(c)(3)(C), 4063(a) or 4068(f) of
ERISA.
(g) There is no material violation of ERISA with respect to
the filing of applicable reports, documents, and notices regarding the Plans
with the Secretary of Labor and the Secretary of the Treasury or the
furnishing of such documents to the participants or beneficiaries of the
Plans.
(h) True, correct and complete copies of the following
documents, with respect to each of the Plans, have been made available or
delivered to Purchaser by Company: (A) any plans and related trust documents,
and amendments thereto, (B) the most recent Forms 5500 (including any
schedules thereto) and the most recent actuarial valuation report, if any,
(C) the last IRS determination letter, (D) summary plan descriptions, (E)
written communications to employees relating to the Plans and (F) written
descriptions of all non-written agreements relating to the Plans.
(i) There are no pending actions, claims or lawsuits which
have been asserted or instituted against the Plans, the assets of any of the
trusts under such Plans or the Plan sponsor or the Plan administrator, or
against any fiduciary of the Plans with respect to the operation of such
Plans (other than routine benefit claims), other than those which would not
reasonably be likely to have a Material Adverse Effect, nor does Company or
any of its Subsidiaries have knowledge of facts which could form the basis
for any such claim or lawsuit.
(j) All amendments and actions required to bring the Plans
into conformity in all material respects with all of the applicable
provisions of ERISA and other applicable laws have been made or taken except
to the extent that such amendments or actions are not required by law to be
made or taken until a date after the Closing Date.
26
<PAGE>
(k) The Plans have been maintained, in all material
respects, in accordance with their terms and with all provisions of ERISA
(including rules and regulations thereunder) and other applicable Federal and
state law, and neither Company nor any of its Subsidiaries or "party in
interest" or "disqualified person" with respect to the Plans has engaged in a
"prohibited transaction" within the meaning of Section 4975 of the IRC or
Section 406 of ERISA.
(l) None of Company, any of its Subsidiaries or any ERISA
Affiliate has terminated any Pension Plan, or incurred any outstanding
liability under Section 4062 of ERISA to the PBGC, or to a trustee appointed
under Section 4042 of ERISA.
(m) None of Company, any of its Subsidiaries or any ERISA
Affiliate maintains retired life and retired health insurance plans which are
Welfare Plans and which provide for continuing benefits or coverage for any
participant or any beneficiary of a participant except as may be required
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA") and at the expense of the participant or the participant's
beneficiary. Company, all of its Subsidiaries and all ERISA Affiliates which
maintains a Welfare Plan has complied with the notice and continuation
requirements of COBRA and the regulations thereunder.
(n) None of Company, any of its Subsidiaries or any ERISA
Affiliate has contributed or been obligated to contribute to a Multiemployer
Plan as of the Closing.
(o) None of Company, any of its Subsidiaries or any ERISA
Affiliate has withdrawn in a complete or partial withdrawal from any
Multiemployer Plan prior to the Closing Date, nor has any of them incurred
any liability due to the termination or reorganization of a Multiemployer
Plan.
(p) None of Company, any of its Subsidiaries, any ERISA
Affiliate or any organization to which Company is a successor or parent
corporation, within the meaning of Section 4069(b) of ERISA, has engaged in
any transaction, within the meaning of Section 4069 of ERISA.
4.20 ORDINARY COURSE OF BUSINESS. Except as set forth on
Schedule 4.7 or in response to the events described therein, since December
31, 1998, Company and each of its Subsidiaries has conducted its operations
only in the ordinary course of business consistent with past practice.
4.21 INSURANCE. Schedule 4.21 hereto contains a complete and
correct list of all policies of insurance of any kind or nature covering
Company and its Subsidiaries, including, without limitation, policies of
life, fire, theft, employee fidelity and other casualty and liability
insurance, indicating the type of coverage, name of insured, the insurer, the
premium, the expiration date of each policy and the amount of coverage, and,
except as would not reasonably be likely to result in a Material Adverse
Effect, such policies are in full force and effect. Complete and correct
copies of each
27
<PAGE>
such policy have been furnished or made available to Purchaser. Such
policies are in amounts customary for the industry in which Company or such
Subsidiary operates.
4.22 ACCOUNTS RECEIVABLE. All accounts receivable of Company
and its Subsidiaries as shown on the Balance Sheet are collectible in the
ordinary course of business by Company or such Subsidiary, net of the
reserves for bad debts shown on the Balance Sheet, except as would not
reasonably be likely to result in a Material Adverse Effect.
4.23 MINUTE BOOKS. The minute books of Company, as
previously made available to Purchaser, accurately reflect all formal
corporate action of the stockholders and Board of Directors of Company.
4.24 YEAR 2000 COMPLIANCE.
(a) Each system comprised of software, hardware, databases
or embedded control systems (microprocessor controlled or controlled by any
robotic or other device) (collectively, a "System") that constitutes any
material part of, or is used in connection with the use, operation or
enjoyment of, any material tangible or intangible asset or real property of
Company or any of its Subsidiaries will not be materially adversely affected
by the advent of the year 2000, the advent of the twenty-first century or the
transition from the twentieth century through the year 2000 and into the
twenty-first century ("Year 2000 Compliant"). Company has no reason to
believe that it or any of its Subsidiaries may incur material expenses
arising from or relating to the failure of any of their Systems as a result
of the advent of the year 2000, the advent of the twenty-first century or the
transition from the twentieth century through the year 2000 and into the
twenty-first century. Each System of Company and its Subsidiaries is able to
accurately process date data, including, but not limited to, calculating,
comparing and sequencing from, into and between the twentieth century
(through year 1999), the year 2000 and the twenty-first century, including
leap year calculations.
(b) (i) All vendors of products or services to Company or
any of its Subsidiaries, and their respective products, services and
operations, are, to the knowledge of Company, Year 2000 Compliant. To the
knowledge of Company after a reasonably diligent investigation, each such
vendor will continue to furnish its products or services to Company or its
Subsidiaries, as applicable, without interruption or material delay, on and
after January 1, 2000.
(ii) Company and its Subsidiaries have entered into
appropriate agreements with each of its vendors certifying that all hardware,
software or firmware, and any other products and services furnished by such
vendor, including any and all enhancements, upgrades, customizations,
modifications, maintenance and the like, are Year 2000 Compliant, except as
would not reasonably be likely to result in a Material Adverse Effect. All
such vendor agreements include appropriate indemnification by the vendor in
favor of Company or its Subsidiaries, as applicable, and their successors if
that vendor or its products, services or operations fail to be Year 2000
Compliant or if the
28
<PAGE>
products, services or operations fail to conform to or meet the terms of the
vendor warranties, representations, or other contractual terms.
4.25 FULL DISCLOSURE. No information contained in this
Agreement, any other Transaction Document, the Financial Statements or any
written statement furnished by or on behalf of Company pursuant to the terms
of this Agreement contains any untrue statement of a material fact or omits
to state a material fact necessary to make the statements contained herein or
therein not misleading in light of the circumstances under which made.
5. COVENANTS
5.1 AFFIRMATIVE AND FINANCIAL COVENANTS. Company covenants
and agrees that from and after the date hereof (except as otherwise provided
herein, or unless the Required Holders have given their prior written
consent) so long as the Note is outstanding:
(a) BOOKS AND RECORDS. Company shall, and shall cause its
Subsidiaries to, keep adequate records and books of account with respect to
their business activities, in which proper entries, reflecting all of their
financial transactions, are made in accordance with GAAP.
(b) FINANCIAL AND BUSINESS INFORMATION.
(i) MONTHLY INFORMATION. Commencing with the month
ending July 31, 1999, Company will deliver to Purchaser as soon as
practicable after the end of each month, but in any event within 30 days
thereafter: (A) an unaudited consolidated balance sheet of Company and its
Subsidiaries, if any, at the end of such month; (B) unaudited consolidated
statements of income, retained earnings and cash flows of Company and its
Subsidiaries, if any, for such month and for the portion of such year ending
with such month; (C) an acquisition pipeline report; and (D) an Earn-Out
forecast which shall detail all anticipated payments for all Earn-Outs..
(ii) QUARTERLY INFORMATION. Company will deliver to
Purchaser as soon as practicable after the end of each of the first three
quarterly fiscal periods in each Fiscal Year of Company, but in any event
within 45 days thereafter, (A) an unaudited consolidated balance sheet of
Company and its Subsidiaries, if any, as at the end of such quarter; (B)
unaudited consolidated statements of income, retained earnings and cash flows
of Company and its Subsidiaries, if any, for such quarter and (in the case of
the second and third quarters) for the portion of the Fiscal Year ending with
such quarter, setting forth in comparative form in each case the projected
consolidated figures for such period and the actual consolidated figures for
the comparable period of the prior Fiscal Year. Such statements shall be (1)
prepared in accordance with GAAP consistently applied, (2) in reasonable
detail, (3) certified by the principal financial or accounting officer of
Company and (4) accompanied by a statement in reasonable detail, certified by
the Chief Executive Officer or Chief Financial Officer of Company showing
29
<PAGE>
the calculations used in determining compliance with each of the financial
covenants set forth in Sections 5.1(h) and 5.2(i); and (C) the pro forma
financial reports of Company and its Subsidiaries for such quarter.
(iii) ANNUAL INFORMATION. Company will deliver to
Purchaser as soon as practicable after the end of each Fiscal Year of
Company, but in any event within 90 days thereafter, (A) an audited
consolidated balance sheet of Company and its Subsidiaries, if any, as at the
end of such year, and (B) audited consolidated statements of income, retained
earnings and cash flows of Company and its Subsidiaries, if any, for such
year; setting forth in each case in comparative form the figures for the
previous year. Such statements shall be (1) prepared in accordance with GAAP
consistently applied, (2) in reasonable detail, (3) certified by Ernst &
Young LLP or such other firm of independent certified public accountants of
recognized national standing selected by Company and reasonably acceptable to
Purchaser and (4) accompanied by a statement in reasonable detail, certified
by the Chief Executive Officer or Chief Financial Officer of Company showing
the calculations used in determining compliance with each of the financial
covenants set forth in Sections 5.1(h) and 5.2(i).
(iv) FILINGS. Company will deliver to Purchaser,
promptly upon their becoming available, one copy of each report, notice or
proxy statement sent by Company to its stockholders generally, and of each
regular or periodic report (pursuant to the Exchange Act) and any
registration statement, prospectus or other writing (other than transmittal
letters) (including, without limitation, by electronic means) pursuant to the
Securities Act filed by Company with (i) the SEC or (ii) any securities
exchange on which shares of Common Stock of Company are listed.
(v) PROJECTIONS; BUDGET. Company will deliver to
Purchaser within 15 days prior to the beginning of each Fiscal Year:
(A) projected consolidated balance sheets of
Company and its Subsidiaries, if any, for such Fiscal Year, on a monthly
basis;
(B) projected consolidated cash flow
statements of Company and its Subsidiaries, if any, including summary details
of cash disbursements, for such Fiscal Year, on a monthly basis;
(C) projected consolidated income statements
of Company and its Subsidiaries, if any, for such Fiscal Year, on a monthly
basis; and
(D) an annual budget for Company and its
Subsidiaries for such Fiscal Year;
in each case, approved by the Board of Directors of Company, together with
appropriate supporting details.
(vi) CUSTOMER COMPLAINTS; OTHER INFORMATION. Company
will promptly notify Purchaser of any material customer complaints concerning
Company's
30
<PAGE>
products and services. If requested by any Purchaser, Company will deliver
to such Purchaser such other information respecting Company's or any of its
Subsidiaries' business, financial condition or prospects as such Purchaser
may, from time to time, reasonably request.
(vii) INCURRENCE OF ADDITIONAL INDEBTEDNESS. Company
will promptly, but in no event later than the date of such incurrence, notify
Purchaser of its intention to incur additional Indebtedness other than (i)
Permitted Indebtedness and (ii) Indebtedness assumed, and purchase money
notes issued, in connection with a Permitted Acquisition.
(c) COMMUNICATION WITH ACCOUNTANTS. Company authorizes
Purchaser to communicate directly with its independent certified public
accountants and tax advisors and authorizes those accountants to disclose to
such Purchaser any and all financial statements and other supporting
financial documents and schedules including copies of any management letter
with respect to the business, financial condition and other affairs of
Company and any of its Subsidiaries. At or before the Closing Date, Company
shall deliver a letter addressed to such accountants and tax advisors
instructing them to comply with the provisions of this Section 5.1(c).
(d) TAX COMPLIANCE. Company shall pay all transfer, excise
or similar taxes (not including income or franchise taxes) in connection with
the issuance, sale, delivery or transfer by Company to Purchaser of the Note
and the Common Stock issuable upon conversion thereof, and shall indemnify
and save each Purchaser harmless without limitation as to time against any
and all liabilities with respect to such taxes. Company shall not be
responsible for any taxes in connection with the transfer of the Note or such
Common Stock by the holder thereof. The obligations of Company under this
Section 5.1(d) shall survive the payment, prepayment or redemption of the
Note and the termination of this Agreement until the expiration of the
applicable statutes of limitations.
(e) INSURANCE. Company shall and shall cause each
Subsidiary of Company to maintain insurance covering, without limitation,
fire, theft, burglary, public liability, property damage, product liability,
workers' compensation, directors' and officers' insurance, key-man life
insurance insuring the lives of Nelson Clemmens and Stephen Hoffmann, and
insurance on all property and assets material to the operation of the
business, all in amounts customary for the industry. Company shall, and
shall cause each of its Subsidiaries to, pay all insurance premiums payable
by them. Within one hundred twenty (120) days after the date hereof, Company
shall obtain and thereafter Company shall maintain a general liability policy
of at least $10,000,000 covering Company and its Subsidiaries. On or prior
to August 8, 1999, Company shall deliver to Purchaser, in each case in form
and substance satisfactory to Purchaser, evidence that the insurance policies
provided for in Section 4.21 are in full force and effect and endorsements to
all such policies naming Purchaser as additional insured.
31
<PAGE>
(f) EMPLOYEE PLANS.
(i) With respect to other than a Multiemployer Plan,
for each Plan and Pension Plan intended to be qualified under Section 401(a)
of the IRC hereafter adopted or maintained by Company, any of its
Subsidiaries or any ERISA Affiliate, Company shall (A) seek, or cause its
Subsidiaries or ERISA Affiliates to seek, and receive determination letters
from the IRS to the effect that such Plan or Pension Plan is qualified within
the meaning of Section 401(a) of the IRC; and (B) from and after the adoption
of any such Plan or Pension Plan, cause such plan to be qualified within the
meaning of Section 401(a) of the IRC and to be administered in all material
respects in accordance with the requirements of ERISA and Section 401(a) of
the IRC.
(ii) With respect to each Welfare Plan hereafter
adopted or maintained by Company, any of its Subsidiaries or any ERISA
Affiliate, to the extent applicable, Company shall comply, or cause its
Subsidiaries or ERISA Affiliates to comply, with the notice and continuation
coverage requirements of Section 4980B of the IRC and the regulations
thereunder.
(iii) Company shall not, directly or indirectly, and
shall not permit its Subsidiaries or any ERISA Affiliate to directly or
indirectly by reason of an amendment or amendments to, or the adoption of,
one or more Pension Plans, permit the present value of all benefit
liabilities, as defined in Title IV of ERISA, (using the actuarial
assumptions utilized by the PBGC upon termination of a plan) to exceed the
fair market value of assets allocable to such benefits by more than $100,000,
or to increase to the extent security must be provided to any Pension Plan
under Section 401(a)(29) of the IRC. Neither Company nor any of its
Subsidiaries shall establish or become obligated to any new Retiree Welfare
Plan, which would result in the present value of future liabilities under any
such plans to exceed $100,000. Neither Company nor any of its Subsidiaries
or ERISA Affiliates shall establish or become obligated to any new unfunded
Pension Plan, which would result in the present value of future liabilities
under any such plans to exceed $100,000. Company shall not directly or
indirectly, and shall not permit its Subsidiaries or any ERISA Affiliate to
(a) satisfy any liability under any Pension Plan by purchasing annuities from
an insurance company or (b) invest the assets of any Pension Plan with an
insurance company, unless, in each case, such insurance company is rated AA
by Standard & Poor's Corporation and the equivalent by each other nationally
recognized rating agency at the time of the investment.
(iv) Company, any of its Subsidiaries and any ERISA
Affiliate shall not contribute or become obligated to contribute to any
Multiemployer Plan.
32
<PAGE>
(g) COMPLIANCE WITH LAW. Company shall, and shall cause
each of its Subsidiaries to, comply with all laws, including Environmental
Laws, applicable to it, except where the failure to comply would not be
reasonably likely to result in a Material Adverse Effect.
(h) FINANCIAL COVENANTS.
(i) FUNDED DEBT TO MODIFIED EBITDA. The ratio,
calculated as of the end of each fiscal quarter of Company and its
Subsidiaries beginning September 30, 1999 (each a "Calculation Date"), of the
consolidated (and combined, if applicable) Funded Debt of Company and its
Subsidiaries as of each Calculation Date divided by the consolidated (and
combined, if applicable) Modified EBITDA for Company and its Subsidiaries for
the four (4) fiscal quarters of Company and its Subsidiaries immediately
preceding the applicable Calculation Date shall not be greater than 4.25 to
1.00.
For purposes of this financial covenant, the following terms shall
have the following meaning:
(A) "Base Earnings" shall mean the consolidated (and combined,
if applicable) sum of all earnings before interest, taxes,
depreciation and amortization LESS any extraordinary gain,
PLUS expenses, calculated and estimated by Company and its
Subsidiaries in a manner and amount acceptable to Purchaser
in each case, incurred by Company and its Subsidiaries, if
and to the extent applicable, that reasonably are expected
no longer to be incurred because of operating efficiencies
realized as a result of and following each such entity
having become a Subsidiary of Company ("Non-Recurring
Expenses"), and before giving effect to "corporate income"
(e.g., interest income and similar revenues generated by
cash on hand) of Company and its Subsidiaries and corporate
overhead incurred by Company and its subsidiaries during
the period of calculation.
(B) "EBITDA" shall mean the sum of (i) Base Earnings of Company
and its Subsidiaries PLUS (ii) an amount equal to all
non-cash charges to income incurred by Company and its
Subsidiaries on or before the date of this Agreement in
respect of stock options heretofore issued by Company and
its Subsidiaries ("Stock Option Charges"), not to exceed
(a) $6,120,000 for the Calculation Date occurring on
September 30, 1999, until (but not including) the
Calculation Date occurring on December 31, 1999, (b)
$620,000 for the Calculation Date occurring on December 31,
1999, until (but not including) the Calculation Date
occurring on March 31, 2000 and (c) $0.00 for all
Calculation Dates occurring on and after March 31, 2000.
33
<PAGE>
(C) "Funded Debt" shall mean the consolidated (and combined, if
applicable) sum of borrowings pursuant to the PNC Loan
Agreement, plus current (i.e. less than or equal to one (1)
year) and non-current maturities of long term Indebtedness
of each of Company and its Subsidiaries (including but not
limited to any obligations of any of Company or its
Subsidiaries that are (i) determined based on the future
performance of any acquired entity ("Earn-Outs") and (ii)
which Earn-Outs are not paid in full within thirty (30)
days of the date when due and payable (including after any
applicable requirement for notice and an opportunity to
cure expressly provided in the applicable instrument or
document governing such obligation) to any other person or
entity).
(D) "Modified EBITDA" is defined as the EBITDA of the Company
and its Subsidiaries for which the Funded Debt to Modified
EBITDA financial covenant is being calculated, except
without giving effect to the EBITDA of any of Company or
its Subsidiaries (each an "Unaudited Subsidiary") for which
the Purchaser has not received both (x) audited financial
statements in form and detail acceptable to the Purchaser,
as well as (y) other due diligence information concerning
such of Company or its Subsidiaries as Purchaser may
request, in form and substance acceptable to the Purchaser
plus fifty percent (50%) of the EBITDA of each Unaudited
Subsidiary.
(ii) FIXED CHARGE COVERAGE RATIO. The ratio as of
each Calculation Date of the consolidated (and combined, if applicable)
Modified EBITDA LESS the amount of any Earn-Outs (as that term is defined
herein) not financed with the proceeds of loans or other borrowings from any
person or entity ("Unfinanced Earn-Outs"), cash taxes ("Cash Taxes") and
Capital Expenditures of Company and its Subsidiaries not financed with the
proceeds of loans or other borrowings from any person or entity ("Unfinanced
Capital Expenditures"), which Unfinanced Earn-Outs, Cash Taxes and Unfinanced
Capital Expenditures were incurred during the immediately preceding four (4)
fiscal quarters of Company and its Subsidiaries divided by the sum of
consolidated (and combined, if applicable) current maturities of Funded Debt
for Company and its Subsidiaries PLUS any and all dividends paid or accrued
by Company and its Subsidiaries PLUS all Fixed Charges paid or accrued by
Company and its Subsidiaries, shall not be less than 1.25 to 1.00 as of the
Calculation Date occurring on September 30, 1999, and thereafter until (but
not including) the Calculation Date occurring on December 31, 1999; 1.50 to
1.00 as of the Calculation Date occurring on December 31, 1999, and
thereafter until (but not including) the Calculation Date occurring on March
31, 2000; 1.75 to 1.00 as of the Calculation Date occurring on and after
March 31, 2000.
34
<PAGE>
(iii) MINIMUM NET WORTH. Company and its Subsidiaries
will maintain during the times specified below a consolidated (and combined,
if applicable) minimum Net Worth as set forth below:
<TABLE>
<S> <C>
7/8/99 to 7/7/00 $41,000,000
7/8/00 to 7/7/01 $51,000,000
7/8/01 to 7/8/02 $61,000,000
</TABLE>
(i) MAINTENANCE OF EXISTENCE AND CONDUCT OF BUSINESS.
Company shall, and shall cause each of its Subsidiaries to: (i) do or cause
to be done all things necessary to preserve and keep in full force and effect
its corporate existence, and its rights and franchises; (ii) at all times
maintain, preserve and protect all of its patents, trademarks and trade
names, and preserve all the remainder of its material assets, in use or
useful in the conduct of its business and keep the same in good repair,
working order and condition (taking into consideration ordinary wear and
tear) and from time to time make, or cause to be made, all needful and proper
repairs, renewals and replacements, betterments and improvements thereto
consistent with industry practices; and (iii) continue to conduct business
solely in its existing lines of business and businesses related thereto.
(j) ACCESS. Company shall permit representatives of
Purchaser to visit and inspect any of the properties of Company and its
Subsidiaries, to examine the corporate books and make copies or extracts
therefrom and to discuss the affairs, finances and accounts of Company and
its Subsidiaries with the principal officers of Company, all at such
reasonable times, upon reasonable notice and as often as such Purchaser may
reasonably request.
(k) ACCOUNTING SOFTWARE. On or prior to September 30, 1999,
Company shall complete the implementation of the Great Plains accounting
software for the Company and each of the Subsidiaries and businesses of
Company on the date hereof. Company shall implement such software for any
business or Subsidiary acquired after the date hereof by the later to occur
of (i) September 30, 1999 and (ii) 90 days after the date of such acquisition.
(l) AUDITORS. Company shall use Ernst & Young LLP or any of
the other "Big 5" accounting firms as the independent auditors for Company
and its Subsidiaries.
(m) CERTAIN LOANS. Company agrees that, on or prior to
August 8, 1999, it shall, and shall cause its Subsidiaries to (i) terminate
that certain Promissory Note (Secured) dated January 9, 1999 issued by
Thermo-Shield Company, Inc. and Weather-Guard, Incorporated a/k/a/
Thermo-Shield of America (Wisconsin), Inc. to American National Bank and
Trust Company of Chicago (the "ANB Note") and terminate all security
interests and the related liens granted in connection therewith and (ii) pay
off in full the Indebtedness represented thereby and Company agrees that
until such termination and pay off in full of the ANB Note, the EBITDA of
Thermo-Shield
35
<PAGE>
Company, Inc. and Thermo-Shield of America (Wisconsin), Inc. shall not be
included in the calculations of "EBITDA" or "Modified EBITDA" for any
purposes under this Agreement.
5.2 NEGATIVE COVENANTS. Company covenants and agrees that
from and after the date hereof (except as otherwise provided herein, or
unless the Required Holders have given their prior written consent) so long
as the Note is outstanding:
(a) PERMITTED ACQUISITIONS OR INVESTMENTS. Company shall
not, and shall not permit any of its Subsidiaries to, directly or indirectly
in any transaction or related series of transactions, acquire or invest in,
whether for cash, debt, Stock, or other property or assets or by guaranty of
any obligation, any assets or business of any Person other than (i)
acquisitions of assets in the ordinary course of business of Company, (ii)
acquisitions by Company or wholly-owned Subsidiaries of Company from Company
or any such wholly-owned Subsidiary or investments therein, (iii) Permitted
Acquisitions or (iv) investments in Cash Equivalents. Company shall not, and
shall not permit any of its Subsidiaries to, invest in any Person if, after
giving effect thereto, such Person would be an Affiliate, but not a
Subsidiary, of Company.
(b) SALES OF ASSETS; LIQUIDATION. Company shall not, and
shall not permit any Subsidiary of Company to, (i) sell, transfer, convey or
otherwise dispose of any assets or properties or (ii) liquidate, dissolve or
wind up Company, or any of its Subsidiaries, except for transfers to Company,
whether voluntary or involuntary; PROVIDED, HOWEVER, that the foregoing shall
not prohibit (A) the sale of inventory or Key Home Credit financing contracts
in the ordinary course of business, (B) the sale of surplus or obsolete
equipment and fixtures, (C) transfers resulting from any casualty or
condemnation of assets or properties or (D) other sales of assets or
properties the net proceeds of which, in the aggregate, do not exceed
$700,000.
(c) EMPLOYEE LOANS. Company shall not and shall not permit
any Subsidiary to make or accrue any loans or other advances of money to any
employee of Company or any Subsidiary (including advances to any employee in
respect of future commissions to be earned by such employee), other than in
the ordinary course of business in an aggregate amount outstanding not to
exceed one percent (1%) of Pro Forma Revenue as of the end of the last
completed fiscal quarter of Company (each a "Revenue Calculation Date")
commencing with the Revenue Calculation Date occurring on September 30, 1999,
and as calculated from the most recently available consolidated pro forma
financial statements of Company and its Subsidiaries. For purposes of this
Section 5.2(c), "Pro Forma Revenue", as of any Revenue Calculation Date,
shall mean the consolidated sales revenues of Company and its Subsidiaries
for the four fiscal quarters ending on such Revenue Calculation Date,
assuming that any acquisitions during such four quarter period were
consummated on the first day of the four fiscal quarter period ending on such
Revenue Calculation Date; PROVIDED that any advance to an employee shall not
be outstanding for more than ninety (90) days. The restrictions of this
Section 5.2(c) shall not apply until such time as such financial statements
for the fiscal quarter ending September 30, 1999 are available or, if
earlier, November 15, 1999.
36
<PAGE>
(d) TRANSACTIONS WITH AFFILIATES. Except as set forth on
Schedule 5.2(d), Company shall not and shall not permit any Subsidiary of
Company to enter into or be a party to any transaction with any Affiliate of
Company or such Subsidiary, except (i) transactions expressly permitted
hereby, (ii) transactions in the ordinary course of and pursuant to the
reasonable requirements of Company's or such Subsidiary's business and upon
fair and reasonable terms that are fully disclosed to Purchaser and are no
less favorable to Company or such Subsidiary than would be obtained in a
comparable arm's-length transaction with a Person not an Affiliate of Company
or such Subsidiary, (iii) transactions between Company and its wholly-owned
Subsidiaries or between such Subsidiaries and (iv) payment of compensation to
employees and directors' fees.
(e) INDEBTEDNESS. Company shall not and shall not permit
any Subsidiary of Company to incur or suffer to exist any Indebtedness
except: (i) Indebtedness existing on the date hereof and listed on Schedule
4.9 and refinancings thereof which do not result in the occurrence of a
Default or Event of Default; (ii) Permitted Indebtedness; (iii) other
Indebtedness, provided that the incurrence of such Indebtedness, together
with the Indebtedness referred to in clause (i) above, shall not result in
the occurrence of a breach of Section 5.1(h)(i) or (ii), or any other Default
or Event of Default and at the time of borrowing thereunder no Default or
Event of Default shall have occurred and be continuing; or (iv) Indebtedness
owing by Company to any of its wholly-owned Subsidiaries or by any of
Company's wholly-owned Subsidiaries to any other wholly-owned Subsidiaries or
Company. For the purposes of measuring compliance of Company and its
Subsidiaries with Sections 5.1(h)(i) and (ii) for the purposes of this
Section 5.2(e), (a) such calculation shall be performed on a pro forma basis,
assuming that any additional Indebtedness was incurred on the first day of
the four fiscal quarter period ending on the most recent Calculation Date and
(b) if such calculation is being performed in connection with the incurrence
of Indebtedness other than pursuant to the PNC Loan Agreement, Indebtedness
will be deemed to include at least $15,000,000 of the PNC Senior Debt.
(f) LIENS. Company shall not, and shall not permit any
Subsidiary of Company to, incur or suffer to exist any Liens on any of its
assets, except (i) Liens existing on the date hereof and described on
Schedule 5.2(f), (ii) Permitted Liens, (iii) Liens securing PNC Senior Debt
or Senior Debt permitted hereunder and (iv) Liens granted pursuant to the
Security Agreement and the Pledge Agreement.
(g) RESTRICTED PAYMENTS. Company shall not and shall not
permit any Subsidiary of Company to make any Restricted Payments nor shall
Company permit any Subsidiary to make such payments with respect to Company's
Stock, other than regularly scheduled dividend payments on its presently
outstanding preferred stock (the cash amount of such dividend payments in
respect of Series C Convertible Preferred Stock not to exceed in the
aggregate 7% per annum of the stated liquidation value of such Stock),
PROVIDED that Company shall not make any such Restricted Payment if at the
time of such payment a Default or Event of Default shall have occurred and be
continuing or such payment would result in the occurrence of a Default or
Event of Default.
37
<PAGE>
(h) MERGERS AND SUBSIDIARIES. Neither Company nor any
Subsidiaries of Company shall directly or indirectly, by operation of law or
otherwise, merge with, consolidate with, or otherwise combine with any
Person, nor shall Company create any Subsidiary, other than (i) the creation
of wholly-owned Subsidiaries, (ii) mergers of wholly-owned Subsidiaries of
Company into Company or any other of its wholly-owned Subsidiaries or (iii)
Subsidiaries created in connection with or acquired in connection with a
Permitted Acquisition.
(i) CAPITAL EXPENDITURES. Capital Expenditures by Company
and its Subsidiaries shall not exceed, exclusive of the purchase price of any
Permitted Acquisitions during such calendar year, (i) in calendar year 1999,
$1,000,000 and (ii) in any subsequent calendar year, an amount equal to
fifteen percent (15%) of EBITDA for the prior calendar year.
(j) CERTAIN AMENDMENTS. Company shall not amend the terms
of (i) the Series C Convertible Preferred Stock, (ii) any other series of
presently outstanding preferred stock or (iii) Warrant No. W-1, issued by
Company to Brown Simpson Strategic Growth Fund, Ltd., and Warrant No. W-2,
issued by Company to Brown Simpson Strategic Growth Fund, L.P, each as
amended (collectively, the "Brown Simpson Warrants").
6. CONDITIONS PRECEDENT
6.1 CONDITIONS PRECEDENT. The obligation of Purchaser to
purchase the Securities pursuant to Section 2.1 hereof, is subject to the
condition that Purchaser shall have received, on the Closing Date, the
following, each dated the Closing Date unless otherwise indicated, in form
and substance satisfactory to Purchaser:
(a) Favorable opinions of Stites & Harbison, counsel to
Company, substantially in the form attached hereto as Exhibit C, it being
understood that to the extent that such opinion of counsel to Company shall
rely upon any other opinion of counsel, each such other opinion shall be in
form and substance reasonably satisfactory to the Purchaser and shall provide
that Purchaser may rely thereon.
(b) Resolutions of the board of directors of Company and
each of its Subsidiaries, as applicable, certified by the Secretary or
Assistant Secretary of Company or the applicable Subsidiary of Company, as of
the Closing Date, to be duly adopted and in full force and effect on such
date, authorizing (i) the consummation of each of the transactions
contemplated by this Agreement and each other Transaction Document and (ii)
specific officers to execute and deliver this Agreement and each other
Transaction Document to which it is a party.
(c) Governmental certificates, dated the most recent
practicable date prior to the Closing Date, with telegram updates where
available, showing that Company and each of its Subsidiaries is organized and
in good standing in the State of its
38
<PAGE>
incorporation and that Company is qualified as a foreign corporation and in
good standing in all other jurisdictions in which it is qualified to transact
business.
(d) A copy of the certificate of incorporation and all
amendments thereto of Company, certified as of a recent date by the Secretary
of State of the State of its incorporation, and copies of by-laws of Company,
certified by the Secretary or Assistant Secretary of such corporation as true
and correct as of the Closing Date.
(e) The letter from Company to its accountants referred to
in Section 5.1(c).
(f) Certificates of the Secretary or an Assistant Secretary
of Company and each of its Subsidiaries, dated the Closing Date, as to the
incumbency and signatures of the officers of Company or any of its
Subsidiaries executing this Agreement, the Securities and each other
Transaction Document to which it is a party and any other certificate or
other document to be delivered pursuant hereto or thereto, together with
evidence of the incumbency of such Secretary or Assistant Secretary.
(g) Certificate of the President of Company, dated the
Closing Date, stating that all of the representations and warranties of
Company contained herein or in the other Transaction Documents are true and
correct in all material respects on and as of the Closing Date as if made on
such date and that no material breach of any covenant contained in Article V
has occurred or would result from the Closing hereunder.
(h) Fully executed copies of each of the Note, the Warrant,
the Security Agreement, the Pledge Agreement and the Guaranty.
(i) The monthly financial information set forth in Section
5.1(b)(i) for Company and its Subsidiaries for the month ending April 30,
1999.
6.2 ADDITIONAL CONDITIONS. The obligation of Purchaser to
purchase the Securities pursuant to Section 2.1 is subject to the additional
conditions precedent that:
(a) Purchaser shall have received evidence that the
insurance policies provided for in Section 4.21 are in full force and effect,
certified by the insurer thereof.
(b) Company shall have paid all reasonable fees and expenses
of (i) GE Capital's outside counsel, Weil, Gotshal & Manges LLP, (ii) all
special local counsel retained in connection with this Agreement and the
transactions contemplated thereby and (iii) the fees and expenses referred to
in Section 10.2.
(c) Except as disclosed pursuant to Article IV, there shall
not have occurred any event or condition since December 31, 1998 which would
reasonably be likely to result in a Material Adverse Effect.
39
<PAGE>
(d) All of the representations and warranties of Company
contained herein or in the other Transaction Documents shall be true and
correct in all material respects on and as of the Closing Date as if made on
such date and no material breach of any covenant contained in Article V shall
have occurred or would result from the Closing hereunder.
(e) The underwriting fee referred to in Section 2.2(c) shall
have been paid in full.
(f) Company shall have filed a Certificate of Amendment to
the Series C Convertible Preferred Stock Certificate of Designation amending
the dividend rate applicable to, and certain redemption rights of, the Series
C Convertible Preferred Stock in form and substance satisfactory to Purchaser.
(g) Company shall have obtained the consent of PNC Bank to
the terms and conditions of this Agreement and the transactions contemplated
hereby and the waiver by the holders of the Series C Convertible Preferred
Stock of certain registration rights, in each case in form and substance
satisfactory to Purchaser.
(h) The Brown Simpson Warrants shall have been amended with
respect to the exercise of certain redemption rights contained therein, in
form and substance satisfactory to Purchaser.
(i) The Closing shall have occurred no later than July 8,
1999.
7. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
7.1 EVENTS OF DEFAULT. The occurrence of any one or more of
the following events (regardless of the reason therefor) shall constitute an
"Event of Default" hereunder and under the Note:
(a) Company shall fail to make any payment of principal of,
or interest on or any other amount owing in respect of, the Note, or any of
the other Obligations when due and payable or declared due and payable,
including pursuant to Section 2.4 hereof, which, other than principal or
interest, shall have remained unremedied for a period of ten (10) days.
(b) Company shall fail or neglect to perform, keep or
observe any of the provisions of Sections 5.1(h) or 5.2 hereof.
(c) Company shall fail or neglect to perform, keep or
observe any other provision of this Agreement or of any of the other Loan
Documents, and the same shall remain unremedied for a period of thirty (30)
days after Company shall receive written notice of any such failure from
Purchaser.
(d) A default shall occur under any other agreement,
document or instrument to which Company or any Subsidiary is a party or by
which Company or any
40
<PAGE>
of its Subsidiaries or any of their property is bound, and such default (i)
involves the failure to make any payment (whether of principal, interest or
otherwise) due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) in respect of any Indebtedness of Company
or any of its Subsidiaries in an aggregate amount exceeding $500,000 or (ii)
causes (or permits any holder of such Indebtedness or a trustee to cause)
such Indebtedness or a portion thereof in an aggregate amount exceeding
$500,000, to become due prior to its stated maturity or prior to its
regularly scheduled dates of payment.
(e) Any representation or warranty herein or in any Loan
Document or in any written statement pursuant thereto or hereto, report,
financial statement or certificate made or delivered to Purchaser by Company
pursuant hereto or thereto shall be untrue or incorrect in any material
respect, as of the date when made.
(f) Any of the assets of Company or any of its Subsidiaries
shall be attached, seized, levied upon or subjected to a writ or distress
warrant, or come within the possession of any receiver, trustee, custodian or
assignee for the benefit of creditors of Company or any of its Subsidiaries
and shall remain unstayed or undismissed for sixty (60) consecutive days; or
Company or any of its Subsidiaries shall have concealed, removed or permitted
to be concealed or removed, any part of its property, with intent to hinder,
delay or defraud its creditors or any of them or made or suffered a transfer
of any of its property or the incurring of an obligation which may be
fraudulent under any bankruptcy, fraudulent conveyance or other similar law.
(g) A case or proceeding shall have been commenced against
Company or any of its Subsidiaries in a court having competent jurisdiction
seeking a decree or order in respect of Company or any of its Subsidiaries
(i) under title 11 of the United States Code, as now constituted or hereafter
amended, or any other applicable federal, state or foreign bankruptcy or
other similar law, (ii) appointing a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) of Company or any of
its Subsidiaries or of any substantial part of its or their properties, or
(iii) ordering the winding-up or liquidation of the affairs of Company or any
of its Subsidiaries and such case or proceeding shall remain undismissed or
unstayed for sixty (60) consecutive days or such court shall enter a decree
or order granting the relief sought in such case or proceeding.
(h) Company or any of its Subsidiaries shall (i) file a
petition seeking relief under title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable federal, state or
foreign bankruptcy or other similar law, (ii) consent to the institution of
proceedings thereunder or to the filing of any such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) of Company or any of
its Subsidiaries or of any substantial part of its properties, (iii) fail
generally to pay its debts as such debts become due, or (iv) take any
corporate action in furtherance of any such action.
41
<PAGE>
(i) Final judgment or judgments (after the expiration of all
times to appeal therefrom) for the payment of money in excess of $500,000 in
the aggregate shall be rendered against Company or any of its Subsidiaries
and the same shall not be (i) fully covered by insurance, or (ii) vacated,
stayed, bonded, paid or discharged for a period of thirty (30) days.
(j) (i) With respect to any Plan, a prohibited transaction
within the meaning of Section 4975 of the IRC or Section 406 of ERISA occurs
which in the reasonable determination of Purchaser would reasonably be likely
to result in direct or indirect liability to Company or any of its
Subsidiaries, (ii) with respect to any Title IV Plan, the filing of a notice
to voluntarily terminate any such plan in a distress termination, (iii) with
respect to any Multiemployer Plan, Company, any of its Subsidiaries or any
ERISA Affiliate shall incur any Withdrawal Liability, (iv) with respect to
any Pension Plan subject to Section 412 of the Code or Section 302 of ERISA,
Company, any of its Subsidiaries or any ERISA Affiliate shall incur an
accumulated funding deficiency or request a funding waiver from the IRS, or
(v) with respect to any Title IV Plan or Multiemployer Plan which has an
ERISA Event not described in clauses (ii) - (iv) hereof, in the reasonable
determination of Purchaser there is a reasonable likelihood for termination
of any such plan by the PBGC; PROVIDED, HOWEVER, that the events listed in
clauses (i) - (v) hereof shall constitute Events of Default only if the
liability, deficiency or waiver request of Company, any of its Subsidiaries
or any ERISA Affiliate, whether or not assessed, exceeds $500,000 in any case
set forth in (i) - (v) above, or exceeds $500,000 in the aggregate for all
such cases.
7.2 REMEDIES. Subject to the terms and conditions contained
in the Subordination Agreement, if any Event of Default specified in Section
7.1 shall have occurred and be continuing, Purchaser may, without advance
notice, declare all Obligations to be forthwith due and payable, whereupon
all such Obligations shall become and be due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
expressly waived by Borrower; PROVIDED, HOWEVER, that upon the occurrence of
an Event of Default specified in Section 7.1(f), (g) or (h) hereof, such
Obligations shall become due and payable without declaration, notice or
demand by Purchaser.
Subject to the terms and conditions contained in the
Subordination Agreement, Purchaser may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default
or Event of Default as it shall deem advisable in its best interests,
including any action (or the failure to act) pursuant to the Loan Documents.
7.3 WAIVERS BY COMPANY. Except as otherwise provided for in
this Agreement and applicable law, Company waives (i) presentment, demand and
protest and notice of presentment, dishonor notice of intent to accelerate
and notice of acceleration, (ii) all rights to notice and a hearing prior to
Purchaser's taking possession or control of, or to Purchaser's replevy,
attachment or levy upon, the Collateral or any bond or security which might
be required by any court prior to allowing Purchaser to exercise any of its
42
<PAGE>
remedies, and (iii) the benefit of all valuation, appraisal and exemption
laws. Company acknowledges that it has been advised by counsel of its choice
with respect to this Agreement, the other Loan Documents and the transactions
evidenced by this Agreement and the other Loan Documents.
7.4 RIGHT OF SET-OFF. Upon the occurrence and during the
continuance of any Event of Default, Purchaser is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time
owing by Purchaser to or for the credit or the account of Company against any
and all of the obligations of Company now or hereafter existing under this
Agreement and the Note held by Purchaser irrespective of whether or not
Purchaser shall have made any demand under this Agreement or the Note and
although such obligations may be unmatured. Purchaser agrees promptly to
notify Company after any such set-off and application made by Purchaser;
PROVIDED, HOWEVER, that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of Purchaser under this
Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which Purchaser may have.
8. SUBORDINATION
8.1 NOTE SUBORDINATED TO SENIOR DEBT. Company covenants and
agrees, and Purchaser and any other holder of the Note (Purchaser and such
holders being hereinafter referred to collectively as "Holder") by its
acceptance thereof likewise covenants and agrees, that all payments of the
principal of and interest on the Note and all other Obligations of Company
pursuant to this Agreement (collectively the "Subordinated Debt") shall be
subordinated in accordance with the provisions of this Section 8 to the prior
payment in full of all Senior Debt of Company and each Subsidiary of Company.
For purposes of this Section 8, the term "Senior Debt" shall mean the Senior
Debt of Company and each Subsidiary of Company and shall include principal of
and premium, if any, and interest (including interest accruing at the rate
provided for in the documents evidencing such Senior Debt after the
commencement of any proceedings of the type referred to in Section 8.2(a)
hereof, whether or not an allowed claim in such proceeding) on all loans and
other extensions of credit under, and all expenses, fees, reimbursements,
indemnities and other amounts owing pursuant to, the Senior Debt, to the
extent permitted to be incurred pursuant hereto.
8.2 PRIORITY AND PAYMENT OVER OF PROCEEDS IN CERTAIN EVENTS.
(a) SUBORDINATION ON DISSOLUTION, LIQUIDATION OR
REORGANIZATION OF COMPANY. Upon payment or distribution of assets or
securities of Company of any kind or character, whether in cash, property or
securities, upon any dissolution or winding up or total or partial
liquidation or reorganization of Company, whether voluntary or involuntary,
or in bankruptcy, insolvency, receivership or other proceedings or upon an
assignment for the benefit of creditors or any other marshalling of the
assets and liabilities of Company, all Senior Debt shall first be paid in
full in cash, or payment
43
<PAGE>
provided for in cash or cash equivalents in a manner satisfactory to the
holders of Senior Debt, before any direct or indirect payments or
distributions, including, without limitation, by exercise of set-off, of any
cash, property or securities on account of principal of (or premium, if any)
or interest on the Note and to that end the holders of Senior Debt shall be
entitled to receive (pro rata on the basis of the respective amounts of
Senior Debt held by them) directly, for application to the payment thereof
(to the extent necessary to pay all Senior Debt in full after giving effect
to any substantially concurrent payment or distribution to or provision for
payment to the holders of such Senior Debt), any payment or distribution of
any kind or character, whether in cash, property or securities, in respect of
the Subordinated Debt, except that the holders of the Note may receive and
retain equity securities of Company or debt securities of Company (or any
Subsidiary of Company party to the Guaranty Agreement) that are subordinated
to Senior Debt (and any debt securities issued in exchange for Senior Debt)
to substantially the same extent as, or to a greater extent than, the Note
and the obligations of each Subsidiary under the Guaranty Agreement are
subordinated to the Senior Debt pursuant to this Section 8. The holders of
Senior Debt are hereby authorized to file an appropriate claim for and on
behalf of the Holders if they or any of them do not file, and there is not
otherwise filed on behalf of the Holders, a proper claim or proof of claim in
the form required in any such proceeding prior to 30 days before the
expiration of the time to file such claim or claims.
(b) SUBORDINATION ON DEFAULT IN SENIOR DEBT. No direct or
indirect payment by or on behalf of Company of principal of (premium, if
any), or interest on, the Subordinated Debt, whether pursuant to the terms of
the Note, upon acceleration or otherwise, shall be made if at the time of
such payment there exists (i) a default in the payment of all or any portion
of principal of (premium, if any), interest on, fees or other amounts owing
in connection with any Senior Debt or (ii) any default other than a default
described in clause (i) above under any document or instrument governing or
evidencing any Senior Debt, and, with respect to this clause (ii), each
Holder has received written notice of such default from a holder or
representative of the holders of Senior Debt, and, in either case, such
default shall not have been cured or waived in writing, PROVIDED, HOWEVER,
that if within the period specified in the next sentence with respect to a
default referred to in clause (ii) above, the holders of Senior Debt have not
declared the Senior Debt to be immediately due and payable (or have declared
such Senior Debt to be immediately due and payable and within such period
have rescinded such acceleration), then and in that event, payment of
principal of, and interest on, the Note shall be resumed. With respect to
any default under clause (ii) above, the period referred to in the preceding
sentence shall commence upon receipt by each Holder of a written notice or
notices (which shall specify all defaults existing under the Senior Debt on
the date of such notice and of which the holder thereof or representative
giving such notice had actual knowledge at such time) of the commencement of
such period from such holder or representative, and shall end at the
completion of the 179th day after the beginning of such period. Only one
such 179 day period may commence within any 360 consecutive days. Upon
termination of any such period, Company shall resume payments on account
44
<PAGE>
of the principal of (premium, if any), and interest on, the Note, and on
account of all other Subordinated Debt, subject to the provisions of Sections
8.1 and 8.2 hereof.
(c) RIGHTS AND OBLIGATIONS OF HOLDERS.
(i) In the event that, notwithstanding the foregoing
provision prohibiting such payment or distribution, the Holders shall have
received any payment on account of the Subordinated Debt at a time when such
payment is prohibited by such provision before the Senior Debt is paid in
full, then and in such event, such payment or distribution shall be received
and held in trust by the Holders apart from their other assets and paid over
or delivered to the holders of the Senior Debt remaining unpaid to the extent
necessary to pay in full in cash the principal of (premium, if any), and
interest on, such Senior Debt in accordance with its terms and after giving
effect to any concurrent payment or distribution to the holders of such
Senior Debt.
(ii) Nothing contained in this Section 8 will limit
the right of the Holders of Subordinated Debt to take any action to
accelerate the maturity of the Subordinated Debt pursuant to Section 7.2
hereof, PROVIDED, HOWEVER, that all Senior Debt then due or thereafter
declared to be due shall first be paid in full before the Holders are
entitled to receive any payment from Company of principal of, or interest on,
the Note.
(iii) Upon any payment or distribution of assets or
securities referred to in this Section 8, the Holders shall be entitled to
rely upon any order or decree of a court of competent jurisdiction in which
such dissolution, winding up, liquidation or reorganization proceedings are
pending, and upon a certificate of the receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making any such payment or
distribution, delivered to the Holders for the purpose of ascertaining the
persons entitled to participate in such distribution, the holders of Senior
Debt and other Indebtedness of Company, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Section 8.
8.3 RIGHTS OF HOLDERS OF SENIOR DEBT NOT TO BE IMPAIRED. No
right of any present or future holder of any Senior Debt to enforce
subordination as herein provided shall at any time in any way be prejudiced
or impaired by any act or failure to act by any such holder, or by any
noncompliance by Company with the terms and provisions and covenants herein
regardless of any knowledge thereof such holder may have or otherwise be
charged with.
The provisions of this Section 8 are intended to be for the
benefit of, and shall be enforceable directly by, the holders of the Senior
Debt. Company and each Holder of the Note, by its acceptance thereof,
acknowledges that the holders of the Senior Debt are relying upon the
provisions of this Section 8 in extending such Senior Debt.
8.4 SUBROGATION. Upon the payment in full of all Senior
Debt, the Holders shall be subrogated to the extent of the payments or
distributions made to the
45
<PAGE>
holders of, or otherwise applied to payment of, the Senior Debt pursuant to
the provisions of this Section 8 and to the rights of the holders of Senior
Debt to receive payments or distributions of assets of Company made on the
Senior Debt until the Note shall be paid in full; and for the purposes of
such subrogation, no payments or distributions to holders of Senior Debt of
any cash, property or securities to which Holders of the Note would be
entitled except for the provisions of this Section 8 and no payment over
pursuant to the provisions of this Section 8 to holders of Senior Debt by the
Holders, shall, as between Company, its creditors other than holders of
Senior Debt and the Holders, be deemed to be payment by Company to or on
account of Senior Debt, it being understood that the provisions of this
Section 8 are solely for the purpose of defining the relative rights of the
holders of Senior Debt, on the one hand, and the Holders, on the other hand.
If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Section 8 shall
have been applied, pursuant to the provisions of this Section 8, to the
payment of Senior Debt, then and in such case, the Holders shall be entitled
to receive from the holders of Senior Debt at the time outstanding any
payments or distributions received by such holders of Senior Debt in excess
of the amount sufficient to pay all Senior Debt in full.
8.5 OBLIGATIONS OF COMPANY UNCONDITIONAL. Nothing contained
in this Section 8 or elsewhere in this Agreement or in the Note is intended
to or shall impair, as between Company and the Holders, the obligations of
Company, which are absolute and unconditional, to pay to the Holders the
principal of (premium, if any), and interest on, the Note as and when the
same shall become due and payable in accordance with their terms, or is
intended to or shall affect the relative rights of the Holders and creditors
of Company other than the holders of the Senior Debt, nor shall anything
herein or therein prevent any Holder from exercising all remedies otherwise
permitted by applicable law upon the occurrence of a Default or Event of
Default under this Agreement, subject to the rights, if any, under this
Section 8 of the holders of Senior Debt in respect of cash, property or
securities of Company received upon the exercise of any such remedy.
The failure to make a payment on account of principal of, or
interest on, the Note by reason of any provision of this Section 8 shall not
be construed as preventing the occurrence of a Default or an Event of Default
hereunder.
8.6 NOTICE TO HOLDERS. Company shall give prompt written
notice to each Holder of any fact known to Company which would prohibit the
making of any payment on or in respect of the Note, but failure to give such
notice shall not affect the subordination of the Subordinated Debt to the
Senior Debt provided in this Section 8. Notwithstanding the provisions of
this Section 8 or any other provision of this Agreement or the Note, no
Holder shall be charged with knowledge of the existence of any facts which
would prohibit the making of any payment to or in respect of the Note, unless
and until the Holders shall have received written notice thereof from Company
or a representative of or holder of Senior Debt, and, prior to the receipt of
any such written notice, subject to the provisions of this Section 8 the
Holders shall be entitled in all respects to assume no such facts exist.
Nothing contained in this Section 8.6 shall limit
46
<PAGE>
the right of the holders of Senior Debt to recover payments as contemplated
by 8.1 and 8.2.
8.7 RIGHT OF ANY HOLDER AS HOLDER OF SENIOR DEBT. Any
Holder in its individual capacity shall be entitled to all the rights set
forth in this Section 8 with respect to any Senior Debt which may at any time
be held by it, to the same extent as any other holder of Senior Debt, and
nothing in this Agreement shall deprive such Holder of any of its rights as
such holder.
8.8 REINSTATEMENT. The provisions of this Section 8 shall
continue to be effective or be reinstated, and the Senior Debt shall not be
deemed to be paid in full, as the case may be, if at any time any payment of
any of the Senior Debt is rescinded or must otherwise be returned by the
holder thereof upon the insolvency, bankruptcy or reorganization of the
Company or otherwise, all as though such payment had not been made.
8.9 CONFLICT WITH SUBORDINATION AGREEMENT. In the event of
any conflict between or among the provisions as contained in this Agreement
and the provisions contained in the Subordination Agreement, the provisions
of the Subordination Agreement shall be applicable to the terms of the
subordination of the Obligations to the PNC Senior Debt.
9. INDEMNIFICATION
Company agrees to indemnify and hold harmless Purchaser and its
Affiliates and their respective officers, directors and employees from and
against any losses, liabilities, obligations, damages, penalties, actions,
proceedings, judgments, suits, claims, costs, fees, expenses and
disbursements (including, without limitation, reasonable attorneys' fees and
disbursements, including those incurred by Purchaser on any appeal) of any
kind ("Losses") which may be imposed upon, incurred by or asserted against
Purchaser or such other indemnified Persons as a result of Purchaser having
entered into this Agreement or any of the other Loan Documents or relating to
or arising out of any untrue representation, breach of warranty or failure to
perform any covenants or agreement by Company contained herein or in any
certificate or document delivered pursuant hereto or arising out of any
Environmental Law applicable to Company or its Subsidiaries or otherwise
relating to or arising out of the transactions contemplated hereby; PROVIDED,
HOWEVER, that Company shall not be liable for such indemnification to such
indemnified Person to the extent that any such suit, action, proceeding,
claim, damage, loss, liability or expense results from such indemnified
Person's gross negligence or willful misconduct.
47
<PAGE>
10. MISCELLANEOUS
10.1 COMPLETE AGREEMENT; MODIFICATION OF AGREEMENT; SALE OF
INTEREST.
(a) The Transaction Documents and the Loan Documents
constitute the complete agreement between the parties with respect to the
subject matter hereof and may not be modified, altered or amended except as
provided therein, or in the case of the Loan Documents by an agreement in
writing signed by Company and Purchaser in accordance with Section 10.1(d)
hereof. Company may not sell, assign or transfer any of the Loan Documents
or any portion thereof, including, without limitation, Company's rights,
title, interests, remedies, powers and duties hereunder or thereunder.
Company hereby consents to Purchaser's sale of participations, assignment,
transfer or other disposition, at any time or times, of any of the Loan
Documents or of any portion thereof or interest therein, including, without
limitation, Purchaser's rights, title, interests, remedies, powers or duties
thereunder, whether evidenced by a writing or not.
(b) In the event Purchaser assigns or otherwise transfers
all or any part of the Note, Company shall, upon the request of Purchaser
issue new Notes to effectuate such assignment or transfer.
(c) Purchaser may sell, assign, transfer or negotiate to one
or more other lenders, commercial banks, insurance companies, other financial
institutions or any other Person acceptable to Purchaser all or a portion of
its rights and obligations under the Note held by Purchaser and this
Agreement; PROVIDED, HOWEVER, that (i) such sale, assignment, transfer or
negotiation does not violate any applicable provision of applicable
securities laws and (ii) acceptance of such assignment by any assignee shall
constitute the agreement of such assignee to be bound by the terms of this
Agreement applicable to Purchaser. From and after the effective date of such
an assignment, (x) the assignees thereunder shall, in addition to the rights
and obligations hereunder held by it immediately prior to such effective
date, have the rights and obligations hereunder that have been assigned to it
pursuant to such assignment and (y) the assignor thereunder shall, to the
extent that rights and obligations hereunder have been assigned by it
pursuant to such assignment, relinquish its rights and be released from its
obligations under this Agreement (and, in the case of an assignment and
acceptance covering all or the remaining portion of an assignor's rights and
obligations under this Agreement, such assignor shall cease to be a party
hereto).
(d) No amendment or waiver of any provision of this
Agreement or the Note or any other Loan Document, nor consent to any
departure by Company therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Required Holders, and then such
waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given; PROVIDED, HOWEVER, that no amendment,
waiver or consent shall, unless in writing and signed by each holder of a
Note affected thereby do any of the following: (i) subject such holder to
any additional obligations, (ii) reduce the principal of, or interest on, the
Note or other amounts payable hereunder or release or discharge Company from
its obligations to make such payments,
48
<PAGE>
(iii) postpone any date fixed for any payment of principal of, or interest
on, the Note or other amounts payable hereunder, (iv) change the aggregate
unpaid principal amount of the Note, or the number of holders thereof, which
shall be required for such holders or any of them to take any action
hereunder, or (v) amend this Section 10.1(d).
10.2 FEES AND EXPENSES. Company shall pay all reasonable
out-of-pocket expenses of Purchaser in connection with the preparation of the
Transaction Documents and the transactions contemplated thereby, including
all reasonable legal expenses. If, at any time or times, regardless of the
existence of an Event of Default (except with respect to paragraph (iii)
below, which shall be subject to an Event of Default having occurred and be
continuing), Purchaser shall employ counsel or other advisors for advice or
other representation or shall incur reasonable legal or other costs and
expenses in connection with:
(i) any amendment, modification or waiver, or consent
with respect to, any of the Loan Documents or advice in connection with the
administration of the loans made pursuant hereto or its rights hereunder or
thereunder;
(ii) any litigation, contest, dispute, suit,
proceeding or action (whether instituted by Purchaser, Company, any
Subsidiary of Company or any other Person) in any way relating to any of the
Loan Documents or any other agreements to be executed or delivered in
connection herewith; or
(iii) any attempt to enforce any rights of Purchaser
against Company, any Subsidiary of Company or any other Person, that may be
obligated to Purchaser by virtue of any of the Loan Documents;
then, and in any such event, the reasonable attorneys' and other parties'
fees arising from such services, including those of any appellate
proceedings, and all expenses, costs, charges and other fees incurred by such
counsel and others in any way or respect arising in connection with or
relating to any of the events or actions described in this Section shall be
payable, on demand, by Company to Purchaser and shall be additional
Obligations under this Agreement and the other Loan Documents. Without
limiting the generality of the foregoing, such expenses, costs, charges and
fees may include: paralegal fees, costs and expenses; accountants' and
investment bankers' fees, costs and expenses; court costs and expenses;
photocopying and duplicating expenses; court reporter fees, costs and
expenses; long distance telephone charges; air express charges; telegram
charges; and expenses for travel, lodging and food paid or incurred in
connection with the performance of such legal services.
10.3 NO WAIVER BY PURCHASER. Purchaser's failure, at any
time or times, to require strict performance by Company of any provision of
this Agreement and any of the other Loan Documents shall not waive, affect or
diminish any right of Purchaser thereafter to demand strict compliance and
performance therewith. Any suspension or waiver by Purchaser of an Event of
Default by Company
49
<PAGE>
under the Loan Documents shall not suspend, waive or affect any other Event
of Default by Company under this Agreement and any of the other Loan
Documents whether the same is prior or subsequent thereto and whether of the
same or of a different type. None of the undertakings, agreements,
warranties, covenants and representations of Company contained in this
Agreement or any of the other Loan Documents and no Event of Default by
Company under this Agreement and no defaults by Company under any of the
other Loan Documents shall be deemed to have been suspended or waived by
Purchaser, unless such suspension or waiver is by an instrument in writing
signed by an officer of Purchaser and the Required Holders and directed to
Company specifying such suspension or waiver.
10.4 REMEDIES. Purchaser's rights and remedies under this
Agreement shall be cumulative and nonexclusive of any other rights and
remedies which Purchaser may have under any other agreement, including
without limitation, the Loan Documents, the other Transaction Documents, by
operation of law or otherwise.
10.5 WAIVER OF JURY TRIAL. The parties hereto waive all
right to trial by jury in any action or proceeding to enforce or defend any
rights under the Transaction Documents.
10.6 SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
10.7 BINDING EFFECT; BENEFITS. This Agreement and the other
Transaction Documents shall be binding upon, and inure to the benefit of, the
successors of Company and Purchaser and the assigns, transferees and
endorsees of Purchaser.
10.8 CONFLICT OF TERMS. Except as otherwise provided in this
Agreement or any of the other Loan Documents by specific reference to the
applicable provisions of this Agreement, if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provision in any of
the other Loan Documents, the provision contained in this Agreement shall
govern and control.
10.9 GOVERNING LAW. Except as otherwise expressly provided
in any of the Transaction Documents, in all respects, including all matters
of construction, validity and performance, this Agreement and the Obligations
arising hereunder shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York applicable to contracts
made and performed in such state, without regard to the principles thereof
regarding conflict of laws, and any applicable laws of the United States of
America. Purchaser and Company agree to submit to personal jurisdiction and
to waive any objection as to venue in the federal or New York State courts
located in the County of New York, State of New York. Service of process on
Purchaser or Company in any action arising out of or relating to any of the
Transaction Documents shall be effective if
50
<PAGE>
mailed to such party at the address listed in Section 10.10 hereof. Nothing
herein shall preclude Purchaser or Company from bringing suit or taking other
legal action in any other jurisdiction.
10.10 NOTICES. Except as otherwise provided herein, whenever
it is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon
any of the parties by another, or whenever any of the parties desires to give
or serve upon another any such communication with respect to this Agreement,
each such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and either shall be delivered in person
with receipt acknowledged or by registered or certified mail, return receipt
requested, postage prepaid, or by telecopy and confirmed by telecopy
answerback addressed as follows:
If to Company:
ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
Attn: Stephen A. Hoffmann, Chief Executive Officer
Telecopy Number: (502) 412-0301
with a copy to:
Stites & Harbison
400 West Market Street
Suite 1800
Louisville, Kentucky 40202
Attn: Alex P. Herrington, Jr. (Mike)
Telecopy Number: (502) 587-6391
If to Purchaser:
GE Capital Equity Investments, Inc.
120 Long Ridge Road
Stamford, Connecticut 06927
Attn: GE Equity Group-ThermoView
Telecopy Number: (203) 357-6527
with copies to:
General Electric Capital Corporation
120 Long Ridge Road
Stamford, Connecticut 06927
Attention: GE Equity Group Legal Counsel
Telecopy Number: (203) 357-3047
51
<PAGE>
and
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attn: Ted S. Waksman, Esq.
Telecopy Number: (212) 310-8007
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice, demand,
request, consent, approval, declaration or other communication hereunder
shall be deemed to have been duly given or served on the date on which
personally delivered, with receipt acknowledged, telecopied and confirmed by
telecopy answerback, or three (3) Business Days after the same shall have
been deposited with the United States mail. Failure or delay in delivering
copies of any notice, demand, request, consent, approval, declaration or
other communication to the Persons designated above to receive copies shall
in no way adversely affect the effectiveness of such notice, demand, request,
consent, approval, declaration or other communication.
10.11 SURVIVAL. The representations and warranties of Company
in this Agreement shall survive the execution, delivery and acceptance hereof
by the parties hereto and the closing of the transactions described herein or
related hereto.
10.12 SECTION AND OTHER HEADINGS. The section and other
headings contained in this Agreement are for reference purposes only and
shall not affect the meaning or interpretation of this Agreement.
10.13 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and
all of which together shall be deemed to be one and the same instrument.
10.14 BOARD OF DIRECTORS; OBSERVER. For so long as Purchaser
or any of its Affiliates shall continue to hold all or any portion of the
Note or the Warrant, Company shall use its best efforts to cause a designee
of Purchaser to be elected to the Board of Directors of Company; PROVIDED,
HOWEVER, that if Purchaser shall elect not to designate a member of the Board
of Directors, then Purchaser may designate one individual (the "Observer") to
attend all meetings of the Board of Directors of Company (and any committees
thereof) in a non-voting observer capacity. The Observer shall be entitled
to receive all reports, presentations and materials as if the Observer were a
member of the Board. Company shall reimburse such member of the Board of
Directors and the Observer for any reasonable expenses incurred in connection
with meetings of the Board of Directors and committees thereof.
10.15 PUBLICITY. Neither Purchaser nor Company shall issue
any press release or make any public disclosure regarding the transactions
contemplated hereby unless such press release or public disclosure is
approved by the other party in advance.
52
<PAGE>
Notwithstanding the foregoing, each of the parties hereto may, in documents
required to be filed by it with the SEC or other regulatory bodies, make such
statements with respect to the transactions contemplated hereby as each may
be advised by counsel is legally necessary or advisable, and may make such
disclosure as it is advised by its counsel is required by law, subject to
advance consultation with Purchaser.
IN WITNESS WHEREOF, Company and Purchaser have executed this
Agreement as of the day and year first above written.
COMPANY:
THERMOVIEW INDUSTRIES, INC.
By: /s/ Nelson E. Clemmens
-----------------------------------
Name: Nelson E. Clemmens
Title: President
PURCHASER:
GE CAPITAL EQUITY INVESTMENTS, INC.
By: /s/ Gregory N. Walter
-----------------------------------
Name: Gregory N. Walter
Title: Senior Vice President
53
<PAGE>
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE
STATE SECURITIES LAWS, AND MAY NOT BE TRANSFERRED IN VIOLATION OF THE ACT OR
SUCH LAWS, THE RULES AND REGULATIONS UNDER THE ACT OR THE PROVISIONS OF THIS
WARRANT.
No. of Shares of Common Stock: 1,666,028 Warrant No. 4
WARRANT
To Purchase Common Stock of
THERMOVIEW INDUSTRIES, INC.
THIS IS TO CERTIFY THAT GE CAPITAL EQUITY INVESTMENTS, INC., or registered
assigns, is entitled, at any time prior to the Expiration Date (as
hereinafter defined), to purchase from THERMOVIEW INDUSTRIES, INC., a
Delaware corporation ("Company"), 1,666,028 shares of Common Stock (as
hereinafter defined and subject to adjustment as provided herein), in whole
or in part, including fractional parts, at a purchase price of $0.01 per
share, all on the terms and conditions and pursuant to the provisions
hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the
respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by Company after the Closing Date, other than Warrant
Stock.
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Certificate of Designation" shall have the meaning set forth
in Section 4.6.
"Closing Date" shall have the meaning set forth in the
Securities Purchase Agreement.
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency then administering the Securities Act and other
federal securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the common stock, $.001 par value per share, of Company as
constituted on the
1
<PAGE>
Closing Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of Company of
any other class (regardless of how denominated) issued to the holders of
shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of Company
and which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation (as defined in Section 4.9) received by or
distributed to the holders of Common Stock of Company in the circumstances
contemplated by Section 4.9.
"Conversion Price" shall have the meaning set forth in the
Certificate of Designation.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or
exchangeable, with or without payment of additional consideration in cash or
property, for Additional Shares of Common Stock, either immediately or upon
the occurrence of a specified date or a specified event.
"Current Market Price" shall mean, in respect of any share of
Common Stock on any date herein specified the average of the daily market
prices for 30 consecutive Business Days commencing 45 days before such date.
The daily market price for each such Business Day shall be (i) the last sale
price on such day on the principal stock exchange or NASDAQ Stock Market
("NASDAQ") on which such Common Stock is then listed or admitted to trading,
(ii) if no sale takes place on such day on any such exchange or NASDAQ the
average of the last reported closing bid and asked prices on such day as
officially quoted on any such exchange or NASDAQ, (iii) if the Common Stock
is not then listed or admitted to trading on any stock exchange or NASDAQ,
the average of the last reported closing bid and asked prices on such day in
the over-the-counter market, as furnished by the National Association of
Securities Dealers Automatic Quotation System or the National Quotation
Bureau, Inc., (iv) if neither such corporation at the time is engaged in the
business of reporting such prices, as furnished by any similar firm then
engaged in such business or (v) if there is no such firm, as furnished by any
member of the NASD selected mutually by the Majority Holders and Company or,
if they cannot agree upon such selection, as selected by two such members of
the NASD, one of which shall be selected by the Majority Holders and one of
which shall be selected by Company.
"Current Warrant Price" shall mean, in respect of a share of
Common Stock at any date herein specified, the price at which a share of
Common Stock may be purchased pursuant to this Warrant on such date.
"EBITDA" shall have the meaning set forth in the Securities
Purchase Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to
time.
2
<PAGE>
"Exercise Period" shall mean the period during which this
Warrant is exercisable pursuant to Section 2.1.
"Expiration Date" shall mean July 8, 2007.
"Fully Diluted Outstanding" shall mean, when used with
reference to Common Stock, at any date as of which the number of shares
thereof is to be determined, all shares of Common Stock Outstanding at such
date and all shares of Common Stock issuable in respect of this Warrant and
other options or warrants to purchase, or securities convertible into, shares
of Common Stock outstanding on such date which would be deemed outstanding in
accordance with GAAP for purposes of determining book value or net income per
share.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as from time to time in effect.
"GE Capital" shall mean GE Capital Equity Investments, Inc., a
Delaware corporation.
"Holder" shall mean the Person in whose name the Warrant set
forth herein is registered on the books of Company maintained for such
purpose.
"Majority Holders" shall mean the holders of Warrants
exercisable for in excess of 50% of the aggregate number of shares of Common
Stock then purchasable upon exercise of all Warrants, whether or not then
exercisable.
"NASD" shall mean the National Association of Securities
Dealers, Inc., or any successor corporation thereto.
"Notes" shall have the meaning set forth in Section 2.1.
"Other Property" shall have the meaning set forth in Section
4.9.
"Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be
determined, all issued shares of Common Stock, except shares then owned or
held by or for the account of Company or any subsidiary thereof, and shall
include all shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in shares of Common Stock.
"Permitted Issuances" shall mean (i) the existing issued and
outstanding warrants and stock options for the purchase of shares of Common
Stock or existing series of preferred stock, (ii) the issuance of additional
warrants or stock options to Company's employees or directors for the
purchase of up to 1,461,426 shares of Common Stock, (iii) the issuance of
shares of Common Stock upon exercise of the warrants and stock options
referred to in clauses (i) and (ii) or upon conversion of presently
outstanding preferred stock of Company, (iv) the issuance of 800,000 shares
of Common Stock (or other equity securities of Company convertible into such
number of shares of Common Stock) for consideration of not less than $5.00
per share of Common Stock, (v) the payment of
3
<PAGE>
dividends in respect of the Series C Convertible Preferred Stock consisting
of additional shares of capital stock of Company with respect to the Series C
Convertible Preferred Stock and (vi) the existing "earn-outs" of Common Stock
set forth on Schedule A hereto granted in connection with acquisitions by
Company or any of its Subsidiaries.
"Person" shall mean any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, entity or government (whether federal, state, county, city,
municipal or otherwise, including, without limitation, any instrumentality,
division, agency, body or department thereof).
"Restricted Common Stock" shall mean shares of Common Stock
which are, or which upon their issuance on the exercise of this Warrant would
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreement" shall mean the Securities
Purchase Agreement, dated the date hereof, between Company and GE Capital.
"Series C Convertible Preferred Stock" shall mean the Series C
Convertible Preferred Stock, $.001 par value per share, of the Company issued
pursuant to the Certificate of Designation.
"Transfer" shall mean any disposition of any Warrant or Warrant
Stock or of any interest in either thereof, which would constitute a sale
thereof within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section
9.2.
"Warrants" shall mean this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, any thereof.
All Warrants shall at all times be identical as to terms and conditions and
date, except as to the number of shares of Common Stock for which they may be
exercised.
"Warrant Price" shall mean an amount equal to (i) the number of
shares of Common Stock being purchased upon exercise of this Warrant pursuant
to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date
of such exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased
by the holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1. MANNER OF EXERCISE. From and after the Closing Date and until
5:00 P.M., New York time, on the Expiration Date, Holder may exercise this
Warrant, on any
4
<PAGE>
Business Day, for all or any part of the number of shares of Common Stock
purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder
shall deliver to Company at its principal office at 1101 Herr Lane,
Louisville, Kentucky 40222 or at the office or agency designated by Company
pursuant to Section 12, (i) a written notice of Holder's election to exercise
this Warrant, which notice shall specify the number of shares of Common Stock
to be purchased, (ii) payment of the Warrant Price and (iii) this Warrant.
Such notice shall be substantially in the form of the subscription form
appearing at the end of this Warrant as Exhibit A, duly executed by Holder or
its agent or attorney. Upon receipt thereof, Company shall, as promptly as
practicable, and in any event within five (5) Business Days thereafter,
execute or cause to be executed and deliver or cause to be delivered to
Holder a certificate or certificates representing the aggregate number of
full shares of Common Stock issuable upon such exercise, together with cash
in lieu of any fraction of a share, as hereinafter provided. The stock
certificate or certificates so delivered shall be, to the extent possible, in
such denomination or denominations as such Holder shall request in the notice
and shall be registered in the name of Holder or, subject to Section 9, such
other name as shall be designated in the notice. This Warrant shall be deemed
to have been exercised and such certificate or certificates shall be deemed
to have been issued, and Holder or any other Person so designated to be named
therein shall be deemed to have become a holder of record of such shares for
all purposes, as of the date the notice, together with the cash or check or
checks and this Warrant, is received by Company as described above and all
taxes required to be paid by Holder, if any, pursuant to Section 2.2 prior to
the issuance of such shares have been paid. If this Warrant shall have been
exercised in part, Company shall, at the time of delivery of the certificate
or certificates representing Warrant Stock, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other
respects be identical with this Warrant, or, at the request of Holder,
appropriate notation may be made on this Warrant and the sme returned to
Holder. Notwithstanding any provision herein to the contrary, Company shall
not be required to register shares in the name of any Person who acquired
this Warrant (or part hereof) or any Warrant Stock otherwise than in
accordance with this Warrant.
Payment of the Warrant Price shall be made at the option of the
Holder by (i) certified or official bank check, (ii) transfer of immediately
available funds, (iii) by the surrender of the Note (as defined in the
Securities Purchase Agreement) of Company and evidencing the loan made
pursuant to the Securities Purchase Agreement, and/or (iv) by the Holder's
surrender to Company of that number of shares of Warrant Stock (or the right
to receive such number of shares) or shares of Common Stock having an
aggregate Current Market Price equal to or greater than the Current Warrant
Price for all shares then being purchased (including those being surrendered)
or (iv) any combination thereof, duly endorsed by or accompanied by
appropriate instruments of transfer duly executed by Holder or by Holder's
attorney duly authorized in writing. For the purposes of making payment of
the Warrant Price, the Note shall have a value equal to 100% of the principal
amount thereof plus accrued and unpaid interest thereon to the date of
surrender in respect of payment of the Warrant Price.
5
<PAGE>
If a Holder surrenders any Note having an aggregate value which
exceeds the aggregate Warrant Price, the portion of such surrendered value
equal to the integral multiple of $500 which is next higher than such
aggregate Warrant Price shall be applied to the payment of the Warrant Price
and Company shall pay the Holder an amount in cash equal to the excess (if
any) of such integral multiple over the Warrant Price. A new Note shall be
issued in the principal amount equal to that portion of such surrendered
principal amount not applied to the Warrant Price and not paid in cash to the
Holder. If the Holder surrenders the Note, the Holder shall specify the
portion of the value of such surrendered Note to be applied toward the
Warrant Price.
2.2. PAYMENT OF TAXES. All shares of Common Stock issuable upon the
exercise of this Warrant pursuant to the terms hereof shall be validly
issued, fully paid and nonassessable and without any preemptive rights.
Company shall pay all expenses in connection with, and all taxes and other
governmental charges that may be imposed with respect to, the issue or
delivery thereof, unless such tax or charge is imposed by law upon Holder, in
which case such taxes or charges shall be paid by Holder. Company shall not
be required, however, to pay any tax or other charge imposed in connection
with any transfer involved in the issue of any certificate for shares of
Common Stock issuable upon exercise of this Warrant in any name other than
that of Holder, and in such case Company shall not be required to issue or
deliver any stock certificate until such tax or other charge has been paid or
it has been established to the satisfaction of Company that no such tax or
other charge is due.
2.3. FRACTIONAL SHARES. Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which the Holder of one or more Warrants, the rights
under which are exercised in the same transaction, would otherwise be
entitled to purchase upon such exercise, Company shall pay a cash adjustment
in respect of such final fraction in an amount equal to the same fraction of
the Current Market Price per share of Common Stock on the date of exercise,
if there is a public market for the Common Stock, or the fair market value
thereof as determined in good faith by the Board of Directors of Company.
2.4. CONTINUED VALIDITY A holder of shares of Common Stock issued
upon the exercise of this Warrant, in whole or in part (other than a holder
who acquires such shares after the same have been publicly sold pursuant to a
Registration Statement under the Securities Act or sold pursuant to Rule 144
thereunder), shall continue to be entitled with respect to such shares to all
rights to which it would have been entitled as Holder under Sections 9, 10,
17 and 18 of this Warrant. Company will, at the time of each exercise of
this Warrant, in whole or in part, upon the request of the holder of the
shares of Common Stock issued upon such exercise hereof, acknowledge in
writing, in form reasonably satisfactory to such holder, its continuing
obligation to afford to such holder all such rights; PROVIDED, HOWEVER, that
if such holder shall fail to make any such request, such failure shall not
affect the continuing obligation of Company to afford to such holder all such
rights.
6
<PAGE>
3. TRANSFER, DIVISION AND COMBINATION
3.1. TRANSFER. Subject to compliance with Section 9, transfer of
this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of Company referred to in
Section 2.1 or the office or agency designated by Company pursuant to Section
12, together with a written assignment of this Warrant substantially in the
form of Exhibit B hereto duly executed by Holder or its agent or attorney and
funds sufficient to pay any transfer taxes payable upon the making of such
transfer. Upon such surrender and, if required, such payment, Company shall,
subject to Section 9, execute and deliver a new Warrant or Warrants in the
name of the assignee or assignees and in the denomination specified in such
instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this Warrant
shall promptly be cancelled. A Warrant, if properly assigned in compliance
with Section 9, may be exercised by a new Holder for the purchase of shares
of Common Stock without having a new Warrant issued.
3.2. DIVISION AND COMBINATION. Subject to Section 9, this Warrant
may be divided or combined with other Warrants upon presentation hereof at
the aforesaid office or agency of Company, together with a written notice
specifying the names and denominations in which new Warrants are to be
issued, signed by Holder or its agent or attorney. Subject to compliance
with Section 3.1 and with Section 9, as to any transfer which may be involved
in such division or combination, Company shall execute and deliver a new
Warrant or Warrants in exchange for the Warrant or Warrants to be divided or
combined in accordance with such notice.
3.3. EXPENSES. Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 3.
3.4. MAINTENANCE OF BOOKS. Company agrees to maintain, at its
aforesaid office or agency, books for the registration and the registration
of transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise
of this Warrant, shall be subject to adjustment from time to time as set
forth in this Section 4. Company shall give each Holder notice of any event
described below which requires an adjustment pursuant to this Section 4 at
the time of such event.
4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time
Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
7
<PAGE>
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be
adjusted to equal the number of shares of Common Stock which a record holder
of the same number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the occurrence of such event would own or be
entitled to receive after the happening of such event, and (ii) the Current
Warrant Price shall be adjusted to equal (A) the Current Warrant Price
multiplied by the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the adjustment divided by (B) the number of
shares for which this Warrant is exercisable immediately after such
adjustment.
4.2. CERTAIN OTHER DISTRIBUTIONS. If at any time Company shall take
a record of the holders of its Common Stock for the purpose of entitling them
to receive any dividend or other distribution of:
(a) cash,
(b) any evidences of its indebtedness, any shares of its stock
or any other securities or property of any nature whatsoever (other than
cash, Convertible Securities or Additional Shares of Common Stock), or
(c) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock),
then Holder shall be entitled to receive such dividend or distribution as if
Holder had exercised the Warrant. A reclassification of the Common Stock
(other than a change in par value, or from par value to no par value or from
no par value to par value) into shares of Common Stock and shares of any
other class of stock shall be deemed a distribution by Company to the holders
of its Common Stock of such shares of such other class of stock within the
meaning of this Section 4.2 and, if the outstanding shares of Common Stock
shall be changed into a larger or smaller number of shares of Common Stock as
a part of such reclassification, such change shall be deemed a subdivision or
combination, as the case may be, of the outstanding shares of Common Stock
within the meaning of Section 4.1.
4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK.
(a) If at any time Company shall (except as hereinafter
provided) issue or sell any Additional Shares of Common Stock, other than
Permitted Issuances, for consideration in an amount per Additional Share
of Common Stock less than the Current Market Price at a time when there
is a public market for the Common
8
<PAGE>
Stock, then (i) the number of shares of Common Stock for which this
Warrant is exercisable shall be adjusted to equal the product obtained by
multiplying the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to such issue or sale by a fraction (A)
the numerator of which shall be the number of shares of Common Stock
Outstanding immediately after such issue or sale, and (B) the denominator
of which shall be the number of shares of Common Stock Outstanding
immediately prior to such issue or sale plus the number of shares which
the aggregate offering price of the total number of such Additional
Shares of Common Stock would purchase at the then Current Market Price;
and (ii) the Current Warrant Price as to the number of shares for which
this Warrant is exercisable prior to such adjustment shall be adjusted by
multiplying such Current Warrant Price by a fraction (X) the numerator
of which shall be the number of shares for which this Warrant is
exercisable immediately prior to such issue or sale; and (Y) the
denominator of which shall be the number of shares of Common Stock
purchasable immediately after such issue or sale.
(b) The provisions of paragraph (a) of this Section 4.3 shall
not apply to any issuance of Additional Shares of Common Stock for which
an adjustment is provided under Section 4.1 or 4.2. No adjustment of the
number of shares of Common Stock for which this Warrant shall be
exercisable shall be made under paragraph (a) of this Section 4.3 upon
the issuance of any Additional Shares of Common Stock which are issued
pursuant to the exercise of any warrants or other subscription or
purchase rights or pursuant to the exercise of any conversion or exchange
rights in any Convertible Securities, if any such adjustment shall
previously have been made upon the issuance of such warrants or other
rights or upon the issuance of such Convertible Securities (or upon the
issuance of any warrant or other rights therefor) pursuant to Section 4.4
or Section 4.5.
4.4. ISSUANCE OF WARRANTS OR OTHER RIGHTS. If at any time Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which Company is the surviving
corporation) issue or sell, any warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible Securities,
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is issuable upon
the exercise of such warrants or other rights or upon conversion or exchange
of such Convertible Securities shall be less than the Current Market Price,
at a time when there is a public market price for the Common Stock, in effect
immediately prior to the time of such issue or sale, then the number of
shares of Common Stock for which this Warrant is exercisable and the Current
Warrant Price shall be adjusted as provided in Section 4.3 on the basis that
the maximum number of Additional Shares of Common Stock issuable pursuant to
all such warrants or other rights or necessary to effect the conversion or
exchange of all such Convertible Securities shall be deemed to have been
issued and outstanding and Company shall be deemed to have received all of
the consideration payable therefor, if any, as of the date of the issuance of
such warrants or other rights. No further adjustments of the number of
shares of Common Stock for which this Warrant is exercisable and the Current
Warrant Price shall be made upon the actual issue of such
9
<PAGE>
Common Stock or of such Convertible Securities upon exercise of such warrants
or other rights or upon the actual issue of such Common Stock upon such
conversion or exchange of such Convertible Securities.
4.5. ISSUANCE OF CONVERTIBLE SECURITIES. If at any time Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which Company is the surviving
corporation) issue or sell, any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange shall be less than the Current Market Price, at a time when there is
a public market price for the Common Stock, in effect immediately prior to
the time of such issue or sale, then the number of shares of Common Stock for
which this Warrant is exercisable and the Current Warrant Price shall be
adjusted as provided in Section 4.3 on the basis that the maximum number of
Additional Shares of Common Stock necessary to effect the conversion or
exchange of all such Convertible Securities shall be deemed to have been
issued and outstanding and Company shall have received all of the
consideration payable therefor, if any, as of the date of issuance of such
Convertible Securities. No adjustment of the number of shares of Common
Stock for which this Warrant is exercisable and the Current Warrant Price
shall be made under this Section 4.5 upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights
pursuant to Section 4.4. No further adjustments of the number of shares of
Common Stock for which this Warrant is exercisable and the Current Warrant
Price shall be made upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities and, if any issue or
sale of such Convertible Securities is made upon exercise of any warrant or
other right to subscribe for or to purchase any such Convertible Securities
for which adjutments of the number of shares of Common Stock for which this
Warrant is exercisable and the Current Warrant Price have been or are to be
made pursuant to other provisions of this Section 4, no further adjustments
of the number of shares of Common Stock for which this Warrant is exercisable
and the Current Warrant Price shall be made by reason of such issue or sale.
4.6. SERIES C CONDITIONAL RESET. If Company shall adjust the
Conversion Price, pursuant to Section 10 of the Certificate of Designation of
Series C Convertible Preferred Stock of the Company filed with the Delaware
Secretary of State on April 23, 1999 (the "Certificate of Designation"),
then the number of shares of Common Stock for which this Warrant is
exercisable shall be increased by 6% of the number of additional shares of
Common Stock issuable in respect of the Series C Convertible Preferred Stock
as a result of such adjustment to the Conversion Price in lieu of any other
adjustment pursuant to this Section 4.
4.7. SUPERSEDING ADJUSTMENT. If, at any time after any adjustment
of the number of shares of Common Stock for which this Warrant is exercisable
and the Current Warrant Price shall have been made pursuant to Section 4.4 or
Section 4.5 as the result of any issuance of warrants, rights or Convertible
Securities,
10
<PAGE>
(a) such warrants or rights, or the right of conversion or
exchange in such other Convertible Securities, shall expire, and all or a
portion of such warrants or rights, or the right of conversion or
exchange with respect to all or a portion of such other Convertible
Securities, as the case may be, shall not have been exercised, or
(b) the consideration per share for which shares of Common
Stock are issuable pursuant to such warrants or rights, or the terms of
such other Convertible Securities, shall be increased solely by virtue of
provisions therein contained for an automatic increase in such
consideration per share upon the occurrence of a specified date or event,
then for each outstanding Warrant such previous adjustment shall be rescinded
and annulled and the Additional Shares of Common Stock which were deemed to have
been issued by virtue of the computation made in connection with the adjustment
so rescinded and annulled shall no longer be deemed to have been issued by
virtue of such computation. Thereupon, a recomputation shall be made of the
effect of such rights or options or other Convertible Securities on the basis of
(c) treating the number of Additional Shares of Common Stock or
other property, if any, theretofore actually issued or issuable pursuant
to the previous exercise of any such warrants or rights or any such right
of conversion or exchange, as having been issued on the date or dates of
any such exercise and for the consideration actually received and
receivable therefor, and
(d) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been
granted or issued immediately after the time of such increase of the
consideration per share for which shares of Common Stock or other
property are issuable under such warrants or rights or other Convertible
Securities; whereupon a new adjustment of the number of shares of Common
Stock for which this Warrant is exercisable and the Current Warrant Price
shall be made, which new adjustment shall supersede the previous
adjustment so rescinded and annulled.
4.8. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION.
The following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price provided for in this Section 4:
(a) COMPUTATION OF CONSIDERATION. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any Additional
Shares of Common Stock or any Convertible Securities shall be issued for
cash consideration, the consideration received by Company therefor shall
be the amount of the cash received by Company therefor, or, if such
Additional Shares of Common Stock or Convertible Securities are offered
by Company for subscription, the subscription price, or, if such
Additional Shares of Common Stock or Convertible Securities
11
<PAGE>
are sold to underwriters or dealers for public offering without a
subscription offering, the initial public offering price (in any such
case subtracting any amounts paid or receivable for accrued interest or
accrued dividends and without taking into account any compensation,
discounts or expenses paid or incurred by Company for and in the
underwriting of, or otherwise in connection with, the issuance thereof).
To the extent that such issuance shall be for a consideration other than
cash, then, except as herein otherwise expressly provided, the amount of
such consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good faith
by the Board of Directors of Company. In case any Additional Shares of
Common Stock or any Convertible Securities or any warrants or other
rights to subscribe for or purchase such Additional Shares of Common
Stock or Convertible Securities shall be issued in connection with any
merger in which Company issues any securities, the amount of
consideration therefor shall be deemed to be the fair value, as
determined in good faith by the Board of Directors of Company, of such
portion of the assets and business of the nonsurviving corporation as
such Board in good faith shall determine to be attributable to such
Additional Shares of Common Stock, Convertible Securities, warrants or
other rights, as the case may be. The consideration for any Additional
Shares of Common Sock issuable pursuant to any warrants or other rights
to subscribe for or purchase the same shall be the consideration
received by Company for issuing such warrants or other rights plus the
additional consideration payable to Company upon exercise of such
warrants or other rights. The consideration for any Additional Shares
of Common Stock issuable pursuant to the terms of any Convertible
Securities shall be the consideration received by Company for issuing
warrants or other rights to subscribe for or purchase such Convertible
Securities, plus the consideration paid or payable to Company in respect
of the subscription for or purchase of such Convertible Securities, plus
the additional consideration, if any, payable to Company upon the
exercise of the right of conversion or exchange in such Convertible
Securities. In case of the issuance at any time of any Additional
Shares of Common Stock or Convertible Securities in payment or
satisfaction of any dividends upon any class of stock other than Common
Stock, Company shall be deemed to have received for such Additional
Shares of Common Stock or Convertible Securities a consideration equal to
the amount of such dividend so paid or satisfied.
(b) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by
this Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that any adjustment of the
number of shares of Common Stock for which this Warrant is exercisable
that would otherwise be required may be postponed (except in the case of
a subdivision or combination of shares of Common Stock, as provided for
in Section 4.1) up to, but not beyond the date of exercise if such
adjustment either by itself or with other adjustments not previously made
adds or subtracts less than 1% of the shares of Common Stock for which
this Warrant is exercisable immediately prior to the making of such
adjustment; PROVIDED that Company shall promptly provide Holder with
calculations, in reasonable detail, of any such adjustment. Any
adjustment
12
<PAGE>
representing a change of less than such minimum amount (except as
aforesaid) which is postponed shall be carried forward and made as soon
as such adjustment, together with other adjustments required by this
Section 4 and not previously made, would result in a minimum adjustment
or on the date of exercise. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business
on the date of its occurrence.
(c) FRACTIONAL INTERESTS. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into
account to the nearest 1/10th of a share.
(d) WHEN ADJUSTMENT NOT REQUIRED. If Company shall take a
record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase
rights and shall, thereafter and before the distribution to stockholders
thereof, legally abandon its plan to pay or deliver such dividend,
distribution, subscription or purchase rights, then thereafter no
adjustment shall be required by reason of the taking of such record and
any such adjustment previously made in respect thereof shall be rescinded
and annulled.
(e) ESCROW OF WARRANT STOCK. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of any
record of the holders of Common Stock, but prior to the occurrence of the
event for which such record is taken, and Holder exercises this Warrant,
any Additional Shares of Common Stock issuable upon exercise by reason of
such adjustment shall be deemed the last shares of Common Stock for which
this Warrant is exercised (notwithstanding any other provision to the
contrary herein) and such shares or other property shall be held in
escrow for Holder by Company to be issued to Holder upon and to the
extent that the event actually takes place, upon payment of the then
Current Warrant Price. Notwithstanding any other provision to the
contrary herein, if the event for which such record was taken fails to
occur or is rescinded, then such escrowed shares shall be cancelled by
Company and escrowed property returned.
(f) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board
of Directors of Company shall be required to make a determination in
good faith of the fair value of any item under this Section 4, such
determination may be challenged in good faith by the Majority Holders,
and any dispute shall be resolved by an investment banking firm of
recognized national standing selected by Company and acceptable to the
Majority Holders.
4.9. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. In case Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where Company is not the surviving corporation or where there is
a change in or distribution with respect to the Common Stock of Company), or
sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of
13
<PAGE>
such reorganization, reclassification, merger, consolidation or disposition
of assets, shares of common stock of the successor or acquiring corporation,
or any cash, shares of stock or other securities or property of any nature
whatsoever (including warrants or other subscription or purchase rights) in
addition to or in lieu of common stock of the successor or acquiring
corporation ("Other Property"), are to be received by or distributed to the
holders of Common Stock of Company, then each Holder shall have the right
thereafter to receive, upon exercise of such Warrant, the number of shares of
common stock of the successor or acquiring corporation or of Company, if it
is the surviving corporation, and Other Property receivable upon or as a
result of such reorganization, reclassification, merger, consolidation or
disposition of assets by a holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event. In case
of any such reorganization, reclassification, merger, consolidation or
disposition of assets, the successor or acquiring corporation (if other than
Company) shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant to be
performed and observed by Company and all the obligations and liabilities
hereunder, subject to such modifications as may be deemed appropriate (as
determined by resolution of the Board of Directors of Company) in order to
provide for adjustments of shares of Common Stock for which this Warrant is
exercisable which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 4. For purposes of this Section
4.9, "common stock of the successor or acquiring corporation" shall include
stock of such corporation of any class which is not preferred as to dividends
or assets over any other class of stock of such corporation and which is not
subject to redemption and shall also include any evidences of indebtedness,
shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or
other rights to subscribe for or purchase any such stock. The foregoing
provisions of this Section 4.9 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
4.10. CERTAIN LIMITATIONS. Notwithstanding anything herein to the
contrary, Company agrees not to enter into any transaction which, by reason
of any adjustment hereunder, would cause the Current Warrant Price to be less
than the par value per share of Common Stock.
5. NOTICES TO WARRANT HOLDERS
5.1. NOTICE OF ADJUSTMENTS. Whenever the number of shares of Common
Stock for which this Warrant is exercisable, or whenever the price at which a
share of such Common Stock may be purchased upon exercise of the Warrants,
shall be adjusted pursuant to Section 4, Company shall forthwith prepare a
certificate to be executed by the chief financial officer of Company setting
forth, in reasonable detail, the event requiring the adjustment and the
method by which such adjustment was calculated (including a description of
the basis on which the Board of Directors of Company determined the fair
value of any evidences of indebtedness, shares of stock, other securities or
property or warrants or other subscription or purchase rights referred to in
Section 4.2 or 4.8(a)), specifying the number of shares of Common Stock for
which this Warrant is exercisable
14
<PAGE>
and (if such adjustment was made pursuant to Section 4.9 or 4.10) describing
the number and kind of any other shares of stock or Other Property for which
this Warrant is exercisable, and any change in the purchase price or prices
thereof, after giving effect to such adjustment or change. Company shall
promptly cause a signed copy of such certificate to be delivered to each
Holder in accordance with Section 18.2. Company shall keep at its office or
agency designated pursuant to Section 12 copies of all such certificates and
cause the same to be available for inspection at said office during normal
business hours by any Holder or any prospective purchaser of a Warrant
designated by a Holder thereof.
5.2. NOTICE OF CORPORATE ACTION. If at any time
(a) Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of
its indebtedness, any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) there shall be any capital reorganization of Company, any
reclassification or recapitalization of the capital stock of Company or
any consolidation or merger of Company with, or any sale, transfer or
other disposition of all or substantially all the property, assets or
business of Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of Company;
then, in any one or more of such cases, Company shall give to Holder (i) at
least 30 days' prior written notice (or in the case of an involuntary
dissolution, as soon as practicable) of the date on which a record date shall
be selected for such dividend, distribution or right or for determining
rights to vote in respect of any such reorganization, reclassification,
merger, consolidation, sale, transfer, disposition, dissolution, liquidation
or winding up and (ii) in the case of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, at least 30 days' prior written
notice of the date when the same shall take place. Such notice in accordance
with the foregoing clause also shall specify (i) the date on which any such
record is to be taken for the purpose of such dividend, distribution or
right, the date on which the holders of Common Stock shall be entitled to any
such dividend, distribution or right, and the amount and character thereof,
and (ii) the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or
winding up is to take place and the time, if any such time is to be fixed, as
of which the holders of Common Stock shall be entitled to exchange their
shares of Common Stock for securities or other property deliverable upon such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up. Each such written
notice shall be sufficiently given if addressed to Holder at the last address
of Holder appearing on the books of Company and delivered in accordance with
Section 18.2.
15
<PAGE>
6. NO IMPAIRMENT
Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at
all times in good faith assist in the carrying out of all such terms and in
the taking of all such actions as may be necessary or appropriate to protect
the rights of Holder against impairment. Without limiting the generality of
the foregoing, Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order
that Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant, and (c) use its
best efforts to obtain all such authorizations, exemptions or consents from
any public regulatory body having jurisdiction thereof as may be necessary to
enable Company to perform its obligations under this Warrant.
Upon the request of Holder, Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form
satisfactory to Holder, the continuing validity of this Warrant and the
obligations of Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
From and after the Closing Date, Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock which shall be so issuable, when issued upon exercise
of any Warrant and payment therefor in accordance with the terms of such
Warrant, shall be duly and validly issued and fully paid and nonassessable,
and not subject to preemptive rights.
Before taking any action which would cause an adjustment
reducing the Current Warrant Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of the Warrants, Company shall
take any corporate action which may be necessary in order that Company may
validly and legally issue fully paid and non-assessable shares of such Common
Stock at such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in
the number of shares of Common Stock for which this Warrant is exercisable or
in the Current Warrant Price, Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
If any shares of Common Stock required to be reserved for
issuance upon exercise of Warrants require registration or qualification with
any governmental authority
16
<PAGE>
or other governmental approval or filing under any federal or state law
(otherwise than as provided in Section 9) before such shares may be so
issued, Company will in good faith and as expeditiously as possible and at
its expense endeavor to cause such shares to be duly registered.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by Company
to the holders of its Common Stock with respect to which any provision of
Section 4 refers to the taking of a record of such holders, Company will in
each such case take such a record and will take such record as of the close
of business on a Business Day. Company will not at any time, except upon
dissolution, liquidation or winding up of Company, close its stock transfer
books or Warrant transfer books so as to result in preventing or delaying the
exercise or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in
this Section 9 and in no case in violation of applicable provisions of the
Securities Act. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1. RESTRICTIVE LEGEND.
(a) Except as otherwise provided in this Section 9, each
certificate for Warrant Stock initially issued upon the exercise of this
Warrant, and each certificate for Warrant Stock issued to any subsequent
transferee of any such certificate, shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"The shares represented by this certificate
have not been registered under the Securities Act of
1933, as amended, or any applicable state securities
laws, and are subject to the conditions specified in
a certain Warrant dated July 8, 1999, originally
issued by THERMOVIEW INDUSTRIES, INC. No transfer
of the shares represented by this certificate shall
be valid or effective until such conditions have
been fulfilled. A copy of the form of said Warrant
is on file with the Secretary of THERMOVIEW
INDUSTRIES, INC. The holder of this certificate, by
acceptance of this certificate, agrees to be bound
by the provisions of such Warrant."
(b) Except as otherwise provided in this Section 9, each
Warrant shall be stamped or otherwise imprinted with a legend in
substantially the following form:
17
<PAGE>
"This Warrant and the securities represented
hereby have not been registered under the Securities
Act of 1933, as amended (the "Act"), or any
applicable state securities laws, and may not be
transferred in violation of the Act or such laws,
the rules and regulations under the Act or the
provisions of this Warrant."
9.2. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION. Prior
to or promptly following any Transfer of any Warrants or any shares of
Restricted Common Stock, the holder of such Warrants or Restricted Common
Stock shall give written notice (a "Transfer Notice") to Company of such
Transfer. Each certificate, if any, evidencing such shares of Restricted
Common Stock issued upon such Transfer shall bear the restrictive legend set
forth in Section 9.1(a), and each Warrant issued upon such Transfer shall
bear the restrictive legend set forth in Section 9.1(b), unless in the
written opinion of counsel to such holder issued to Company which is
reasonably acceptable to Company such legend is not required in order to
ensure compliance with the Securities Act.
The holders of Warrants and Warrant Stock shall have the right
to request registration of such Warrant Stock pursuant to Sections 9.3 and
9.4.
9.3. REQUIRED REGISTRATION. After receipt of a written request from
the holders of Warrants and/or Warrant Stock representing at least an
aggregate of 30% of the total of (i) all shares of Warrant Stock then subject
to purchase upon exercise of all Warrants and (ii) all shares of Warrant
Stock then outstanding, and which are Restricted Common Stock requesting that
Company effect the registration of Warrant Stock issuable upon the exercise
of such holder's Warrants or of any of such holder's Warrant Stock under the
Securities Act and specifying the intended method or methods of disposition
thereof, Company shall promptly notify the remaining holders of Warrants and
Warrant Stock in writing of the receipt of such request and each such holder,
in lieu of exercising its rights under Section 9.4, may elect (by written
notice sent to Company within ten Business Days from the date of such
holder's receipt of the aforementioned Company's notice) to have its shares
of Warrant Stock included in such registration thereof pursuant to this
Section 9.3; PROVIDED, HOWEVER, that Company shall not include for
registration shares of Common Stock issued or issuable upon conversion of the
Series C Convertible Preferred Stock in any Registration Statement requested
to be filed by any holder of this Warrant. Thereupon Company shall, as
expeditiously as is possible, use its best efforts to effect the registration
under the Securities Act of all shares of Warrant Stock which Company has
been so requested to register by such holders for sale, all to the extent
required to permit the disposition (in accordance with the intended method or
methods thereof, as aforesaid) of the Warrant Stock so registered; PROVIDED,
HOWEVER, that Company shall not be required to effect more than two
registrations of any Warrant Stock pursuant to this Section 9.3, unless
Company shall be eligible to file a registration statement on Form S-3 (or
other comparable short form) under the Securities Act, in which event there
shall be no limit on the number of such registrations pursuant to this
Section 9.3. If any Person (other than a holder of a Warrant and/or Warrant
Stock) shall request that shares of Common Stock of such Person be included
on any Registration Statement filed pursuant
18
<PAGE>
to this Section 9.3, then such Person shall be subject to pro rata reduction
as set forth in the second sentence of the second paragraph of Section 9.4.
9.4. INCIDENTAL REGISTRATION. If Company at any time proposes to
file on its behalf and/or on behalf of any of its security holders (the
"demanding security holders") a Registration Statement under the Securities
Act on any form (other than the initial Registration Statement (and any
amendments thereto) filed on behalf of the holders of the Series C
Convertible Preferred Stock or a Registration Statement on Form S-4 or S-8 or
any successor form for securities to be offered in a transaction of the type
referred to in Rule 145 under the Securities Act or to employees of Company
pursuant to any employee benefit plan, respectively) for the general
registration of securities to be sold for cash with respect to its Common
Stock or any other class of equity security (as defined in Section 3(a)(11)
of the Exchange Act) of Company, it will give written notice to all holders
of Warrants or Warrant Stock at least 30 days before the initial filing with
the Commission of such Registration Statement, which notice shall set forth
the intended method of disposition of the securities proposed to be
registered by Company. The notice shall offer to include in such filing the
aggregate number of shares of Warrant Stock, and the number of shares of
Common Stock for which this Warrant is exercisable, as such holders may
request.
Each holder of any such Warrants or any such Warrant Stock
desiring to have Warrant Stock registered under this Section 9.4 shall advise
Company in writing within 15 days after the date of receipt of such offer
from Company, setting forth the amount of such Warrant Stock for which
registration is requested. Company shall thereupon include in such filing
the number of shares of Warrant Stock for which registration is so requested,
subject to the next sentence, and shall use its best efforts to effect
registration under the Securities Act of such shares. If the managing
underwriter of a proposed public offering shall advise Company in writing
that, in its opinion, the distribution of the Warrant Stock requested to be
included in the registration concurrently with the securities being
registered by Company or such demanding security holder would materially and
adversely affect the distribution of such securities by Company or such
demanding security holder, then all selling security holders (other than (i)
any demanding security holder who initially requested such registration and
(ii) any security holders whose registration rights granted prior to the date
hereof do not provide for such pro rata reduction) shall reduce the amount of
securities each intended to distribute through such offering on a pro rata
basis; PROVIDED, HOWEVER, that Company shall use its best efforts to cause
the security holders referred to in clause (ii) above to agree to such pro
rata reduction. Except as otherwise provided in Section 9.6, all expenses of
such registration shall be borne by Company.
9.5. REGISTRATION PROCEDURES. If Company is required by the
provisions of this Section 9 to use its best efforts to effect the
registration of any of its securities under the Securities Act, Company will,
as expeditiously as possible:
(a) prepare and file with the Commission a Registration
Statement with respect to such securities and use its best efforts to
cause such Registration
19
<PAGE>
Statement to become and remain effective for a period of time required
for the disposition of such securities by the holders thereof, but not
to exceed 180 days;
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective and to comply with the provisions of the Securities
Act with respect to the sale or other disposition of all securities
covered by such Registration Statement until the earlier of such time as
all of such securities have been disposed of in a public offering or the
expiration of 180 days;
(c) furnish to such selling security holders such number of
copies of a summary prospectus or other prospectus, including a
preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents, as such selling security
holders may reasonably request;
(d) use its best efforts to register or qualify the securities
covered by such Registration Statement under such other securities or
blue sky laws of such jurisdictions within the United States and Puerto
Rico as each holder of such securities shall request (PROVIDED, HOWEVER,
that Company shall not be obligated to qualify as a foreign corporation
to do business under the laws of any jurisdiction in which it is not then
qualified or to file any general consent to service or process), and do
such other reasonable acts and things as may be required of it to enable
such holder to consummate the disposition in such jurisdiction of the
securities covered by such Registration Statement;
(e) at the request of any holder requesting registration of
Warrant Stock pursuant to Section 9.3, on the date that such shares of
Warrant Stock are delivered to the underwriters for sale pursuant to such
registration or, if such Warrant Stock is not being sold through
underwriters, on the date that the Registration Statement with respect to
such shares of Warrant Stock becomes effective, (1) furnish an opinion,
dated such date, of the independent counsel representing Company for the
purposes of such registration, addressed to the underwriters, if any, and
if such Warrant Stock is not being sold through underwriters, then to the
holders making such request, in customary form and covering matters of
the type customarily covered in such legal opinions; and (2) furnish a
comfort letter dated such date, from the independent certified public
accountants of Company, addressed to the underwriters, if any, and if
such Warrant Stock is not being sold through underwriters, then use its
best efforts to furnish such comfort letter to the holder making such
request and, if such accountants refuse to deliver such letter to such
holder, then to Company in a customary form and covering matters of the
type customarily covered by such comfort letters as the underwriters or
such holders shall reasonably request. Such opinion of counsel shall
additionally cover such other legal matters with respect to the
registration in respect of which such opinion is being given as such
holders holding a majority of the Warrant Stock being so registered may
reasonably request. Such letter from the independent certified public
accountants shall
20
<PAGE>
additionally cover such other financial matters (including information
as to the period ending not more than five Business Days prior to the
date of such letter) with respect to the registration in respect of
which such letter is being given as the holders holding a majority of
the Warrant Stock being so registered may reasonably request;
(f) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of
such securities; and
(g) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, but not later
than 18 months after the effective date of the Registration Statement,
an earnings statement covering the period of at least 12 months beginning
with the first full month after the effective date of such Registration
Statement, which earnings statements shall satisfy the provisions of
Section 11(a) of the Securities Act.
It shall be a condition precedent to the obligation of Company
to take any action pursuant to this Section 9 in respect of the securities
which are to be registered at the request of any holder of Warrants or
Warrant Stock that such holder shall furnish to Company such information
regarding the securities held by such holder and the intended method of
disposition thereof as Company shall reasonably request and as shall be
required in connection with the action taken by Company.
9.6. EXPENSES. All expenses incurred in complying with Section 9,
including, without limitation, all registration and filing fees (including
all expenses incident to filing with the NASD), printing expenses, fees and
disbursements of counsel for Company, the reasonable fees and expenses of one
counsel for the selling security holders (selected by those holding a
majority of the shares being registered), expenses of any special audits
incident to or required by any such registration and expenses of complying
with the securities or blue sky laws of any jurisdictions pursuant to Section
9.5(d), shall be paid by Company, except that
(a) all such expenses in connection with any amendment or
supplement to the Registration Statement or prospectus filed more than
180 days after the effective date of such Registration Statement because
any holder of Warrant Stock has not effected the disposition of the
securities requested to be registered shall be paid by such holder; and
(b) Company shall not be liable for any fees, discounts or
commissions to any underwriter or any fees or disbursements of counsel
for any underwriter in respect of the securities sold by such holder of
Warrant Stock.
9.7. INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of any registration of any of the Warrant
Stock under the Securities Act pursuant to this Section 9, Company shall
indemnify and hold
21
<PAGE>
harmless the holder of such Warrant Stock, such holder's directors and
officers, and each other Person (including each underwriter) who
participated in the offering of such Warrant Stock and each other Person,
if any, who controls such holder or such participating Person within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such holder or any such director
or officer or participating Person or controlling Person may become
subject under the Securities Act or any other statute or at common
law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any alleged untrue
statement of any material fact contained, on the effective date thereof,
in any Registration Statement under which such securities were
registered under the Securities Act, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement
thereto, or (ii) any alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and shall reimburse such holder or such director, officer
or participating Person or controlling Person for any legal or any other
expenses reasonably incurred by such holder or such director, officer or
participating Person or controlling Person in connection with
investigating or defending any such loss, claim, damage, liability or
action; PROVIDED, HOWEVER, that Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises
out of or is based upon any alleged untrue statement or alleged omission
made in such Registration Statement, preliminary prospectus, prospectus
or amendment or supplement in reliance upon and in conformity with
written information furnished to Company by such holder specifically for
use therein or (in the case of any registration pursuant to Section 9.3)
so furnished for such purposes by any underwriter. Such indemnity shall
remain in full force and effect regardless of any investigation made by
or on behalf of such holder or such director, officer or participating
Person or controlling Person, and shall survive the transfer of such
securities by such holder.
(b) Each holder of any Warrant Stock, by acceptance thereof,
agrees to indemnify and hold harmless Company, its directors and officers
and each other Person, if any, who controls Company within the meaning of
the Securities Act against any losses, claims, damages or liabilities,
joint or several, to which Company or any such director or officer or any
such Person may become subject under the Securities Act or any other
statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon information in writing provided to Company by such holder of such
Warrant Stock specifically for use in the following documents and
contained, on the effective date thereof, in any Registration Statement
under which securities were registered under the Securities Act at the
request of such holder, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto, but in an
amount not to exceed the net proceeds received by such holder in the
offering.
(c) If the indemnification provided for in this Section 9 from
the indemnifying party is unavailable to an indemnified party hereunder
in respect of
22
<PAGE>
any losses, claims, damages, liabilities or expenses referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect
the relative fault of the indemnifying party and indemnified parties in
connection with the actions which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged
untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties, and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or
payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include any
legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding. The liability of any
holder of Warrant Stock hereunder shall not exceed the net proceeds
received by it in the offering.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 9.7(c) were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
9.8. TERMINATION OF RESTRICTIONS. Notwithstanding the foregoing
provisions of Section 9, the restrictions imposed by this Section upon the
transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock (or Common Stock issuable upon the exercise of the Warrants) and the
legend requirements of Section 9.1 shall terminate as to any particular
Warrant or share of Warrant Stock or Restricted Common Stock (or Common Stock
issuable upon the exercise of the Warrants) (i) when and so long as such
security shall have been effectively registered under the Securities Act and
disposed of pursuant thereto or (ii) when Company shall have received an
opinion of counsel reasonably satisfactory to it that such shares may be
transferred without registration thereof under the Securities Act. Whenever
the restrictions imposed by Section 9 shall terminate as to this Warrant, as
hereinabove provided, the Holder hereof shall be entitled to receive from
Company, at the expense of Company, a new Warrant bearing the following
legend in place of the restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE
WITHIN WARRANT CONTAINED IN SECTION 9 HEREOF
TERMINATED ON __________, AND ARE OF NO FURTHER
FORCE AND EFFECT."
23
<PAGE>
All Warrants issued upon registration of transfer, division or combination
of, or in substitution for, any Warrant or Warrants entitled to bear such
legend shall have a similar legend endorsed thereon. Whenever the
restrictions imposed by this Section shall terminate as to any share of
Restricted Common Stock, as hereinabove provided, the holder thereof shall be
entitled to receive from Company, at Company's expense, a new certificate
representing such Common Stock not bearing the restrictive legend set forth
in Section 9.1(a).
9.9. LISTING ON SECURITIES EXCHANGE. If Company shall list any
shares of Common Stock on any securities exchange, it will, at its expense,
list thereon, maintain and, when necessary, increase such listing of, all
shares of Common Stock issued or, to the extent permissible under the
applicable securities exchange rules, issuable upon the exercise of this
Warrant so long as any shares of Common Stock shall be so listed during any
such Exercise Period.
9.10. CERTAIN LIMITATIONS ON REGISTRATION RIGHTS. Notwithstanding
the other provisions of Section 9:
(i) Company shall not be obligated to register the Warrant
Stock of any holder if, in the opinion of counsel to Company reasonably
satisfactory to the holder and its counsel (or, if the holder has engaged
an investment banking firm, to such investment banking firm and its
counsel), the sale or other disposition of such holder's Warrant Stock,
in the manner proposed by such holder (or by such investment banking
firm), may be effected without registering such Warrant Stock under the
Securities Act; and
(ii) Company shall not be obligated to register the Warrant
Stock of any holder pursuant to Section 9.3, if Company has had a
registration statement, under which such holder had a right to have its
Warrant Stock included pursuant to Sections 9.3 or 9.4, declared
effective within six months prior to the date of the request pursuant to
Section 9.3.
9.11. SELECTION OF MANAGING UNDERWRITERS. The managing underwriter
or underwriters for any offering of Warrant Stock to be registered pursuant
to Section 9.3 shall be selected by the holders of a majority of the shares
being so registered (other than any shares being registered pursuant to
Section 9.4) and shall be reasonably acceptable to Company.
10. SUPPLYING INFORMATION
Company shall cooperate with each Holder of a Warrant and each
holder of Restricted Common Stock in supplying such information as may be
reasonably necessary for such holder to complete and file any information
reporting forms presently or hereafter required by the Commission as a
condition to the availability of an exemption from the Securities Act for the
sale of any Warrant or Restricted Common Stock.
24
<PAGE>
11. LOSS OR MUTILATION
Upon receipt by Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it
being understood that the written agreement of GE Capital shall be sufficient
indemnity), and in case of mutilation upon surrender and cancellation hereof,
Company will execute and deliver in lieu hereof a new Warrant of like tenor
to such Holder; PROVIDED, in the case of mutilation, no indemnity shall be
required if this Warrant in identifiable form is surrendered to Company for
cancellation.
12. OFFICE OF COMPANY
As long as any of the Warrants remain outstanding, Company
shall maintain an office or agency (which may be the principal executive
offices of Company) where the Warrants may be presented for exercise,
registration of transfer, division or combination as provided in this Warrant.
13. FINANCIAL AND BUSINESS INFORMATION
13.1. QUARTERLY INFORMATION. Company will deliver to each Holder, as
soon as practicable after the end of each of the first three quarters of
Company, and in any event within 45 days thereafter, one copy of an unaudited
consolidated balance sheet of Company and its subsidiaries as at the close of
such quarter, and the related unaudited consolidated statements of income and
cash flows of Company for such quarter and, in the case of the second and
third quarters, for the portion of the fiscal year ending with such quarter,
setting forth for each quarter in comparative form the figures for the
corresponding periods in the previous fiscal year. Such financial statements
shall be prepared by Company in accordance with GAAP and accompanied by the
certification of Company's chief executive officer or chief financial officer
that such financial statements are complete and correct and present fairly
the consolidated financial position, results of operations and cash flows of
Company and its subsidiaries as at the end of such quarter and for such
year-to-date period, as the case may be.
13.2. ANNUAL INFORMATION. Company will deliver to each Holder as
soon as practicable after the end of each fiscal year of Company, and in any
event within 90 days thereafter, one copy of:
(i) an audited consolidated balance sheet of Company and its
subsidiaries as at the end of such year, and
(ii) audited consolidated statements of income, retained
earnings and cash flows of Company and its subsidiaries for such year;
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all prepared in accordance
with GAAP, and which audited financial statements shall be accompanied by (i)
an opinion thereon of the independent certified public accountants regularly
retained by Company, or any other "Big 5"
25
<PAGE>
accounting firm (or any successor thereto) selected by Company and (ii) a
report of such independent certified public accountants confirming any
adjustment made pursuant to Section 4 during such year.
13.3. FILINGS. Company will file on or before the required date all
regular or periodic reports (pursuant to the Exchange Act) with the
Commission and will deliver to Holder promptly upon their becoming available
one copy of each report, notice or proxy statement sent by Company to its
stockholders generally, and of each regular or periodic report (pursuant to
the Exchange Act) and any Registration Statement, prospectus or written
communication (other than transmittal letters) (pursuant to the Securities
Act), filed by Company with (i) the Commission or (ii) any securities
exchange on which shares of Common Stock are listed.
14. [INTENTIONALLY OMITTED].
15. [INTENTIONALL OMITTED].
16. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of Holder hereof, shall give rise to any liability of
such Holder for the purchase price of any Common Stock or as a stockholder of
Company, whether such liability is asserted by Company or by creditors of
Company.
17. RIGHT OF FIRST REFUSAL FOR NEW SECURITIES
(a) Company hereby grants to Holder a right of first refusal
to purchase shares of any New Securities (as defined below) which Company
may, from time to time, propose to sell and issue, which right of first
refusal shall survive for a period of, and be applicable to New
Securities issued within, three years after the date hereof. Such right
of first refusal shall allow Holder to purchase a pro rata portion of the
New Securities proposed to be issued, determined with reference to the
aggregate number of outstanding shares of Common Stock (determined on an
as if exercised basis) held by such Holder or its permitted transferees
before the proposed issuance of New Securities. In the event any Holder
does not purchase any or all of its pro rata portion of New Securities,
the other Holders shall have the right to purchase such unpurchased New
Securities. The right of first refusal granted hereunder shall terminate
if unexercised within 10 Business Days after receipt of the notice
described in Section 17(c) hereof. Holders may reallocate their right of
first refusal among themselves.
(b) "New Securities" shall mean any authorized but unissued
shares, and any treasury shares, of capital stock of Company and all
rights, options or warrants to purchase capital stock, and securities of
any type whatsoever that are, or may become, convertible into capital
stock; PROVIDED, HOWEVER, that the term "New Securities" does not include
(i) securities issued pursuant to the acquisition
26
<PAGE>
of another corporation by Company by merger, purchase of all or
substantially all of the assets or other reorganization whereby Company
shall become the owner of more than 50% of the voting power of such
corporation; (ii) shares of Common Stock issued in connection with any
stock split or stock dividend of Company; (iii) shares of Common Stock
issued pursuant to any public offering and sale of equity securities of
Company pursuant to an effective registration statement under the
Securities Act; and (iv) Permitted Issuances.
(c) If Company proposes to issue New Securities, it shall give
Holder written notice thereof, describing the New Securities, the number
thereof to be issued, the purchase price therefor and the terms upon
which Company proposes to issue the same. Holder shall have 10 Business
Days from the date such notice is given to determine whether to purchase
all or any portion of such Holder's pro rata share of such New Securities
for the purchase price and upon the terms specified in the notice by
giving written notice to Company and stating therein the number of New
Securities to be purchased.
(d) If Holder has not elected to purchase all of the New
Securities proposed to be issued (within the time period for notifying
Company set forth above), then Company shall have 60 calendar days in
which to complete the proposed issuance of the portion of the New
Securities not purchased by Holder at a price not less than that
contained in the notice previously given to Holder and on terms and
conditions not more favorable to the third party than those contained in
such notice. If, at the end of such 60-calendar day period, Company has
not completed such issuance of New Securities, Company shall no longer be
permitted to issue such New Securities pursuant to this Section 17
without again fully complying with all of the provisions of this Section
17.
18. MISCELLANEOUS
18.1. NONWAIVER AND EXPENSES. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies. If Company fails to make, when due, any payments provided for
hereunder, or fails to comply with any other provision of this Warrant,
Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by Holder in collecting
any amounts due pursuant hereto or in otherwise enforcing any of its rights,
powers or remedies hereunder.
18.2. NOTICE GENERALLY. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Warrant shall be sufficiently given or
made if in writing and either delivered in person with receipt acknowledged
or sent by registered or certified mail, return receipt requested, postage
prepaid, or by telecopy and confirmed by telecopy answerback, addressed as
follows:
27
<PAGE>
(a) If to any Holder or holder of Warrant Stock, at its last
known address appearing on the books of Company maintained for such
purpose.
(b) If to Company at
ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
Attention: Stephen A. Hoffmann, Chief Executive Officer
Telecopy Number: (502) 412-0301
with a copy to:
Stites & Harbison
400 West Market Street
Suite 1800
Louisville, Kentucky 40202
Attention: Alex P. Herrington, Jr. (Mike)
Telecopy Number: (502) 587-6391
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice, demand,
request, consent, approval, declaration, delivery or other communication
hereunder shall be deemed to have been duly given or served on the date on
which personally delivered, with receipt acknowledged, telecopied and
confirmed by telecopy answerback, or three (3) Business Days after the same
shall have been deposited in the United States mail. Failure or delay in
delivering copies of any notice, demand, request, approval, declaration,
delivery or other communication to the person designated above to receive a
copy shall in no way adversely affect the effectiveness of such notice,
demand, request, approval, declaration, delivery or other communication.
18.3. INDEMNIFICATION. Company agrees to indemnify and hold harmless
Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees,
expenses and disbursements of any kind which may be imposed upon, incurred by
or asserted against Holder in any manner relating to or arising out of (i)
Holder's exercise of this Warrant and/or ownership of any shares of Warrant
Stock issued in consequence thereof or (ii) any litigation to which Holder is
made a party in its capacity as a stockholder of Company; PROVIDED, HOWEVER,
that Company will not be liable hereunder to the extent that any liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, attorneys' fees, expenses or disbursements are found in a final
non-appealable judgment by a court to have resulted from Holder's gross
negligence, bad faith or willful misconduct in its capacity as a stockholder
or warrantholder of Company.
18.4. REMEDIES. Each holder of Warrant and Warrant Stock, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will
28
<PAGE>
be entitled to specific performance of its rights under Section 9 of this
Warrant. Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the
provisions of Section 9 of this Warrant and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
18.5. SUCCESSORS AND ASSIGNS. Subject to the provisions of Sections
3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of Company and the successors
and assigns of Holder. The provisions of this Warrant are intended to be for
the benefit of all Holders from time to time of this Warrant and, with
respect to Section 9 hereof, holders of Warrant Stock, and shall be
enforceable by any such Holder or holder of Warrant Stock.
18.6. AMENDMENT. This Warrant and all other Warrants may be modified
or amended or the provisions hereof waived with the written consent of
Company and the Majority Holders, PROVIDED that no such Warrant may be
modified or amended to reduce the number of shares of Common Stock for which
such Warrant is exercisable or to increase the price at which such shares may
be purchased upon exercise of such Warrant (before giving effect to any
adjustment as provided therein) without the prior written consent of the
Holder thereof.
18.7. SEVERABILITY. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Warrant.
18.8. HEADINGS. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.
18.9. GOVERNING LAW. This Warrant shall be governed by the laws of
the State of New York, without regard to the provisions thereof relating to
conflict of laws.
18.10. WAIVER OF JURY TRIAL. Company hereby waives all right to trial
by jury in any action or proceeding to enforce or defend any rights under
this Warrant.
29
<PAGE>
IN WITNESS WHEREOF, Company has caused this Warrant to be duly
executed by its duly authorized officer.
Dated: July 8, 1999
THERMOVIEW INDUSTRIES, INC.
By: /s/ Nelson E. Clemmens
-------------------------------
Name: Nelson E. Clemmens
Title: President
30
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of ______ Shares of Common Stock of
THERMOVIEW INDUSTRIES, INC. and herewith makes payment therefor, all at the
price and on the terms and conditions specified in this Warrant and requests
that certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the
name of and delivered to _____________ whose address is _________________
and, if such shares of Common Stock shall not include all of the shares of
Common Stock issuable as provided in this Warrant, that a new Warrant of like
tenor and date for the balance of the shares of Common Stock issuable
hereunder be delivered to the undersigned.
---------------------------------------
(Name of Registered Owner)
---------------------------------------
(Signature of Registered Owner)
---------------------------------------
(Street Address)
---------------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all
of the rights of the undersigned under this Warrant, with respect to the
number of shares of Common Stock set forth below:
NAME AND ADDRESS OF ASSIGNEE NO. OF SHARES OF
COMMON STOCK
and does hereby irrevocably constitute and appoint __________________________
attorney-in-fact to register such transfer on the books of THERMOVIEW
INDUSTRIES, INC. maintained for the purpose, with full power of substitution
in the premises.
Dated: Print Name:
------------------ -------------------------
Signature:
--------------------------
Witness:
----------------------------
NOTICE: The signature on this subscription must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
<PAGE>
INDEMNIFICATION AGREEMENT
This Agreement is made this ___ day of _______________, 1999, by and
between THERMOVIEW INDUSTRIES, INC., a Delaware corporation (the "Company"),
and the undersigned individual (the "Director").
WITNESSETH:
WHEREAS, the Director is a member of the Board of Directors of the
Company and in such capacity is performing a valuable service for the
Company; and
WHEREAS, Article 7 (the "Article") of the Restated Certificate of
Incorporation of the Company authorizes the Company to indemnify directors of
the Company to the fullest extent permitted by Delaware law; and
WHEREAS, the Article authorizes the Company to enter into contracts
with members of its Board of Directors with respect to indemnification of
such directors; and
WHEREAS, recent developments with respect to the application and
enforcement of indemnification provisions and the terms and availability of
insurance to protect directors against liabilities generally have raised
questions concerning the adequacy and reliability of the protection afforded
to directors thereby; and
WHEREAS, to provide greater certainty with respect to the Director's
right to indemnification and the payment thereof, and thereby induce the
Director to continue to serve as a member of the Board of Directors of the
Company, the Company has determined and agreed to enter into this Agreement
with the Director;
NOW, THEREFORE, in consideration of the Director's agreement to
continue to serve as a Director after the date of this Agreement, the Company
and the Director agree as follows:
1. INDEMNITY OF DIRECTOR. To the fullest extent authorized or
permitted by law, and subject only to the exclusions set forth in Sections 2
and 11 of this Agreement, the Company hereby agrees to hold harmless and
indemnify the Director from and against any and all reasonable costs and
expenses (including, but not limited to, attorneys' fees) and any liabilities
(including, but not limited to, judgments, fines, penalties and reasonable
settlements) paid by or on behalf of, or imposed against, the Director in
connection with any threatened, pending or completed claim, action, suit or
proceeding, whether civil, criminal, administrative, investigative or other
(including any appeal relating thereto), whether formal or informal, and
whether made or brought by or in the right of the Company or otherwise, in
which the Director is, was or at any time becomes a party or witness, or is
threatened to be made a party or witness, or otherwise, by reason of the fact
that the Director is, was or at any time becomes a director, officer,
employee or agent of the Company or, at the Company's request, a director,
officer, partner, trustee, employee
<PAGE>
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise.
2. LIMITATIONS ON INDEMNITY. No indemnity pursuant to Section 1 of
this Agreement shall be paid by the Company:
(a) if a court of competent jurisdiction renders a final
adjudication on the merits, in an action, suit or proceeding in which the
Director is a party, that such indemnification is prohibited by law; or
(b) in connection with any transaction with respect to which a
court of competent jurisdiction renders a final adjudication on the
merits, in an action, suit or proceeding in which the Director is a
party, (i) that the Director's personal financial interest was in
conflict with the financial interests of the Company or its stockholders,
or (ii) that the Director derived an improper personal benefit; or
(c) on account of acts or omissions of the Director to the
extent a court of competent jurisdiction renders a final adjudication on
the merits, in an action, suit or proceeding in which the Director is a
party, that such acts or omissions (i) were not in good faith, or (ii)
involved intentional misconduct, or (iii) were known to the Director to
be a violation of law; or
(d) in respect of any liability to the Company to the extent
that a court of competent jurisdiction renders a final adjudication on
the merits, in an action, suit or proceeding in which the Director is a
party, that such liability to the Company arises under any federal or
state statute providing for personal liability directly to the Company by
reason of the fact that the Director is or was a director of the Company,
including, by way of example and not limitation, liability under Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"); or
(e) to the extent and only to the extent that a majority of the
Board of Directors of the Company or a duly designated committee thereof,
in either case consisting entirely of directors who are not at the time
parties to the claim, action, suit or proceeding against the Director,
determines that the amount of expenses and/or settlements for which
indemnification is sought is unreasonable; or
(f) in connection with any claim, action, suit or proceeding if
such claim, action, suit or proceeding was initiated by the Director or
his or her personal or legal representative, or involved the voluntary
solicitation or intervention by the Director or his or her personal or
legal representative (other than an action to enforce indemnification
rights or an action initiated with the approval of a majority of the
Board of Directors).
3. CONTINUATION OF INDEMNITY. All agreements and obligations of
the Company contained in this Agreement shall continue during the period the
Director serves in any capacity entitling the Director to indemnification
under this Agreement and shall continue thereafter so long as the Director
shall be subject to any possible claim or threatened, pending or completed
-2-
<PAGE>
action, suit or proceeding, whether civil, criminal, administrative, or
investigative or other (including any appeal relating thereto), whether
formal or informal, arising as a result of acts or omissions occurring during
the period the Director served as a director of the Company.
4. NOTIFICATION OF CLAIM. It shall be a condition precedent to
indemnification under this Agreement that, within twenty days after receipt
by the Director of actual notice that the Director is or will be a party,
witness or otherwise involved in any threatened or pending action, suit or
proceeding described in Section 1 of this Agreement, the Director shall have
notified the Company in writing of the assertion or commencement thereof; but
the omission to so notify the Company will not relieve it from any liability
which it may have to the Director otherwise than under this Agreement.
5. ADVANCEMENT OF COSTS AND EXPENSES. The costs and expenses
(including, but not limited to, attorneys' fees) incurred by the Director in
investigating, defending, being a witness in, appealing or otherwise
participating in any threatened or pending claim or any threatened or pending
action, suit or proceeding described in Section 1 of this Agreement shall, at
the written request of the Director, be paid by the Company in advance of
final judgment or settlement with the understanding, undertaking and
agreement hereby made and entered into by the Director and the Company, that
the Director shall, if it is ultimately determined in accordance with Section
2 or pursuant to Section 11 of this Agreement that the Director is not
entitled to be indemnified, or was not entitled to be fully indemnified,
repay to the Company such amount, or the appropriate portion thereof, so paid
or advanced. Such advancements shall be made within ten business days of
written request therefor by the Director.
6. ENFORCEMENT. If a claim for payment under this Agreement is
not paid in full by the Company within ninety days after a written demand has
been delivered by the Director to the Company, or within thirty days after
delivery of a written demand by the Director to the Company based upon a
final and unappealable judgment of a court of competent jurisdiction, the
Director may at any time thereafter bring suit against the Company to recover
the unpaid amount of the claim and, if successful in whole or in part, the
Director shall also be entitled to be paid all costs and expenses (including,
but not limited to, attorneys' fees) incurred by the Director in prosecuting
such suit. In any suit brought by the Director to enforce this Agreement, the
burden of proof shall be on the Company to establish that the Director is not
entitled to the relief sought under this Agreement.
7. CONTRIBUTION. If the full indemnity provided in Section 1 of
this Agreement may not be paid to the Director because of any exclusion in
Section 2 of this Agreement, then in respect of any actual or threatened
claim, action, suit or proceeding in which the Company is jointly liable with
the Director (or would be if joined in such claim) the Company shall
contribute to the amount of expense and liabilities incurred by the Director
in such proportion as is appropriate to reflect (i) the relative benefits
received by the Company on the one hand and the Director on the other hand
from the acts or omissions from which such claim, action, suit or proceeding
arose, and (ii) the relative fault of the Company, including its other
directors, officers, agents, employees and other representatives, on the one
hand and of the Director on the other hand in connection with the acts or
omissions which resulted in such claim, action, suit or proceeding, as well
as any other relevant equitable considerations. The relative fault of the
-3-
<PAGE>
Company, including its other directors, officers, agents, employees and other
representatives, on the one hand and of the Director on the other hand shall
be determined by reference to, among other things, the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent the circumstances resulting in such claim, action, suit or
proceeding. The Company agrees that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata
allocation or any other method of allocation which does not take into account
the foregoing equitable considerations.
8. PARTIAL INDEMNITY. If the Director is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the costs, expenses, judgments, fines, penalties and amounts paid
in settlement, but not for the total amount thereof, the Company shall
nevertheless indemnify the Director for the portion thereof to which the
Director is entitled.
9. NON-EXCLUSIVITY. The rights of the Director under this
Agreement shall be in addition to any other rights the Director may have
under the Restated Certificate of Incorporation or Bylaws of the Company,
agreement, vote of stockholders or disinterested directors, as a matter of
law or otherwise.
10. SUBROGATION. In the event of any payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of the Director, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including
the execution of such documents as may be necessary to enable the Company
effectively to bring suit to enforce such rights.
11. NO DUPLICATION OF PAYMENTS. The Company shall not be liable
under this Agreement to make any payment to the extent the Director has
otherwise actually received payment (under any insurance policy, Bylaw or
otherwise) of the amounts otherwise payable by the Company under this
Agreement. The Director shall use his or her best efforts to collect from all
third parties any amounts otherwise payable by the Company under this
Agreement. If the Director is entitled to but has not received payment from a
third party (under any insurance policy or otherwise) of amounts otherwise
payable by the Company under this Agreement, the Company shall nevertheless
pay the Director such amounts with the understanding, undertaking and
agreement hereby made and entered into by the Director and the Company that
the Director will repay to the Company such amounts to the extent they are
ultimately paid to the Director by such third party.
12. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns, including any direct or indirect successor
by purchase, merger, consolidation or otherwise to all or substantially all
of the business and/or assets of the Company, heirs and personal and legal
representatives; provided, however, that this Agreement is personal to the
Director and may not be transferred or encumbered by the Director in any way.
13. SEVERABILITY. The provisions of this Agreement shall be
severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or
-4-
<PAGE>
sentence) are held by a court of competent jurisdiction to be invalid, void
or otherwise unenforceable, and the remaining provisions shall remain
enforceable to the fullest extent permitted by law.
14. GOVERNING LAW; AMENDMENT.
(a) This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
(b) No amendment, modification, termination or cancellation of
this Agreement shall be effective unless in writing signed by both
parties hereto.
15. NOTICES. Any notice to the Company or the Director under this
Agreement shall be in writing and shall be delivered personally or sent by
overnight courier service or certified mail addressed as follows:
If to the Company: ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
Attn: Secretary
If to the Director:
-----------------------
-----------------------
-----------------------
-----------------------
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
THERMOVIEW INDUSTRIES, INC.
By:
--------------------------------
Title:
-----------------------------
Director
-----------------------------------
-5-
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of April 23, 1998, by and among THERMOVIEW INDUSTRIES, INC.
("Parent"), a Nevada corporation having its principal office located in
Louisville, Kentucky; THERMOVIEW MERGER CORP. ("Sub"), a California
corporation having its principal office located in Louisville, Kentucky;
American Home Developers Co., Inc. ("Company"), a California corporation
having its principal office located in Woodland Hills, California; and the
shareholders of Company identified on SCHEDULE 6.1 hereto (each a
"Shareholder" and collectively the "Shareholders").
PREAMBLE
The Boards of Directors of Company, Sub and Parent are of the opinion
that the transactions described herein are in the best interests of the
parties to this Agreement and their respective shareholders. This Agreement
provides for the acquisition of Company by Parent pursuant to the merger of
Company with and into Sub. At the effective time of the Merger, the
outstanding shares of the capital stock of Company shall be converted into
the right to receive shares of the common stock of Parent (except as provided
herein). As a result, shareholders of Company shall become shareholders of
Parent. Also at the Effective Time of the Merger, Company shall cease to
exist by operation of law and the business formerly conducted by Company
shall thereafter be conducted by and in the name of Sub. The transactions
described in this Agreement are subject to receipt of required regulatory
consents and approvals and the satisfaction of certain other conditions
described in this Agreement. It is the intention of the parties to this
Agreement that the Merger shall qualify as a "reorganization" within the
meaning of Section 368(a), including Section 368(a)(1)(A) and (a)(2)(D), of
the Internal Revenue Code of 1986, as amended (the "Code") for federal income
tax purposes.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants, and agreements set forth herein, the
parties agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 MERGER. Subject to the terms and conditions of this Agreement
and the provisions of the Agreement of Merger attached as EXHIBIT A, at the
Effective Time, Company shall be merged with and into Sub in accordance with
the applicable provisions of the California General Corporation Law ("CGCL")
and with the effect provided in the CGCL (the "Merger"). Sub shall be the
surviving corporation resulting from the Merger and shall be a wholly-owned
subsidiary of Parent and shall continue to be governed by
<PAGE>
the laws of the State of California. The Merger shall be consummated pursuant
to the terms of this Agreement and the Plan of Merger, which have been
approved and adopted by the respective Boards of Directors of Company, Sub
and Parent, by the Shareholders as the only shareholders of Company, and by
Parent, as the sole shareholder of Sub.
1.2 TIME AND PLACE OF CLOSING. The closing of the transactions
contemplated hereby (the "Closing") will take place at 9:00 A.M. on the date
hereof. The Closing shall be held at such location as may be mutually agreed
upon by the parties.
1.3 EFFECTIVE TIME. The Merger and other transactions contemplated
by this Agreement shall become effective at 11:59 p.m., P.D.T. (the
"Effective Time") on April 25, 1998 (the "Effective Date").
ARTICLE 2
TERMS OF MERGER
2.1 CHARTER.
The Articles of Incorporation of Sub in effect immediately
prior to the Effective Time shall be the Articles of Incorporation of the
surviving corporation resulting from the Merger until otherwise amended or
repealed.
2.2 BYLAWS.
The Bylaws of Sub in effect immediately prior to the Effective
Time shall be the Bylaws of the surviving corporation resulting from the
Merger until otherwise amended or repealed.
2.3 DIRECTORS AND OFFICERS.
The directors of Sub in office immediately prior to the
Effective Time, together with such additional persons as may thereafter be
elected, shall serve as the directors of the surviving corporation resulting
from the Merger from and after the Effective Time in accordance with the
Bylaws of such corporation. The officers of Sub in office immediately prior
to the Effective Time, together with such additional persons as may
thereafter be elected, shall serve as the officers of the surviving
corporation resulting from the Merger from and after the Effective Time in
accordance with the Bylaws of such corporation.
2.4 CERTAIN CLOSING DELIVERIES. In connection with the Closing,
each of Parent, Company and the Shareholders agrees to execute and deliver to
each other party the following:
(a) Company and Alan Griefer shall have executed and delivered
to the other an Employment Agreement, which shall be in the form of
EXHIBIT B.
<PAGE>
(b) Parent and each of the Shareholders shall have executed and
delivered to the other a Noncompetition Agreement, which shall be in the
form of EXHIBIT C.
(c) Parent and each of the Shareholders shall have executed and
delivered to the other a Registration Rights Agreement, which shall be in
the form of EXHIBIT D.
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 CONVERSION OF SHARES. Subject to the provisions of this
Article 3, at the Effective Time, by virtue of the Merger and without any
action on the part of Parent, Company, Sub or the shareholders of any of the
foregoing, the shares of the constituent corporations shall be converted as
follows:
(a) Each share of $.001 par value common stock of Parent
("Parent Common Stock"), and any other class or series of capital stock of
Parent (collectively, "Parent Capital Stock") issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
from and after the Effective Time.
(b) Each share of the no par value common stock of Sub ("Sub
Common Stock") issued and outstanding immediately prior to the Effective Time
shall remain issued and outstanding from and after the Effective Time.
(c) Each share of Company Common Stock, defined in Section
5.4 below, (excluding shares held by Company or Parent or any of its
subsidiaries) issued and outstanding immediately prior to the Effective Time
shall cease to be outstanding and shall be converted into and exchanged for
(i) 750 shares of Parent Common Stock (the "Stock Exchange Ratio"), and (ii)
$1,125 (the "Cash Exchange Ratio").
3.2 ANTI-DILUTION PROVISIONS. In the event Parent changes the
number of shares of Parent Common Stock issued and outstanding prior to the
Effective Time as a result of a stock split, stock dividend, or similar
recapitalization with respect to such stock and the record date therefor (in
the case of a stock dividend) or the effective date thereof (in the case of a
stock split or similar recapitalization for which a record date is not
established) shall be prior to the Effective Time, the Stock Exchange Ratio
shall be proportionately adjusted.
3.3 SHARES HELD BY COMPANY OR PARENT. Each of the shares of
Company Common Stock held by Company or Parent or any of its subsidiaries
shall be canceled and retired at the Effective Time and no consideration
shall be issued in exchange therefor.
<PAGE>
3.4 DISSENTING SHAREHOLDERS.
Each of the Shareholders agrees that he will not seek to assert
dissenters' rights to which such Shareholder otherwise would be entitled
under the applicable provisions of the CGCL.
3.5 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, each holder of shares of Company Common Stock exchanged pursuant
to the Merger who would otherwise have been entitled to receive a fraction of
a share of Parent Common Stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of Parent
Common Stock multiplied by the market value of one share of Parent Common
Stock at the Effective Time. The market value of one share of Parent Common
Stock at the Effective Time shall be the highest bid price of such common
stock as quoted by the National Association of Securities Dealers (as
reported by The Wall Street Journal or, if not reported thereby, any other
authoritative source selected by Parent) on the last trading day preceding
the Effective Time. No such holder will be entitled to dividends, voting
rights, or any other rights as a shareholder in respect of any fractional
shares.
3.6 POST-CLOSING EARN-OUT. The Shareholders shall be entitled to
receive post-closing earn-outs as set forth on SCHEDULE 3.6.
ARTICLE 4
EXCHANGE OF SHARES
4.1 EXCHANGE PROCEDURES. At the Closing (or as soon as reasonably
practicable thereafter), each holder of shares of Company Common Stock (other
than shares to be canceled pursuant to Section 3.3) issued and outstanding at
the Effective Time shall surrender the certificate or certificates
representing such shares to Parent and shall promptly upon surrender thereof
receive in exchange therefor the consideration provided in Section 3.1,
together with all undelivered dividends or distributions in respect of such
shares (without interest thereon) pursuant to Section 4.2. To the extent
required by Section 3.5, each holder of shares of Company Common Stock issued
and outstanding at the Effective Time also shall receive, upon surrender of
the certificate or certificates representing such shares, cash in lieu of any
fractional share of Parent Common Stock to which such holder may be otherwise
entitled (without interest). Parent shall not be obligated to deliver the
consideration to which any former holder of Company Common Stock is entitled
as a result of the Merger until such holder surrenders such holder's
certificate or certificates representing the shares of Company Common Stock
for exchange as provided in this Section 4.1. The certificate or
certificates of Company Common Stock so surrendered shall be duly endorsed as
Parent may reasonably require.
4.2 RIGHTS OF FORMER SHAREHOLDERS. At the Effective Time, the
stock transfer books of Company shall be closed as to holders of Company
Common Stock
<PAGE>
immediately prior to the Effective Time and no transfer of Company Common
Stock by any such holder shall thereafter be made or recognized. Until
surrendered for exchange in accordance with the provisions of Section 4.1,
each certificate theretofore representing shares of Company Common Stock
(other than shares to be canceled pursuant to Section 3.3) shall from and
after the Effective Time represent for all purposes only the right to receive
the consideration provided in Sections 3.1 and 3.5 in exchange therefor,
subject, however, to Company's obligation to pay any dividends or make any
other distributions with a record date prior to the Effective Time which have
been declared or made by Company in respect of such shares of Company Common
Stock in accordance with the terms of this Agreement and which remain unpaid
at the Effective Time. Whenever a dividend or other distribution is declared
by Parent on the Parent Common Stock, the record date for which is at or
after the Effective Time, the declaration shall include dividends or other
distributions on all shares of Parent Common Stock issuable pursuant to this
Agreement, but no dividend or other distribution payable to the holders of
record of Parent Common Stock as of any time subsequent to the Effective Time
shall be delivered to the holder of any certificate representing shares of
Company Common Stock issued and outstanding at the Effective Time until such
holder surrenders such certificate for exchange as provided in Section 4.1.
However, upon surrender of such Company Common Stock certificate, both the
Parent Common Stock certificate (together with all such undelivered dividends
or other distributions without interest) and any undelivered dividends and
cash payments payable hereunder (without interest) shall be delivered and
paid with respect to each share represented by such certificate.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby represents and warrants to Parent as follows:
5.1 ORGANIZATION AND QUALIFICATION. Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of California. The nature of the business of Company does not require
Company to be licensed or qualified in any other jurisdiction. Company has
made available to Parent complete and correct copies of the Articles of
Incorporation and By-laws of Company as currently in effect.
5.2 CORPORATE POWER AND AUTHORITY. Company has the corporate power
and authority to own and hold its properties and to carry on its business as
now conducted. Company (a) has the corporate power and authority to execute,
deliver and perform this Agreement and the Exhibits and to deliver the
Schedules hereto and the other documents and instruments contemplated hereby
(collectively this Agreement, the Exhibits and Schedules hereto, and the
other documents and instruments contemplated hereby shall constitute the
"Documents") and to consummate the transactions contemplated hereby and
thereby and (b) has taken all necessary corporate and shareholder action to
authorize and approve the execution, delivery and performance of this
Agreement and the other Documents and the consummation of the transactions
contemplated hereby and thereby.
<PAGE>
This Agreement has been duly and validly executed and delivered by Company
and the other Documents have been delivered by Company and constitute valid
and binding obligations of Company, enforceable against Company in accordance
with their terms.
5.3 FOREIGN PERSON. Company is not a foreign person as that term
is defined in Section 1445(f)(3) of the Code and applicable regulations.
5.4 CAPITALIZATION. Company has authorized capital consisting of
2,500 shares of common stock, without par value, of which 1,000 shares are
issued and outstanding and no shares are held as treasury stock (the "Company
Common Stock"). All of the outstanding shares of Company have been duly
authorized and validly issued and are fully paid and nonassessable. None of
the outstanding shares of Company has been issued in violation of any
preemptive right. There are no outstanding options, warrants, rights, calls,
commitments, conversion rights, rights of exchange, plans or other agreements
of any character providing for the purchase, issuance or sale of any shares
of capital stock of Company, other than as contemplated by this Agreement.
5.5 SUBSIDIARIES AND INVESTMENTS. Company has no subsidiaries and
does not own, directly or indirectly, any capital stock or other equity or
ownership or proprietary interest in any other corporation, partnership,
association, trust, joint venture or other entity.
5.6 BOOKS AND RECORDS. The minute books of Company, which have
been and will be made available to Parent and its representatives, contain
accurate records of all meetings of and corporate actions or written consents
by the shareholders and Board of Directors of Company set forth in such
minute books. Company does not have any of its records, systems, controls,
data or information recorded, stored, maintained, operated or otherwise
wholly or partly dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
which (including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of Company.
5.7 FINANCIAL STATEMENTS. Company has previously furnished to
Parent, and attached hereto as SCHEDULE 5.7 are, the compiled statements of
assets, liabilities, and equity - cash basis of Company as of June 30, 1997,
1996 and 1995 and the related statements of revenues and expenses - cash
basis for the years then ended, and the compiled statement of assets,
liabilities, and equity - cash basis (the "Balance Sheet") of Company as of
January 31, 1998 (the "Balance Sheet Date") and the related statement of
revenues and expenses - cash basis for the seven months then ended. All such
financial statements (the "Financial Statements") were prepared from the
books and records of Company. Such books and records are complete and correct
in all material respects, accurately reflect all cash transactions of the
business of Company, and have been made available to Parent for examination.
The Financial Statements present the financial position of Company as of the
dates thereof on the cash basis and the revenues and expenses for the periods
ended on the dates thereof on the cash basis. Since the Balance Sheet Date
and except as set forth on Schedule 5.7, (i) there has been no change in the
<PAGE>
assets, liabilities or financial condition of Company on the cash basis from
that reflected in the Balance Sheet except for changes in the ordinary course
of business and which have not been materially adverse, and (ii) none of the
business, prospects, financial condition, operations, property or affairs of
Company has been materially adversely affected by any occurrence or
development, individually or in the aggregate, whether or not insured
against. Company has disclosed to Parent all material facts relating to the
preparation of the Financial Statements.
5.8 EMPLOYMENT AND LABOR MATTERS.
(a) SCHEDULE 5.8 lists and designates all employees,
independent contractors and officers of Company on the date hereof, along
with the amount of the current annual salaries and total compensation paid or
due for services to each employee, independent contractor or officer for the
most recent fiscal year end and the year to date, and a full and complete
description of any commitments to such employees, independent contractors and
officers with respect to compensation payable thereafter. To the best
knowledge of Company, no key employee or independent contractor or group of
employees or independent contractors has any plans to terminate employment or
service with Company.
(b) Company is not a party to or bound by any collective
bargaining agreement with any labor organization, group or association
covering any of its employees, and Company has no knowledge of any attempt to
organize Company's employees by any Person, unit or group seeking to act as
their bargaining agent. There are no pending or threatened charges (by
employees, their representatives or governmental authorities) of unfair labor
practices or of employment discrimination or of any other wrongful action
with respect to any aspect of employment of any person employed or formerly
employed by Company. No union representation election relating to employees
of Company has been scheduled by any governmental agency or authority, no
organizational effort is being made with respect to any of such employees,
and there is no investigation of Company's employment policies or practices
by any governmental agency or authority pending or threatened. Company is
not currently, nor has it been, involved in labor negotiations with any unit
or group seeking to become the bargaining unit for any employees of Company.
Company has not experienced any material work stoppages, and to the best
knowledge of Company, no work stoppage is planned.
5.9 REAL PROPERTY. Company owns no real property.
5.10 POWERS OF ATTORNEY; ABSENCE OF LIMITATIONS ON COMPETITION;
GUARANTEES.
Except as set forth in SCHEDULE 5.10, (i) no power of attorney or
similar authorization given by Company presently is in effect or outstanding;
(ii) no contract or agreement to which Company is a party or is bound or to
which Company's properties or assets are subject limits the freedom of
Company to compete in any line of business or
<PAGE>
with any Person; and (iii) Company is not a party to or bound by any
guarantee of any debt or obligation of any other Person.
5.11 SIGNIFICANT SUPPLIERS. Set forth on SCHEDULE 5.11 is a true
and correct list of Company's ten largest suppliers for the most recent
twelve (12) month period ending December 31, 1997 and for the period
beginning January 1, 1998 and ending March 15, 1998, together with the amount
attributable to such suppliers expressed in dollars and as a percentage of
total supplies purchased. None of the suppliers identified on SCHEDULE 5.11
has terminated, materially reduced or threatened to terminate or materially
reduce its supplies to Company during the period covered by such schedule.
5.12 GOVERNMENTAL APPROVALS. Except as set forth on SCHEDULE 5.12,
no registration or filing with, or consent or approval of or other action by,
any Federal, state or other governmental agency or instrumentality is or will
be necessary for the valid execution, delivery and performance by Company of
this Agreement.
5.13 VALIDITY, ETC. Except as set forth on SCHEDULE 5.13, neither
the execution and delivery of this Agreement or the other Documents, the
consummation of the transactions contemplated hereby or thereby, nor the
performance of this Agreement or the other Documents in compliance with the
terms and conditions hereof and thereof by Company will (i) violate, conflict
with or result in any breach of any trust agreement, Articles of
Incorporation, bylaw, judgment, decree, order, statute or regulation
applicable to Company, (ii) violate, conflict with or result in a breach,
default or termination or give rise to any right of termination, cancellation
or acceleration of the maturity of any payment date of any of the obligations
of Company or increase or otherwise affect the obligations of Company under
any law, rule, regulation or any judgment, decree, order, governmental
permit, license or order or any of the terms, conditions or provisions of any
mortgage, indenture, note, license, agreement or other instrument or
obligation related to Company or to Company's ability to consummate the
transactions contemplated hereby or thereby, except for such defaults (or
rights of termination, cancellation or acceleration) as to which requisite
waivers or consents have been obtained in writing and provided to Parent, or
(iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Company.
5.14 ABSENCE OF ADVERSE CHANGE; CONDUCT OF BUSINESS.
During the period from the Balance Sheet Date to and including the
date of this Agreement, except as set forth on SCHEDULE 5.14, Company has not
(i) borrowed or agreed to borrow, other than in the ordinary course of
business, any material amount of funds or incurred any liability or
obligation of any nature (whether accrued, absolute, contingent or
otherwise), or guaranteed or agreed to guarantee any obligations of others,
(ii) canceled any indebtedness owing to it or any claims that it might have
possessed, waived any material rights of substantial value or sold, leased,
encumbered, transferred or otherwise disposed of, or agreed to sell, lease,
encumber, or otherwise dispose of its assets or permitted any of its assets
to be subjected to any mortgage, pledge, lien, security interest,
encumbrance, restriction or charge of any kind, (iii) made any capital
<PAGE>
expenditure or commitment therefor, (iv) declared or paid any dividend or
made any distribution on any shares of its capital stock, or redeemed,
purchased or otherwise acquired any shares of its capital stock or any
option, warrant or other right to purchase or acquire any such shares, (v)
increased its indebtedness for borrowed money, or made any loan to any
Person, (vi) written off as uncollectible any notes or accounts receivable,
except write-offs in the ordinary course of business, (vii) made any material
change in any method of accounting, (viii) otherwise conducted its business
or entered into any transaction, except in the usual and ordinary manner, or
(ix) agreed, whether or not in writing, to do any of the foregoing.
5.15 CERTAIN PRACTICES. None of Company, any of Company's directors
or officers, or to the best knowledge of Company, Company's employees has,
directly or indirectly, used any corporate funds for unlawful contributions,
gifts, entertainment, or other unlawful expenses relating to political
activity; made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; made any false or
fictitious entry on the books or records of Company or any subsidiary; made
any bribe, rebate, payoff, influence payment, kickback, or other unlawful
payment; given any favor or gift which is not deductible for federal income
tax purposes; or made any bribe, kickback, or other payment of a similar or
comparable nature, whether lawful or not, to any person or entity, private or
public, regardless of form, whether in money, business or to obtain special
concessions, or to pay for favorable treatment for business secured or for
special concessions already obtained.
5.16 COMPLIANCE WITH LAW; LICENSES AND PERMITS.
Except as set forth on SCHEDULE 5.16, Company has complied in all
material respects with all laws, ordinances, legal requirements, rules,
regulations and orders applicable to it, its operations, properties, assets,
products and services. Except as set forth on SCHEDULE 5.16, there is no
existing law, rule, regulation or order, and Company is not aware of any
proposed law, rule, regulation or order, whether federal, state or local,
which would prohibit or materially restrict Sub from, or otherwise materially
adversely affect Sub in, conducting the business of Company in the manner
heretofore conducted by Company in any jurisdiction in which such business is
now conducted. Company possesses all franchises, permits, licenses,
certificates and consents required from any governmental or regulatory
authority in order for Company to carry on its business as currently
conducted and to own and operate its properties and assets as now owned and
operated and all of such licenses and permits are set forth on SCHEDULE 5.16.
5.17 EMPLOYEE BENEFITS.
(a) Set forth on SCHEDULE 5.17 is a list of all pension, profit
sharing, retirement, deferred compensation, stock purchase, stock option,
incentive, bonus, vacation, severance, disability, hospitalization, medical
insurance, life insurance, fringe
<PAGE>
benefit, welfare and other employee benefit plans, programs or arrangements
pursuant to which Company or its ERISA Affiliates provides (directly or
indirectly, individually or jointly through others) benefits or compensation
to or on behalf of employees or independent contractors or former employees
or former independent contractors of Company or its ERISA Affiliates, whether
formal or informal, whether or not written ("Employee Plan"). On request by
Parent, Company shall furnish a copy of each Employee Plan and a copy of any
related materials. Company will maintain the benefits listed on SCHEDULE
5.17 in full force and effect through the Effective Date. Except as set
forth on SCHEDULE 5.17, Parent shall not have any obligation or liability of
any kind or nature for any compensation or benefits of any kind or nature to
the employees or consultants of Company for services rendered prior to the
Effective Date.
(b) Each Employee Plan covering any present or former
employee of Company which is subject to the continuation health coverage
requirements of Section 4980B of the Code or Section 601 of ERISA or any
applicable state law has complied with all such requirements for continuation
coverage.
(c) There are no actions, suits or claims pending (other
than routine claims for benefits) or threatened against or with respect to
any Employee Plan or the assets of any Employee Plan.
(d) Each Employee Plan (and the related trust or funding
vehicle, if any) has been administered and maintained in accordance with its
terms and with applicable law. Except as set forth on SCHEDULE 5.17(d), each
Employee Plan which is intended to be qualified under Section 401 of the Code
and each amendment to such plan is subject to a favorable determination
letter from the Internal Revenue Service ("IRS") and each such plan has at
all times been maintained, by its terms and in operation, in accordance with
Section 401 of the Code. The assets of each Employee Plan which is not
funded through the general assets of Company are at least equal to the
liabilities under such Employee Plan, and all assets of each Employee Plan
are shown on the books and records of such Employee Plan at fair market
value. No Employee Plan has unfunded liabilities that as of the Effective
Time are not accurately and fully reflected on Company's Balance Sheet.
(e) Neither Company nor any of its ERISA Affiliates is or
has been a participant in, or is or has been obligated to maintain or to make
contributions to, a multi-employer plan (within the meaning of ERISA Section
3(37) and ERISA Section 4001(a)(3)) or an Employee Plan which is subject to
Title IV of ERISA. Neither Company nor any ERISA Affiliate has sponsored,
contributed to or been obligated under Title I or IV of ERISA to contribute
to a "defined benefit plan" (as defined in ERISA Section 3(35)). Company is
not obligated to provide post-retirement medical benefits or any other
unfunded post-retirement welfare benefits to or on behalf of any persons
whatsoever (except the benefits pursuant to the continuation health coverage
requirements under Section 4980B of the Code, ERISA Section 601, or
applicable state law).
<PAGE>
(f) Neither Company nor its ERISA Affiliates is subject to
and, to the best knowledge of Company, no facts exist which could subject
Company or any of its ERISA Affiliates to, any liability whatsoever which is
directly or indirectly related to any Employee Plan, including, but not
limited to, liability for benefit payments or related claims, any liability
for any tax or related penalty under the Code, or liability for any damages
or penalties arising under Title I or Title IV of ERISA. No reportable event
under Section 4043 of ERISA has occurred or, to the best knowledge of
Company, will occur with respect to such Employee Plan.
(g) Termination of or withdrawal from any Employee Plan
immediately after the Effective Time would not subject Parent to any
liability, tax or penalty whatsoever.
(h) The execution or performance of the transactions
contemplated by this Agreement will not create, accelerate or increase any
obligations under the Employee Plans, including any obligation to make any
payment which would not be deductible as an excess golden parachute payment
under Section 280G of the Code.
(i) All contributions to or under each Employee Plan and all
expenses of each Employee Plan are fully deductible for income tax purposes
for the taxable year for which such contributions are made or such expenses
are paid. All contributions to or under each Employee Plan have been made
when due under the terms of such Employee Plan in accordance with applicable
law.
(j) For purposes of this Section 5.17, the term "ERISA"
shall mean the Employee Retirement Income Security Act of 1974, as amended,
and the term "ERISA Affiliate" shall mean each trade or business (whether or
not incorporated) which together with Company is treated as a single employer
under Section 414(b), (c), (m), (o) or (t) of the Code.
5.18 FIXED ASSETS. SCHEDULE 5.18 contains a true and complete
depreciation list of Company's fixed assets, whether owned or leased. Except
as shown on SCHEDULE 5.18, Company has good and marketable title to all of
its fixed assets, free and clear of all claims, liens, mortgages, charges and
encumbrances except as disclosed in the Balance Sheet. All of Company's
fixed assets, whether owned or leased, are adequate and usable for the
purposes for which they are currently used, are in good operating condition
and repair and have been properly maintained.
5.19 INSURANCE. Company is, and will be through the Closing,
insured with insurers in respect of its properties, assets and businesses as
set forth on the attached SCHEDULE 5.19. SCHEDULE 5.19 lists the insurance
coverage carried by Company, which insurance will remain in full force and
effect with respect to all events occurring prior to the Effective Date.
Except as set forth on SCHEDULE 5.19, Company (i) has not failed to give any
notice or present any claim under any such policy or binder in due and timely
fashion, (ii) has not received notice of cancellation or non-renewal of any
such policy or binder, (iii) is not aware of any threatened or proposed
cancellation or non-renewal of
<PAGE>
any such policy or binder, (iv) has not received notice of any insurance
premium which will be materially increased in the future, and (v) is not
aware of any insurance premium which will be materially increased in the
future. There are no outstanding claims under any such policy which have
gone unpaid for more than 45 days, or as to which the insurer has disclaimed
liability.
5.20 ACCOUNTS RECEIVABLE; SHAREHOLDER NOTES. The accounts
receivable and other debts due or recorded in the respective records and
books of account of Company as being due to Company as of the Effective Date,
set forth on SCHEDULE 5.20, arose in the ordinary course of business of
Company, are not subject to any counterclaim or set-off and are fully
collectible within 120 days after the Effective Date without resort to
litigation and without offset or counterclaim. As of the Closing Date, all
notes payable to Shareholders by Company have been paid in full.
5.21 OUTSTANDING CONTRACTS. SCHEDULE 5.21 sets forth a description
of all existing contracts, agreements, leases, commitments, licenses and
franchises, which involve obligations or commitments by Company of $10,000 or
more and are not cancelable by Company without penalty within 30 days
(collectively "Contracts"), whether written or oral, relating to Company.
Company has delivered or made available to Parent true, correct and complete
copies of all of the Contracts specified on SCHEDULE 5.21 which are in
writing, and such schedule sets forth a complete description of all Contracts
which are not in writing. All of the Contracts are in full force and effect
and enforceable in accordance with their terms, except to the extent that the
enforceability thereof may be subject to or affected by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, or
other laws relating to or affecting the rights of creditors generally.
Except as set forth on SCHEDULE 5.21, Company and, to the best knowledge of
Company, each other party thereto has materially performed all the
obligations required to be performed by it, has received no notice of default
and is not in default (with due notice or lapse of time or both) under any of
the Contracts. Company has no present expectation or intention of not fully
performing all its obligations under each of the Contracts, and Company has
no knowledge of any breach or anticipated breach by the other party to any of
the Contracts to which Company is a party. Except as set forth on SCHEDULE
5.21, none of the Contracts has been terminated; no notice has been given by
any party thereto of any alleged default by any party thereunder; and Company
is not aware of any intention or right of any party to declare another party
to any of the Contracts to be in default. Except as set forth on SCHEDULE
5.21, there exists no actual or, to the best knowledge of Company, threatened
termination, cancellation or limitation of the business relationship of
Company by any party to any of the Contracts.
5.22 OUTSTANDING LEASES. SCHEDULE 5.22 sets forth a description of
each agreement by which Company leases each parcel of real property (the
"Leased Parcels") used in connection with the business (collectively, the
"Leases"). Company has delivered or made available to Parent true, correct
and complete copies of all of the Leases specified on SCHEDULE 5.22. All
rents due under the Leases have been paid. All of the Leases are in full
force and effect and enforceable in accordance with their terms, except to
the extent that the enforceability thereof may be subject to or affected by
applicable
<PAGE>
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, or
other laws relating to or affecting the rights of creditors generally.
Except as set forth on SCHEDULE 5.22, Company and, to the best knowledge of
Company, each other party thereto has performed all the obligations required
to be performed by it, has received no notice of default and, to the best
knowledge of Company, is not in default (with due notice or lapse of time or
both) under any of the Leases. Company has no present expectation or
intention of not fully performing all its obligations under each of the
Leases, and Company has no knowledge of any breach or anticipated breach by
the other party to any of the Leases. Except as set forth on SCHEDULE 5.22,
none of the Leases has been terminated; no notice has been given by any party
thereto of any alleged default by any party thereunder; and Company is not
aware of any intention or right of any party to declare another party to any
of the Leases to be in default. There exists no actual or, to the best
knowledge of Company, threatened termination, cancellation or limitation of
the business relationship of Company with any party to any of the Leases.
5.23 INTELLECTUAL PROPERTIES. SCHEDULE 5.23 contains an accurate
and complete list of all domestic and foreign letters patent, patents, patent
applications, patent licenses, software licenses and know-how licenses, trade
names, trademarks, copyrights, unpatented inventions, service marks,
trademark registrations and applications, service mark registrations and
applications and copyright registrations and applications, trade secrets or
other confidential proprietary information owned or used by Company in the
operation of the business (collectively the "Intellectual Property"). Except
as set forth on SCHEDULE 5.23 and except for commercial software licensed for
use on personal computers, Company owns the entire right, title and interest
in and to the Intellectual Property, trade secrets and technology used in the
operation of its business and each item constituting part of the Intellectual
Property and trade secrets and technology which is owned by Company has been,
to the extent indicated in SCHEDULE 5.23, duly registered with, filed in or
issued by, as the case may be, the United States Patent and Trademark office
or such other government entities, domestic or foreign, as are indicated in
SCHEDULE 5.23 and such registrations, filings and issuances remain in full
force and effect. There have been and are no pending or, to the best
knowledge of Company, threatened proceedings or litigation or other adverse
claims affecting or with respect to the Intellectual Property. There is, to
the best knowledge of Company, no reasonable basis upon which a claim may be
asserted against Company for infringement of any domestic or foreign letters
patent, patents, patent applications, patent licenses and know-how licenses,
trade names, trademark registrations and applications, common law trademarks,
service marks, service mark registrations or applications, copyrights,
copyright registrations or applications, trade secrets or other confidential
proprietary information. To the best knowledge of Company, no Person is
infringing the Intellectual Property.
5.24 PROPRIETARY INFORMATION OF THIRD PARTIES.
Except as disclosed on SCHEDULE 5.24, no third party has claimed or,
to the best knowledge of Company, has reason to claim that any Person
employed by or consulting with Company ("Related Person") has (i) violated or
may be violating any of the terms or conditions of such person's employment,
non-competition or non-disclosure agreement
<PAGE>
with such third party, (ii) disclosed or may be disclosing or utilized or may
be utilizing any trade secret or proprietary information or documentation of
such third party, or (iii) interfered or may be interfering in the employment
relationship between such third party and any of its present or former
employees. No third party has requested information from Company which
suggests that such a claim might be contemplated. Except as disclosed on
SCHEDULE 5.24, to the best knowledge of Company, no Related Person has
employed or proposes to employ any trade secret or any information or
documentation proprietary to any former employer and no Related Person has
violated any confidential relationship which such person may have had with
any third party, in connection with the development or sale of any service of
Company, and Company has no reason to believe there will be any such
employment or violation.
5.25 TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE
5.25, to the best knowledge of Company, no director, officer or shareholder
of Company, or member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or any member of
the family of any such person, has a beneficial interest greater than 5% or
is an officer, director, trustee, partner or holder of any equity interest
greater than 5% (an "Affiliate"), is a party to any transaction with Company,
including any contract, agreement or other arrangement providing for the
employment of, furnishing of services by, rental of real or personal property
from or otherwise requiring payments or involving other obligations to any
such person or firm.
5.26 ABSENCE OF UNDISCLOSED LIABILITIES.
(a) Except as and to the extent of the amounts specifically
reflected or reserved against in the Balance Sheet, or except as set forth on
SCHEDULE 5.26, Company has no liabilities or obligations of any nature
whatsoever due or to become due, accrued, absolute, contingent or otherwise,
except for liabilities and obligations incurred since the date thereof in the
ordinary course of business and consistent with past practice. Company does
not know of, and has no reason to know of, any basis for the assertion
against Company of any liability or obligation not fully reflected or
reserved against in the Balance Sheet or set forth on SCHEDULE 5.26.
(b) Company is not bound by any agreement, or subject to
any charter or other corporate restriction or any legal requirement, which
has, or, to the best knowledge of Company, in the future can reasonably be
expected to have, a material adverse effect on the business or prospects of
Company.
5.27 TAXES. SCHEDULE 5.27 lists all the states and localities with
respect to which Company is required to file any corporate, income and/or
franchise tax returns. Except as set forth on SCHEDULE 5.27, all federal,
state, local and foreign tax returns and tax reports required to be filed by
Company on or before the date hereof have been timely filed with the
appropriate governmental agencies in all jurisdictions in which such returns
and reports are required to be filed and all amounts shown as owing thereon
have been paid. All taxes (including, without limitation, income,
accumulated earnings, property, sales, use, franchise, excise, license, value
added, fuel, employees' income withholding
<PAGE>
and social security taxes) which have become due or payable or are required
to be collected by Company or are otherwise attributable to any periods
ending on or before the Effective Date and all interest and penalties
thereon, whether disputed or not, have been paid or will be paid in full or
adequately reflected on SCHEDULE 5.27. Except as set forth on SCHEDULE 5.27,
all deposits required by law to be made by Company with respect to employees'
withholding taxes have been duly made, and as of the Effective Time all such
deposits due will have been made. Company has delivered to Parent true and
complete copies of all of Company's federal and state income tax returns for
the fiscal periods ended June 30, 1997, 1996 and 1995 and all reports and
results of income tax audits, if any, related thereto. Except as set forth
on SCHEDULE 5.27, no examination of any tax return of Company is currently in
progress. There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any such tax return.
5.28 LITIGATION. Except as set forth on SCHEDULE 5.28, there is no
(i) action, suit, claim, proceeding or investigation pending or, to the best
knowledge of Company, threatened against or affecting Company (whether or not
such Company is a party or prospective party thereto), at law or in equity,
or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) arbitration proceeding pending relating to Company or (iii)
governmental inquiry pending or threatened against or involving Company, and
there is no basis for any of the foregoing. Company has not received any
opinion or memorandum or legal advice from legal counsel to the effect that
it is exposed, from a legal standpoint, to any liability or disadvantage
which may be material to the business, prospects, financial condition,
operations, property or affairs of Company. There are no outstanding orders,
writs, judgments, injunctions or decrees served upon Company by any court,
governmental agency or arbitration tribunal against Company. There are no
facts or circumstances which may result in institution of any action, suit,
claim or legal, administrative or arbitration proceeding or investigation
against, involving or affecting Company or the transactions contemplated
hereby. Company is not in default with respect to any order, writ,
injunction or decree known to or served upon it from any court or of any
federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign. Except as
disclosed on SCHEDULE 5.28, there is no action or suit by Company pending or
threatened against others.
5.29 ENVIRONMENTAL MATTERS.
(a) COMPLIANCE. Company and all Leased Parcels are in
compliance with all applicable laws, rules, regulations, orders, ordinances,
judgments and decrees of all governmental authorities with respect to all
environmental statutes, rules and regulations. Except as set forth on
SCHEDULE 5.29, Company has not received notice of, nor does Company have
knowledge of, any past, present or future events, conditions, circumstances,
activities, practices, incidents, actions or plans of Company or Company's
predecessors, either collectively, individually or severally, which may
interfere with or prevent continued compliance with, or which may give rise
to any common law or legal liability or otherwise form the basis of any
claim, action, suit, proceeding, hearing, or
<PAGE>
investigation, based on or related to the disposal, storage, handling,
manufacture, processing, distribution, use, treatment or transport, or the
emission, discharge, release or threatened release into the environment, of
any Substance. As used in this Section 5.29, the term "Substance" or
"Substances" shall mean any pollutant, contaminant, hazardous substance,
hazardous material, hazardous waste or toxic waste, as defined in any
presently enacted federal, state or local statute or any regulation that has
been promulgated pursuant thereto. No part of any of the Leased Parcels has
been listed or proposed for listing on the National Priorities List
established by the United States Environmental Protection Agency, or any
corresponding list by any state or local authorities.
(b) ENVIRONMENTAL SUBSTANCE LIABILITY. No event has
occurred or condition exists or operating practice is being employed that
could give rise to liability on the part of Company, either at the present
time or in the future, for any losses, liabilities, damages (whether
consequential or otherwise), settlements, penalties, interest, expenses and
costs of responses, including any such liability on account of the right of
any governmental or private entity or person, and including closure expenses,
costs of assessment, containment, removal, or response (other than monitoring
or transportation or disposal of materials required to be transported or
disposed of in the ordinary course of business consistent with past practice)
arising under any rule or federal, state, or local statute, or any regulation
that has been promulgated pursuant thereto, or common law, as a result of or
in connection with, or alleged to be as a result of or in connection with,
the following (collectively the "Hazardous Activities"):
i) the handling, storage, use, transportation or
disposal of any Substances in or near or from the
Leased Parcels;
ii) the handling, storage, use, transportation or
disposal of any Substances by Company or its
predecessors which Substances were a product,
by-product or otherwise resulted from the operations
conducted by or on behalf of Company or its
predecessors;
iii) any intentional or unintentional emission, discharge
or release of any Substances in or near or from
facilities into or upon the air, surface water,
ground water or land or any disposal, handling,
manufacturing, processing, distribution, use,
treatment, or transport of such Substances in or
near or from facilities by or on behalf of Company
or its predecessors; or
iv) the presence of any toxic or hazardous building
materials (including but not limited to friable
asbestos or similar substances) in any facilities of
Company, including but not limited to the inclusion
of such materials in the exterior and
<PAGE>
interior walls, floors, ceilings, tile, insulation
or any other portion of building structures.
(c) ENVIRONMENTAL PERMITS. Company has obtained and holds
all registrations, permits, licenses, and approvals issued by or on behalf of
any federal, state or local governmental body or agency if any
("Environmental Permits") that are required in connection with the operation
by Company of the Leased Parcels, the discharge or emission of Substances by
Company from the Leased Parcels or the generation, treatment, storage,
transportation, or disposal of any such Substances by Company. Such
Environmental Permits, which are described on SCHEDULE 5.29, are currently
effective and sufficient for the operation of the Leased Parcels and the
business of Company as currently conducted and intended to be conducted.
Company is in compliance with all terms and conditions of the Environmental
Permits, and is also in compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules,
and timetables contained in those laws or provisions or contained in any
regulation, code, plan, order, decree, judgment, notice or demand letter
issued, entered, promulgated or approved thereunder and applicable to Company.
(d) DELIVERIES. Company has delivered to Parent true and
complete copies and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by Company pertaining to Substances or
Hazardous Activities in, on, or under the Leased Parcels or concerning
compliance by Company or any other Person for whose conduct they are or may
be held responsible, with environmental statutes, rules and regulations.
5.30 INVENTORY. Company has no inventory (whether raw materials,
work-in-process, or finished goods) other than those purchased or incurred
for jobs in process.
5.31 YEAR-2000 COMPLIANCE.
(a) SCHEDULE 5.31 contains a true and complete list of all Systems (as
hereinafter defined), and each System is Year-2000 Compliant (as hereinafter
defined) to the extent indicated on SCHEDULE 5.31.
(b) As used throughout this Agreement, the following definitions
shall have the following meanings:
(1) "External Systems" shall mean all services which are
provided to Company by third parties and which are
dependent on information technology, including, but not
limited to, any external payroll, accounting, or tax filing
services or any checking, savings, or other financial
services.
(2) "Internal Systems" shall mean all technology products and
systems generally operated or controlled in-house by
Company, or its employees, agents, or independent
contractors including, but not
<PAGE>
limited to, computers, computer networks, telephone
systems, voicemail systems, intercom systems, pager
systems, and software applications.
(3) "Licensed Systems" shall mean all products and systems
developed by or for Company which are licensed, sold,
distributed, or otherwise transferred by Company to third
parties.
(4) "System" or "Systems" shall mean any, all, or any
combination of any Internal System, External System, or
Licensed System.
(5) "Year-2000 Compliant" shall mean, with respect to each
System, that such System is designed to be used before,
during, and after the calendar year 2000 A.D. and will
accurately accept date input and process, store, and output
date data and date-related data, including, without
limitation, calculating, comparing, sorting, and sequencing
such data and calculating leap years before, during, and
after the calendar year 2000 A.D. without any manual
intervention.
5.32 DISCLOSURE. All Documents delivered or to be delivered by or
on behalf of Company in connection with this Agreement and the transactions
contemplated hereby are true, complete and correct. Neither this Agreement,
nor any of the other Documents contains any untrue statement of a material
fact or omits a material fact necessary to make the statements made by
Company herein or therein, in light of the circumstances in which made, not
misleading. There is no fact known to Company which materially and adversely
affects the business, prospects or financial condition of Company or its
properties or assets, which has not been set forth in the Documents.
5.33 TAX AND REGULATORY MATTERS. Neither Company nor any Affiliate
thereof has any knowledge of any fact or circumstance that is reasonably
likely to (i) prevent the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code, or (ii) materially impede or delay
receipt of any consents of any federal, state, county, local or other
governmental or regulatory agencies having jurisdiction over the parties or
result in the imposition of a condition or restriction of the type referred
to in the last sentence of Section 9.1(a).
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each of the Shareholders represents and warrants to Parent as follows:
6.1 OWNERSHIP OF SHARES. Each Shareholder individually represents and
warrants as to herself, himself or itself (a) that such Shareholder owns the
shares of Company Common Stock listed opposite such Shareholder's name on
SCHEDULE 6.1
<PAGE>
hereto, free and clear of all pledges, security interests, liens, charges,
encumbrances, equities, claims, options or limitations of every kind
("Claims"), and (b) that the delivery to Parent of the Common Stock pursuant
to the provisions of this Agreement will transfer to Parent valid title
thereto, free and clear of all Claims.
6.2 AUTHORITY AND APPROVAL; NO BREACH BY AGREEMENT. Each
Shareholder individually represents and warrants as to herself, himself or
itself (a) that such Shareholder has full legal power, capacity and authority
to execute, deliver and perform this Agreement and the other Documents and to
consummate the transactions contemplated hereby and thereby. This Agreement
and the other Documents have been duly and validly executed and delivered by
such Shareholder and constitute valid and binding obligations of such
Shareholder, enforceable against such Shareholder in accordance with their
terms. To the best knowledge of the Shareholders, no notice to, filing with,
or consent of, any public body or authority or other Person is necessary for
the consummation by such Shareholder of the transactions contemplated in this
Agreement. Execution of this Agreement by such Shareholder shall constitute
such Shareholder's written consent to approval of this Agreement and Plan of
Merger in such Shareholder's capacity as a holder of shares of Company Common
Stock, and such Shareholder hereby waives receipt of any further notice of
the Merger, including notice of the availability of dissenters' rights.
6.3 PURCHASE FOR INVESTMENT; RESTRICTED SECURITIES. Each
Shareholder individually represents and warrants as to himself (a) that such
Shareholder is acquiring shares of Parent Common Stock for investment and not
with a present view toward, or for sale in connection with, any distribution
thereof, nor with any present intention of distributing or selling the shares
of Parent Common Stock so acquired; (b) that such Shareholder has no present
plan or intention to sell, exchange or otherwise dispose of any of the shares
of Parent Common Stock received in the Merger; and (c) such Shareholder
acknowledges that (i) the shares of Parent Common Stock are not and will not
be registered under the Securities Act of 1933, as amended (the "1933 Act"),
and (ii) that Parent does not file periodic reports with the Securities and
Exchange Commission ("Commission") pursuant to the requirements of Section 12
or 15(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act").
6.4 BROKER'S OR FINDER'S FEES. Except as set forth on SCHEDULE
6.4, no agent, broker, person or firm acting on behalf of the Shareholders or
Company is, or will be, entitled to any commission or broker's or finder's
fees from the Shareholders or Company, or from any person controlling,
controlled by or under common control with the Shareholders or Company, in
connection with any of the transactions contemplated herein.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF PARENT
<PAGE>
Parent hereby represents and warrants to Company and the Shareholders
as follows:
7.1 ORGANIZATION. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada, duly
qualified to transact business as a foreign corporation in each jurisdiction
in which the failure to so qualify would have a material adverse impact on
Parent's ability to perform its obligations under this Agreement.
7.2 CORPORATE POWER AND AUTHORITY. Parent has the corporate power
and authority to execute, deliver and perform this Agreement and the other
Documents. The execution, delivery and performance of the Documents
contemplated hereby and the consummation of the transactions contemplated
hereby and thereby have been duly authorized and approved by all necessary
corporate action of Parent. The Documents to be executed and delivered by
Parent have been duly executed and delivered by, and constitute the legal,
valid and binding obligations of Parent enforceable against Parent in
accordance with their terms.
7.3 VALIDITY, ETC. Neither the execution and delivery by Parent of
this Agreement and the other Documents, the consummation by Parent of the
transactions contemplated hereby or thereby, nor the performance by Parent of
this Agreement and such other agreements in compliance with the terms and
conditions hereof and thereof will (i) violate, conflict with or result in
any breach of any trust agreement, articles of incorporation, bylaw,
judgment, decree, order, statute or regulation applicable to Parent, (ii)
violate, conflict with or result in a breach of or default (or give rise to
any right of termination, cancellation or acceleration) under any law, rule
or regulation or any judgment, decree, order, governmental permit, license or
order or any of the terms, conditions or provisions of any mortgage,
indenture, note, license, agreement or other instrument to which Parent is a
party, or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Parent.
7.4 DISCLOSURE. All Documents delivered or to be delivered by or
on behalf of Parent in connection with this Agreement and the transactions
contemplated hereby are true, complete and correct. Neither this Agreement,
nor any of the other Documents contains any untrue statement of a material
fact or omits a material fact necessary to make the statements made by Parent
herein or therein, in light of the circumstances in which made, not
misleading. There is no fact known to Parent which may have a material
adverse effect on Parent's ability to pay its obligations under this
Agreement, which has not been set forth in the Documents.
7.5 CAPITAL STOCK. The authorized capital stock of Parent consists
of 50,000,000 shares of Parent Common Stock, of which 10,400,000 shares were
issued and outstanding as of April 15, 1998. All of the issued and
outstanding shares of Parent Capital Stock are, and all of the shares of
Parent Common Stock to be issued in exchange for shares of Company Common
Stock upon consummation of the Merger, when issued in accordance with the
terms of this Agreement, will be, duly and validly issued and
<PAGE>
outstanding and fully paid and nonassessable. None of the outstanding shares
of Parent Capital Stock has been, and none of the shares of Parent Common
Stock to be issued in exchange for shares of Company Common Stock upon
consummation of the Merger will be, issued in violation of any preemptive
rights of the current or past shareholders of Parent.
7.6 AUTHORITY OF SUB. Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of California as a
wholly owned subsidiary of Parent. The authorized capital stock of Sub
consists of 1,000 shares of Sub Common Stock, all of which is validly issued
and outstanding, fully paid and nonassessable and is owned by Parent free and
clear of any Claims. Sub (a) has the corporate power and authority to
execute, deliver and perform this Agreement and the other Documents and to
consummate the transactions contemplated hereby and thereby and (b) has taken
all necessary corporate and shareholder action to authorize and approve the
execution, delivery and performance of this Agreement and the other Documents
and the consummation of the transactions contemplated hereby and thereby.
This Agreement and the other Documents have been duly and validly executed
and delivered by Sub and constitute valid and binding obligations of Sub,
enforceable against Sub in accordance with their terms.
7.7 DISCLOSURE STATEMENT. Parent's Disclosure Statement, dated
April 17, 1998 and as supplemented on April 21, 1998, which has been
previously delivered to the Shareholders is true, complete and correct in all
material respects.
7.8 TAX AND REGULATORY MATTERS. Neither Parent nor any Affiliate
thereof has any knowledge of any fact or circumstance that is reasonably
likely to (i) prevent the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code, or (ii) materially impede or delay
receipt of any consents of any federal, state, county, local or other
governmental or regulatory agencies having jurisdiction over the parties or
result in the imposition of a condition or restriction of the type referred
to in the last sentence of Section 9.1(a).
7.9 BROKER'S OR FINDER'S FEES. Except as set forth on SCHEDULE
7.9, no agent, broker, person or firm acting on behalf of Parent is, or will
be, entitled to any commission or broker's or finder's fees from Parent, or
from any person controlling, controlled by or under common control with
Parent, in connection with any of the transactions contemplated herein.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 FILINGS WITH STATE OFFICES. Upon the terms and subject to the
conditions of this Agreement, Company shall and Parent shall cause Sub to
execute and file the Agreement of Merger with the California Secretary of
State in connection with the Closing.
<PAGE>
8.2 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms
and conditions of this Agreement, each party hereto agrees to use its
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things reasonably necessary, proper, or advisable under
applicable laws to consummate and make effective, as soon as reasonably
practicable after the date of this Agreement, the transactions contemplated
by this Agreement, including using its reasonable efforts to lift or rescind
any order adversely affecting its ability to consummate the transactions
contemplated herein and to cause to be satisfied the conditions referred to
in Article 9; provided, that nothing herein shall preclude either party
hereto from exercising its rights under this Agreement. Each party hereto
shall use its reasonable efforts to obtain all consents necessary or
desirable for the consummation of the transactions contemplated by this
Agreement.
8.3 INVESTIGATION AND CONFIDENTIALITY.
(a) Prior to the Effective Time, each party hereto shall
keep the other party advised of all material developments relevant to its
business and to consummation of the Merger and shall permit the other party
to make or cause to be made such investigation of the business and properties
of it and of its financial and legal conditions as the other party reasonably
requests, provided that such investigation shall be reasonably related to the
transactions contemplated hereby and shall not interfere unnecessarily with
normal operations. No investigation by a party shall affect the
representations and warranties of the other party.
(b) Each party hereto shall, and shall cause its advisers
and agents to, maintain the confidentiality of all confidential information
furnished to it by the other party concerning its and its subsidiaries'
businesses, operations, and financial positions and shall not use such
information for any purpose except in furtherance of the transactions
contemplated by this Agreement. For purposes hereof, the term "confidential
information" does not include any information which at the time of disclosure
to the receiving party was or thereafter became publicly available or a
matter of public knowledge, without a breach of this Agreement by the
receiving party, or was disclosed by the receiving party pursuant to a
requirement of law, or in response to a court order, subpoena or governmental
authority.
8.4 PRESS RELEASES. Prior to the Effective Time, Company and
Parent shall consult with each other as to the form and substance of any
press release or other public disclosure materially related to this Agreement
or any other transaction contemplated hereby; provided, that nothing in this
Section 8.4 shall be deemed to prohibit any party from making any disclosure
which its counsel deems necessary or advisable in order to satisfy such
party's disclosure obligations imposed by law.
8.5 NO SOLICITATION. Except with respect to this Agreement and the
transactions contemplated hereby, neither Company, nor any Shareholder, shall
solicit or enter into discussions with any third party, until the Effective
Date, (a) to purchase any
<PAGE>
shares of capital stock of Company or an option or warrant to purchase shares
of such capital stock or any securities convertible into such capital stock,
(b) to make an offer of any kind for any shares of such capital stock, (c)
purchase all or a substantial portion of the assets of Company or (d) to
merge, consolidate, engage in a share exchange or otherwise combine with
Company.
8.6 SHAREHOLDER RELEASES. Each Shareholder hereby releases and
forever discharges Company and its officers, directors, employees and
insurers, and their respective successors and assigns, and each of them
(hereinafter individually and collectively, the "Releasees") of and from any
and all claims, demands, debts, accounts, covenants, agreements, obligations,
costs, expenses, actions or causes of action of every nature, character or
description, now accrued or which may hereafter accrue, without limitation of
law, equity or otherwise, based in whole or in part on any facts, conduct,
activities, transactions, events or occurrences known or unknown, which have
or allegedly have existed, occurred, happened, arisen or transpired from the
beginning of time to the Effective Time; excluding, however, (i) claims
arising under this Agreement and the transactions contemplated hereby, and
(ii) compensation and other employee benefits accrued but not yet payable as
reflected on the books and records of Company (the "Released Claims"). Each
Shareholder represents and warrants that no Released Claim released herein
has been assigned, expressly, impliedly, or by operation of law, and that all
Released Claims of such Shareholder released herein are owned by such
Shareholder, who has the sole authority to release them. Each Shareholder
agrees that such holder shall forever refrain and forebear from commencing,
instituting or prosecuting any lawsuit action or proceeding, judicial,
administrative, or otherwise, or otherwise attempting to collect or enforce
any Released Claims which are released and discharged herein.
8.7 ACCOUNTING AND TAX TREATMENT. Each party undertakes and agrees
to use its reasonable efforts to cause the Merger to qualify for treatment as
a "reorganization" within the meaning of Section 368(a), including Section
368(a)(1)(A) and (a)(2)(D), of the Code for federal income tax purposes, and
each party covenants and agrees that each representation made by such party
in the certificates executed by or on behalf of such party and attached to
the tax opinion of Stites & Harbison referred to in Section 9.1(c) is true
and correct. Notwithstanding the foregoing, no party shall have any liability
to any other party in the event the Merger ultimately is determined not to
qualify as a "reorganization" within the meaning of Section 368(a) of the
Code as a result of a breach of any covenant or representation in such
certificates by the Shareholders.
8.8 CHARTER PROVISIONS. Company shall take all necessary action to
ensure that the entering into of this Agreement and the consummation of the
Merger and the other transactions contemplated hereby do not and will not
result in the grant of any rights to any Person under the Articles of
Incorporation, Bylaws or other governing instruments of Company or restrict
or impair the ability of Parent or any of its subsidiaries to vote, or
otherwise to exercise the rights of a shareholder with respect to, shares of
Company that may be directly or indirectly acquired or controlled by them.
<PAGE>
8.9 CERTAIN TAX RETURNS OF COMPANY. The Shareholders shall cause
to be prepared and filed all income tax returns and the payment of all income
taxes, calculated on a cash basis, of Company for the tax year ending on the
Effective Date . Parent and Company (and not the Shareholders) shall be
responsible for the preparation and filing of all income tax returns and the
payment of all income taxes of Company for its tax year beginning on the day
after the Effective Date and all subsequent periods.
8.10 LANDLORD CONSENTS. The Shareholders shall, on or before the
expiration of thirty (30) days after the Effective Date, use their best
efforts to cause the Company to obtain from its landlords (to the extent
required under the pertinent premises lease) written consent to the
assignment of said leases to the Buyer which assignment is deemed to have
resulted from the transactions contemplated by this Agreement.
8.11 SECURITIES ACT COMPLIANCE.
(a) As long as Parent is not subject to the reporting requirements
of the Exchange Act, Parent will comply with the "Current Public Information"
provisions of Rule 144(c)(2) and such other provisions as may be reasonably
necessary and appropriate to permit Shareholders to sell Parent Common Stock
under Rule 144 and other applicable rules and regulations promulgated by the
Commission.
(b) Parent covenants that, if it becomes subject to the periodic
reporting requirements of Section 13 or 15(d) of the Exchange Act, it will
file on a timely basis the reports required to be filed by Parent under the
1933 Act and the Exchange Act, and the rules and regulations adopted by the
Commission thereunder; and it will take such further action as any
Shareholder or any Shareholder's successors or assigns (each a "Holder") may
reasonably request, all to the extent required from time to time to enable
such Holder to sell the Parent Common Stock without registration under the
1933 Act within the limitation of the exemptions provided by (i) Rule 144
under the 1933 Act, as such Rule may be amended from time to time, or (ii)
any similar rule or regulation hereafter adopted by the Commission. Upon the
reasonable request of any Holder, Parent will deliver to such Holder a
written statement as to the status of the filings made by Parent with the
Commission with copies of such filings.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each party to perform this Agreement and consummate the Merger
and the other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by both parties:
(a) CONSENTS AND APPROVALS. Each party shall have obtained any
and all consents required for consummation of the Merger or for the
preventing of any default under any contract or permit of such party
which, if not obtained or made, is reasonably likely to have,
individually or in the aggregate, a material adverse
<PAGE>
effect on such party. No consent so obtained which is necessary to
consummate the transactions contemplated hereby shall be conditioned or
restricted in a manner which in the reasonable judgment of the Board of
Directors of Parent or of the Shareholders would so materially adversely
impact the economic or business benefits of the transactions contemplated
by this Agreement that, had such condition or requirement been known,
such party would not, in its reasonable judgment, have entered into this
Agreement.
(b) LEGAL PROCEEDINGS. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law or order (whether temporary,
preliminary or permanent) or taken any other action which prohibits,
restricts or makes illegal consummation of the transactions contemplated
by this Agreement.
(c) TAX MATTERS. Each party shall have received a written
opinion of counsel from Stites & Harbison, in form reasonably
satisfactory to such parties (the "Tax Opinion"), to the effect that (i)
the Merger will constitute a reorganization within the meaning of Section
368(a) of the Code, (ii) the exchange in the Merger of Company Common
Stock for Parent Common Stock will not give rise to gain or loss to the
shareholders of Company with respect to such exchange (except with
respect to any cash received), and (iii) none of Company, Sub or Parent
will recognize gain or loss as a consequence of the Merger (except for
amounts resulting from any required change in accounting methods). In
rendering such Tax Opinion, such counsel shall be entitled to rely upon
representations of officers of Company, the Shareholders and Parent
reasonably satisfactory in form and substance to such counsel.
9.2 CONDITIONS TO OBLIGATIONS OF PARENT. The obligations of Parent
to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by Parent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Company and the Shareholders herein contained shall be true
in all respects as stated herein, both when made and with the same effect
as though made again as of the Effective Time except to the extent of
changes permitted by the terms of this Agreement. Company and the
Shareholders shall have performed all obligations and complied with all
covenants required by this Agreement to be performed or complied with by
Company and the Shareholders prior to the Effective Time.
(b) CERTIFICATES. Company and the Shareholders shall have
delivered to Parent (i) a certificate, dated as of the Effective Time and
signed on Company's behalf by its President/Secretary/Chief Financial
Officer and Vice President and signed by each Shareholder, to the effect
that the conditions set forth in Section 9.1 as relates to Company and
the Shareholders and in Section 9.2(a) have been
<PAGE>
satisfied, and (ii) certified copies of resolutions duly adopted by
Company's Board of Directors and shareholders evidencing the taking of
all corporate action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as Parent and its
counsel shall request.
(c) TAX CLEARANCE. Company shall have delivered to Parent a
certificate of satisfaction from the California Franchise Tax Board
stating that all taxes imposed by the California Bank and Corporation Tax
Law have been paid or secured in a form acceptable to Parent and the
California Secretary of State in accordance with Section 1103 of the
CGCL.
9.3 CONDITIONS TO OBLIGATIONS OF COMPANY AND SHAREHOLDERS. The
obligations of Company and the Shareholders to perform this Agreement and
consummate the Merger and the other transactions contemplated hereby are
subject to the satisfaction of the following conditions, unless waived by
Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent herein contained shall be true in all respects as
stated herein, both when made and with the same effect as though made
again as of the Effective Time except to the extent of changes permitted
by the terms of this Agreement. Parent shall have performed all
obligations and complied with all covenants required by this Agreement to
be performed or complied with by Parent prior to the Effective Time.
(b) CERTIFICATES. Parent shall have delivered to Company and
the Shareholders (i) a certificate, dated as of the Effective Time and
signed on its behalf by its President and Secretary, to the effect that
the conditions set forth in Section 9.1 as relates to Parent and in
Section 9.3(a) have been satisfied, and (ii) certified copies of
resolutions duly adopted by Parent's Board of Directors and Sub's Board
of Directors and sole shareholder evidencing the taking of all corporate
action necessary to authorize the execution, delivery and performance of
this Agreement, and the consummation of the transactions contemplated
hereby, all in such reasonable detail as Company, Shareholders and their
counsel shall request.
ARTICLE 10
INDEMNIFICATION
10.1 SURVIVAL. Except as set forth on SCHEDULE 3.6 hereto, all
representations and warranties in this Agreement and the other Documents
shall survive the Merger and any investigation at any time made by or on
behalf of any party for a period of three years and all such representations
and warranties shall expire on the third anniversary of the Effective Date,
except that (a) claims, if any, asserted in writing prior to such third
anniversary identified as a claim for indemnification pursuant to this
Article 10 shall
<PAGE>
survive until finally resolved and satisfied in full; and (b) tax or
environmental claims arising from a breach of Section 5.27 or Section 5.29,
respectively, shall survive for the full period of the applicable statute of
limitations, and until finally resolved and satisfied in full if asserted on
or prior to the expiration of any such period. The representations and
warranties shall not be affected or otherwise diminished by any investigation
at any time by or on behalf of the party for whose benefit such
representations and warranties were made.
10.2 INDEMNIFICATION BY COMPANY AND SHAREHOLDERS. Subject to the
terms herein, Company and the Shareholders shall jointly and severally
indemnify, defend, and hold Parent and the respective officers, directors,
and employees of Parent, and their successors and assigns (the "Shareholders'
Indemnitees") harmless from, against and with respect to any claim,
liability, obligation, loss, damage, assessment, judgment, cost or expense of
any kind or character, including reasonable attorneys' fees (the "Damages"),
arising out of or in any manner incident, relating or attributable to:
(a) Any inaccuracy in any representation or breach of any
warranty of Company or the Shareholders contained in this
Agreement;
(b) Any failure by Company or the Shareholders to perform or
observe, or to have performed or observed, in full, any
covenant, agreement or condition to be performed or
observed by it under this Agreement;
(c) Reliance by Parent on any books or records of Company or
written information furnished to Parent pursuant to this
Agreement by or on behalf of Company or the Shareholders in
the event that such books and records or written
information are false or otherwise materially inaccurate;
or
(d) Liabilities or obligations of, or claims against, Company
or Parent (whether absolute, accrued, contingent or
otherwise) relating to, or arising out of, the operation of
the business prior to the Effective Time or facts and
circumstances relating specifically to the business, the
Leased Parcels, or Company existing at or prior to the
Effective Time, including but not limited to matters set
forth on SCHEDULE 5.26 and SCHEDULE 5.28, whether or not
such liabilities, obligations or claims were known on such
date, excluding only liabilities set forth in the Balance
Sheet and liabilities and obligations incurred since the
date thereof in the ordinary course of business and
consistent with past practice.
Provided, however, the Shareholders' Indemnitees shall not be entitled
to indemnification or offset hereunder until Damages in total exceed $25,000
and then only to the extent of aggregate Damages in excess of $25,000;
PROVIDED FURTHER, HOWEVER, such deductible shall not apply to any Damages
arising from a breach of Sections 5.27, 5.28,
<PAGE>
5.29, 6.1, or 6.2, respectively. The Shareholders' maximum liability under
this Section 10.2 is set forth on SCHEDULE 3.6 hereto.
10.3 NOTICE TO SHAREHOLDERS, ETC. If any of the matters as to which
the Shareholders' Indemnitees are entitled to receive indemnification under
Section 10.2 should entail litigation with or claims asserted by parties
other than Company, Shareholders shall be given prompt notice thereof and
shall have the right, at the Shareholders' expense, to control such claim or
litigation upon prompt notice to Parent of his election to do so. To the
extent requested by Shareholders, Parent, at its expense, shall cooperate
with and assist Shareholders, in connection with such claim or litigation.
Parent shall have the right to appoint, at its expense, single counsel to
consult with and remain advised by the Shareholders in connection with such
claim or litigation. Shareholders shall have final authority to determine all
matters in connection with such claim or litigation; PROVIDED, HOWEVER, that
Shareholders shall not settle any third party claim without the consent of
Parent, which shall not be unreasonably denied or delayed.
10.4 INDEMNIFICATION BY PARENT. Parent shall indemnify, defend, and
hold the Shareholders and their heirs, executors and legal representatives
("Parent's Indemnitees") harmless from, against and with respect to any
Damages, arising out of or in any manner incident, relating or attributable
to:
(a) Any inaccuracy in any representation or breach of warranty
of Parent contained in this Agreement;
(b) Any failure by Parent to perform or observe, or to have
performed or observed, in full, any covenant, agreement or
condition to be performed or observed by it under any of
the Documents;
(c) Reliance by the Shareholders on any books or records of
Parent or reliance by the Shareholders on any written
information furnished to the Shareholders or Company
pursuant to this Agreement by or on behalf of Parent in the
event that such books and records or written information
are false or otherwise materially inaccurate; and
(d) The operation of Company subsequent to the Effective Time.
Provided, however, Parent's Indemnitees shall not be entitled to
indemnification hereunder until Damages in total exceed $25,000 and then only
to the extent of aggregate damages in excess of $25,000. Parent's maximum
liability under this Section 10.4 is set forth on SCHEDULE 3.6 hereto.
10.5 NOTICE TO PARENT, ETC. If any of the matters as to which
Parent's Indemnitees are entitled to receive indemnification under Section
10.4 should entail litigation with or claims asserted by parties other than
Parent, Parent shall be given prompt notice thereof and shall have the right,
at its expense, to control such claim or
<PAGE>
litigation upon prompt notice to the Shareholders of its election to do so.
To the extent requested by Parent, Shareholders, at the expense of the
Shareholders, shall cooperate with and assist Parent, in connection with such
claim or litigation. Shareholders shall have the right to appoint, at their
expense, single counsel to consult with and remain advised by Parent in
connection with such claim or litigation. Parent shall have final authority
to determine all matters in connection with such claim or litigation;
PROVIDED, HOWEVER, that Parent shall not settle any third party claim without
the consent of Shareholders, which shall not be unreasonably denied or
delayed.
10.6 SURVIVAL OF INDEMNIFICATION. Except as set forth on Schedule
3.6 hereto, the obligations to indemnify and hold harmless pursuant to this
Article 10 shall survive the Effective Time of the Merger, for a period of
three years, notwithstanding any investigation at any time made by or on
behalf of any party, except that (a) claims, if any, asserted in writing
prior to such third anniversary identified as a claim for indemnification
pursuant to this Article 10 shall survive until finally resolved and
satisfied in full; and (b) tax or environmental claims arising from a breach
of Section 5.27 or Section 5.29, respectively, shall survive for the full
period of the applicable statute of limitations, and until finally resolved
and satisfied in full if asserted on or prior to the expiration of any such
period.
10.7 OFFSET. The Shareholders acknowledge and agree that Parent
shall be entitled to offset any indemnity claim under Section 10.2 against
any payment due to Shareholders under Section 3.6 hereunder. Neither the
exercise of nor the failure to give a notice of a Claim shall constitute an
election of remedies nor limit an Indemnitee in any manner in the enforcement
of any other remedies that may be available to it.
ARTICLE 11
MISCELLANEOUS
11.1 KNOWLEDGE OF COMPANY. Where any representation or warranty
contained in this Agreement is expressly qualified by reference to the best
knowledge of Company, Company confirms that it has made due and diligent
inquiry of its President and Vice President as to the matters that are the
subject of such representation and warranty.
11.2 KNOWLEDGE OF PARENT. Where any representation or warranty
contained in this Agreement is expressly qualified by reference to the best
of knowledge of Parent, Parent confirms that it has made due and diligent
inquiry of its President and other officers as to the matters that are the
subject of such representations and warranties.
11.3 "PERSON" DEFINED. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or other department or agency
thereof.
<PAGE>
11.4 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) sent by recognized overnight courier, (iii) made by telecopy or
facsimile transmission, or (iv) sent by registered or certified mail, return
receipt requested, postage prepaid.
If to Parent:
ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
Attn: Stephen A. Hoffmann, President
Fax No: (502) 425-5603
With a copy to:
Stites & Harbison
400 W. Market Street, Suite 1800
Louisville, Kentucky 40202
Attn: Ralston W. Steenrod, Esq.
Fax No: (502) 587-6391
If to Company:
American Home Developers Co., Inc.
20501 Ventura Blvd., Suite 340
Woodland Hills, California 91364
Attn: President
Fax No: (818) 702-0514
If to Shareholders:
Sim Farar and Debra Farar 1989 Trust
c/o Sim Farar
20501 Ventura Blvd., Suite 116
Woodland Hills, California 91364
Fax No: (818) 702-9439
and
Alan B. Griefer
22647 Ventura Blvd., # 157
Woodland Hills, California 91364
Fax No: (818) 702-0514
<PAGE>
With a copy to:
Resch Polster Alpert & Berger LLP
10390 Santa Monica Blvd., Fourth Floor
Los Angeles, California 90025-5058
Attn: Aaron A. Grunfeld, Esq.
Fax No: (310) 552-3209
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof
to the receiving party at the address of such party set forth above, (ii) if
sent by overnight courier, on the next business day following the day such
notice is delivered to the courier service, (iii) if made by telecopy or
facsimile transmission, at the time that receipt thereof has been
acknowledged by electronic confirmation or otherwise, or (iv) if sent by
registered or certified mail, on the fifth business day following the day
such mailing is sent. The address of any party herein may be changed at any
time by written notice to the parties.
11.5 ENTIRE AGREEMENT. This Agreement and the other Documents
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in the other Documents shall affect, or be used to
interpret, change or restrict, the express terms and provisions of this
Agreement.
11.6 MODIFICATIONS AND AMENDMENTS. The terms and provisions of this
Agreement may be modified or amended only by written agreement executed by
all parties hereto.
11.7 ASSIGNMENT/BINDING EFFECT. Neither this Agreement, nor any
right hereunder, may be assigned by any of the parties hereto without the
prior written consent of the other parties. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
heirs, personal representatives, successors and permitted assigns.
11.8 PARTIES IN INTEREST. Nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies
of any nature whatsoever under or by reason of this Agreement. Nothing in
this Agreement shall be construed to create any rights or obligations except
among the parties hereto, and no person or entity shall be regarded as a
third-party beneficiary of this Agreement.
11.9 GOVERNING LAW. This Agreement and the rights and obligations
of the parties hereunder shall be construed in accordance with and governed
by the internal laws of the State of California without giving effect to the
conflict of law principles thereof.
<PAGE>
11.10 ARBITRATION. The parties hereto agree that any and all
disputes, claims or controversies arising out of or relating to this
Agreement that are not resolved by mutual agreement shall be submitted to
final and binding arbitration before JAMS/ENDISPUTE, or its successor,
pursuant to the United States Arbitration Act, 9 U.S.C. Sec. 1 et seq.
Either party may commence the arbitration process called for in this
Agreement by filing a written demand for arbitration with JAMS/ENDISPUTE,
with a copy to the other party. The arbitration will be conducted in
accordance with the provisions of JAMS/ENDISPUTE's COMPREHENSIVE ARBITRATION
RULES AND PROCEDURES in effect at the time of filing of the demand for
arbitration. The parties will cooperate with JAMS/ENDISPUTE and with one
another in selecting an arbitrator from JAMS/ENDISPUTE's panel of neutrals,
and in scheduling the arbitration proceedings. The parties covenant that
they shall participate in the arbitration in good faith, and that they shall
share equally in its costs. The provisions of this Section may be enforced
by any Court of competent jurisdiction, and the party seeking enforcement
shall be entitled to an award of all costs, fees and expenses, including
attorneys fees, to be paid by the party against whom enforcement is ordered.
All arbitration proceedings shall be held in Los Angeles, California.
11.11 SEVERABILITY. In the event that any arbitral tribunal of
competent jurisdiction shall finally determine that any provision, or any
portion thereof, contained in this Agreement shall be void or unenforceable
in any respect, then such provision shall be deemed limited to the extent
that such arbitral tribunal determines it enforceable, and as so limited
shall remain in full force and effect. In the event that such arbitral
tribunal shall determine any such provision, or portion thereof, wholly
unenforceable, the remaining provisions of this Agreement shall nevertheless
remain in full force and effect.
11.12 INTERPRETATION. The parties hereto acknowledge and agree that:
(i) the rule of construction to the effect that any ambiguities are resolved
against the drafting party shall not be employed in the interpretation of
this Agreement, and (ii) the terms and provisions of this Agreement shall be
construed fairly as to all parties hereto and not in favor of or against any
party, regardless of which party was generally responsible for the
preparation of this Agreement.
11.13 HEADINGS AND CAPTIONS. The headings and captions of the
various subdivisions of this Agreement are for convenience of reference only
and shall in no way modify, or affect, or be considered in construing or
interpreting the meaning or construction of any of the terms or provisions
hereof.
11.14 RELIANCE. The parties hereto agree that, notwithstanding any
right of any party to this Agreement to investigate the affairs of any other
party to this Agreement, the party having such right to investigate shall
have the right to rely fully upon the representations and warranties of the
other party expressly contained herein.
11.15 EXPENSES. Each party shall pay its own fees and expenses
(including the fees of any attorneys, accountants, appraisers or others
engaged by such party) incurred
<PAGE>
in connection with this Agreement and the transactions contemplated hereby
whether or not the transactions contemplated hereby are consummated.
11.16 GENDER. All pronouns and any variation thereof shall be deemed
to refer to the masculine, feminine, neuter, singular, or plural as the
identity of the person or entity or the context may require.
11.17 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by different parties hereto on separate counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf as of the day and year first above written.
THERMOVIEW INDUSTRIES, INC.
By: /s/ Stephen A. Hoffmann
---------------------------------------
Stephen A. Hoffmann, President
THERMOVIEW MERGER CORP.
By: /s/ Stephen A. Hoffmann
---------------------------------------
Stephen A. Hoffmann, President
AMERICAN HOME DEVELOPERS CO., INC.
By: /s/ Sim Farar
---------------------------------------
Sim Farar, President
SHAREHOLDERS:
/s/ Sim Farar
-------------------------------------------
Sim Farar, as co-trustee of the Sim Farar
and Debra Farar 1989 Trust
<PAGE>
/s/ Debra Farar
-------------------------------------------
Debra Farar, as co-trustee of the Sim Farar
and Debra Farar 1989 Trust
/s/ Alan Griefer
-------------------------------------------
Alan Griefer
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of April 29, 1998, by and among THERMOVIEW INDUSTRIES, INC.
("Parent"), a Nevada corporation having its principal office located in
Owensboro, Kentucky; THERMOVIEW MERGER CORP. ("Sub"), a Kentucky corporation
having its principal office located in Louisville, Kentucky; PRIMAX WINDOW
CO. ("Company"), a Kentucky corporation having its principal office located
in Louisville, Kentucky; and the shareholders of Company identified on
SCHEDULE 6.1 hereto (each a "Shareholder" and collectively the
"Shareholders").
PREAMBLE
The Boards of Directors of Company, Sub and Parent are of the opinion
that the transactions described herein are in the best interests of the
parties to this Agreement and their respective shareholders. This Agreement
provides for the acquisition of Company by Parent pursuant to the merger of
Company with and into Sub. At the effective time of such merger, the
outstanding shares of the capital stock of Company shall be converted into
the right to receive shares of the common stock of Parent (except as provided
herein). As a result, shareholders of Company shall become shareholders of
Parent. Also at the Effective Time of the Merger, Company shall cease to
exist by operation of law and the business formerly conducted by Company
shall thereafter be conducted by and in the name of Sub. The transactions
described in this Agreement are subject to receipt of required regulatory
consents and approvals and the satisfaction of certain other conditions
described in this Agreement. It is the intention of the parties to this
Agreement that the Merger shall qualify as a "reorganization" within the
meaning of Section 368(a), including Section 368(a)(1)(A) and (a)(2)(D), of
the Internal Revenue Code of 1986, as amended (the "Code") for federal income
tax purposes.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants, and agreements set forth herein, the
parties agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 MERGER. Subject to the terms and conditions of this Agreement
and the provisions of the Plan of Merger attached as EXHIBIT A, at the
Effective Time, Company shall be merged with and into Sub in accordance with
the applicable provisions of the Kentucky Business Corporation Act ("KBCA")
and with the effect provided in the KBCA (the "Merger"). Sub shall be the
surviving corporation resulting from the Merger and shall be a wholly-owned
subsidiary of Parent and shall continue to be governed by the laws of the
Commonwealth of Kentucky. The
<PAGE>
Merger shall be consummated pursuant to the terms of this Agreement and the
Plan of Merger, which have been approved and adopted by the respective Boards
of Directors of Company, Sub and Parent, by the Shareholders as the only
shareholders of Company, and by Parent, as the sole shareholder of Sub.
1.2 TIME AND PLACE OF CLOSING. The closing of the transactions
contemplated hereby (the "Closing") will take place at 9:00 A.M. on the date
hereof. The Closing shall be held at such location as may be mutually agreed
upon by the parties.
1.3 EFFECTIVE TIME. The Merger and other transactions contemplated
by this Agreement shall become effective 11:59 p.m. EDT (the "Effective
Time") on April 30, 1998 (the "Effective Date").
ARTICLE 2
TERMS OF MERGER
2.1 CHARTER.
The Articles of Incorporation of Sub in effect immediately
prior to the Effective Time shall be the Articles of Incorporation of the
surviving corporation resulting from the Merger until otherwise amended or
repealed.
2.2 BYLAWS.
The Bylaws of Sub in effect immediately prior to the Effective
Time shall be the Bylaws of the surviving corporation resulting from the
Merger until otherwise amended or repealed.
2.3 DIRECTORS AND OFFICERS.
The directors of Sub in office immediately prior to the
Effective Time, together with such additional persons as may thereafter be
elected, shall serve as the directors of the surviving corporation resulting
from the Merger from and after the Effective Time in accordance with the
Bylaws of such corporation. The officers of Sub in office immediately prior
to the Effective Time, together with such additional persons as may
thereafter be elected, shall serve as the officers of the surviving
corporation resulting from the Merger from and after the Effective Time in
accordance with the Bylaws of such corporation.
2.4 CERTAIN CLOSING DELIVERIES. In connection with the Closing,
each of Parent, Company and the Shareholders agrees to execute and deliver to
each other party the following:
(a) Company and Charles L. Smith shall have executed and
delivered to the other an Employment Agreement, which shall be in the form of
EXHIBIT B.
2
<PAGE>
(b) Parent and each of the Shareholders shall have executed and
delivered to the other a Noncompetition Agreement, which shall be in the
form of EXHIBIT C.
(c) Parent and each of the Shareholders shall have executed and
delivered to the other a Registration Rights Agreement, which shall be in
the form of EXHIBIT D.
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 CONVERSION OF SHARES. Subject to the provisions of this
Article 3, at the Effective Time, by virtue of the Merger and without any
action on the part of Parent, Company, Sub or the shareholders of any of the
foregoing, the shares of the constituent corporations shall be converted as
follows:
(a) Each share of $.001 par value common stock of Parent
("Parent Common Stock") and any other class or series of capital stock of
Parent (collectively, "Parent Capital Stock") issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
from and after the Effective Time.
(b) Each share of the no par value common stock of Sub ("Sub
Common Stock") issued and outstanding immediately prior to the Effective Time
shall remain issued and outstanding from and after the Effective Time.
(c) Each share of Company Common Stock (excluding shares
held by Company or Parent or any of its subsidiaries) issued and outstanding
immediately prior to the Effective Time shall cease to be outstanding and
shall be converted into and exchanged for (i) the right to receive 4,860
shares of Parent Common Stock (the "Stock Exchange Ratio"), and (ii) the
right to receive $11,600 (the "Cash Exchange Ratio").
3.2 ANTI-DILUTION PROVISIONS. In the event Parent changes the
number of shares of Parent Common Stock issued and outstanding prior to the
Effective Time as a result of a stock split, stock dividend, or similar
recapitalization with respect to such stock and the record date therefor (in
the case of a stock dividend) or the effective date thereof (in the case of a
stock split or similar recapitalization for which a record date is not
established) shall be prior to the Effective Time, the Stock Exchange Ratio
shall be proportionately adjusted.
3.3 SHARES HELD BY COMPANY OR PARENT. Each of the shares of
Company Common Stock held by Company or Parent or any of its subsidiaries
shall be canceled and retired at the Effective Time and no consideration
shall be issued in exchange therefor.
3.4 DISSENTING SHAREHOLDERS.
Each of the Shareholders agrees that he will not seek to assert
dissenters' rights to which such Shareholder otherwise would be entitled
under Subtitle 13 of the KBCA.
3
<PAGE>
3.5 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, each holder of shares of Company Common Stock exchanged pursuant
to the Merger who would otherwise have been entitled to receive a fraction of
a share of Parent Common Stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of Parent
Common Stock multiplied by the market value of one share of Parent Common
Stock at the Effective Time. The market value of one share of Parent Common
Stock at the Effective Time shall be the highest bid price of such common
stock as quoted by the National Association of Securities Dealers (as
reported by The Wall Street Journal or, if not reported thereby, any other
authoritative source selected by Parent) on the last trading day preceding
the Effective Time. No such holder will be entitled to dividends, voting
rights, or any other rights as a shareholder in respect of any fractional
shares.
3.6 POST-CLOSING EARN-OUT. The Shareholders shall be entitled to
receive post-closing earn-outs as set forth on SCHEDULE 3.6.
3.7 NET CURRENT ASSETS. As soon as practicable but within thirty
(30) days after the Closing Date, the Shareholders, at their expense, shall
cause Rueff & Associates, an independent accounting firm, to prepare a
balance sheet of the Company immediately prior to the Effective Time (the
"Effective Time Balance Sheet") setting forth the net current assets of the
Company using accrual accounting and in conformance with generally accepted
accounting principles (the "Net Current Assets"). A copy of the Effective
Time Balance Sheet shall be promptly furnished to Parent. If Parent
disagrees with the Net Current Assets, Parent shall engage Coopers & Lybrand,
an independent public accounting firm, at its expense, to audit the Effective
Time Balance Sheet and deliver a certified written report to the Shareholders
confirming the Net Current Assets ("Audited Net Current Assets"). If the
Shareholders fail to notify Parent within fifteen (15) days after receiving
the Coopers & Lybrand report, such report shall be deemed accepted for
purposes of calculating Net Current Assets. If the Shareholders should so
notify Parent of a dispute concerning Audited Net Current Assets, Parent
shall then engage another big-six independent accounting firm that is
mutually acceptable to Parent and the Shareholders to resolve such dispute
and such firm shall notify Parent and the Shareholders of its resolution of
such dispute within two weeks of its engagement by Parent. The cost of
services provided by such big-six accounting firm shall be borne equally by
Parent on one hand and the Shareholders on the other. Any such resolution
shall be final and binding on all parties hereto for the purposes of
calculating Net Current Assets. In the event the amount of Net Current
Assets is less than $670,000 the Shareholders shall pay such deficit amount
to Parent on a dollar-for-dollar basis within thirty (30) days following the
later of its determination of the Net Current Assets, Parent's audit or the
resolution of any dispute by such big-six accounting firm. In the event the
amount of the Net Current Assets is greater than $670,000 Parent shall pay
such excess amount on a dollar-for-dollar basis to the Shareholders within
thirty (30) days following the later of either Rueff & Associates'
determination of the Net Current Assets or the determination of Audited Net
Current Assets. For purposes of this Section 3.7, "Net Current Assets" shall
mean the current assets of the Company at the Effective Time determined in
accordance with generally accepted accounting principles applied on a
consistent basis. Net current assets shall be calculated by subtracting the
4
<PAGE>
book value of all of the current liabilities of the Company from the book
value of all current tangible assets of the Company.
ARTICLE 4
EXCHANGE OF SHARES
4.1 EXCHANGE PROCEDURES. At the Closing (or as soon as reasonably
practicable thereafter), each holder of shares of Company Common Stock (other
than shares to be canceled pursuant to Section 3.3) issued and outstanding at
the Effective Time shall surrender the certificate or certificates
representing such shares to Parent and shall promptly upon surrender thereof
receive in exchange therefor the consideration provided in Section 3.1,
together with all undelivered dividends or distributions in respect of such
shares (without interest thereon) pursuant to Section 4.2. To the extent
required by Section 3.5, each holder of shares of Company Common Stock issued
and outstanding at the Effective Time also shall receive, upon surrender of
the certificate or certificates representing such shares, cash in lieu of any
fractional share of Parent Common Stock to which such holder may be otherwise
entitled (without interest). Parent shall not be obligated to deliver the
consideration to which any former holder of Company Common Stock is entitled
as a result of the Merger until such holder surrenders such holder's
certificate or certificates representing the shares of Company Common Stock
for exchange as provided in this Section 4.1. The certificate or
certificates of Company Common Stock so surrendered shall be duly endorsed as
Parent may require.
4.2 RIGHTS OF FORMER SHAREHOLDERS. At the Effective Time, the
stock transfer books of Company shall be closed as to holders of Company
Common Stock immediately prior to the Effective Time and no transfer of
Company Common Stock by any such holder shall thereafter be made or
recognized. Until surrendered for exchange in accordance with the provisions
of Section 4.1, each certificate theretofore representing shares of Company
Common Stock (other than shares to be canceled pursuant to Section 3.3) shall
from and after the Effective Time represent for all purposes only the right
to receive the consideration provided in Sections 3.1 and 3.5 in exchange
therefor, subject, however, to Company's obligation to pay any dividends or
make any other distributions with a record date prior to the Effective Time
which have been declared or made by Company in respect of such shares of
Company Common Stock in accordance with the terms of this Agreement and which
remain unpaid at the Effective Time. Whenever a dividend or other
distribution is declared by Parent on Parent Common Stock, the record date
for which is at or after the Effective Time, the declaration shall include
dividends or other distributions on all shares of Parent Common Stock
issuable pursuant to this Agreement, but no dividend or other distribution
payable to the holders of record of Parent Common Stock as of any time
subsequent to the Effective Time shall be delivered to the holder of any
certificate representing shares of Company Common Stock issued and
outstanding at the Effective Time until such holder surrenders such
certificate for exchange as provided in Section 4.1. However, upon surrender
of such Company Common Stock certificate, both Parent Common Stock
certificate (together with all such undelivered dividends or other
distributions without interest) and any undelivered dividends and cash
payments payable hereunder (without interest) shall be delivered and paid
with respect to each share represented by such certificate.
5
<PAGE>
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby represents and warrants to Parent as follows:
5.1 ORGANIZATION AND QUALIFICATION. Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Kentucky. Company is qualified to do business as a foreign
corporation and is in good standing in the states set forth on SCHEDULE 5.1.
The nature of the business of Company does not require Company to be licensed
or qualified in any other jurisdiction. Company has made available to Parent
complete and correct copies of the Articles of Incorporation and By-laws of
Company as currently in effect.
5.2 CORPORATE POWER AND AUTHORITY. Company has the corporate power
and authority to own and hold its properties and to carry on its business as
now conducted. Company (a) has the corporate power and authority to execute,
deliver and perform this Agreement and the Exhibits and to deliver the
Schedules hereto and the other documents and instruments contemplated hereby
(collectively this Agreement, the Exhibits and Schedules hereto, and the
other documents and instruments contemplated hereby shall constitute the
"Documents") and to consummate the transactions contemplated hereby and
thereby and (b) has taken all necessary corporate and shareholder action to
authorize and approve the execution, delivery and performance of this
Agreement and the other Documents and the consummation of the transactions
contemplated hereby and thereby. This Agreement and the other Documents have
been duly and validly executed and delivered by Company and constitute valid
and binding obligations of Company, enforceable against Company in accordance
with their terms.
5.3 FOREIGN PERSON. Company is not a foreign person as that term
is defined in Section 1445(f)(3) of the Code and applicable regulations.
5.4 CAPITALIZATION. Company has authorized capital consisting of
100 shares of common stock, with a par value of $100 per share, all of which
are issued and outstanding and no shares are held as treasury stock. All of
the outstanding shares of Company have been duly authorized and validly
issued and are fully paid and nonassessable. None of the outstanding shares
of Company has been issued in violation of any preemptive right. There are
no outstanding options, warrants, rights, calls, commitments, conversion
rights, rights of exchange, plans or other agreements of any character
providing for the purchase, issuance or sale of any shares of capital stock
of Company, other than as contemplated by this Agreement.
5.5 SUBSIDIARIES AND INVESTMENTS. Company has no subsidiaries and
does not own, directly or indirectly, any capital stock or other equity or
ownership or proprietary interest in any other corporation, partnership,
association, trust, joint venture or other entity.
5.6 BOOKS AND RECORDS. The minute books of Company, which have
been and will be made available to Parent and its representatives, contain
accurate records of all meetings of and corporate actions or written consents
by the shareholders and Board of Directors of
6
<PAGE>
Company set forth in such minute books. Company does not have any of its
records, systems, controls, data or information recorded, stored, maintained,
operated or otherwise wholly or partly dependent upon or held by any means
(including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and
therefrom) are not under the exclusive ownership and direct control of
Company.
5.7 FINANCIAL STATEMENTS. Company has previously furnished to
Parent, and attached hereto as SCHEDULE 5.7 are, (i) the unaudited balance
sheet of Company as at December 31, 1997 and the related unaudited statement
of operations for the fiscal year ended December 31, 1997, (ii) the reviewed
balance sheets of Company as at March 31, 1997 and 1996 and the related
statements of income, retained earnings and cash flows for the years then
ended, (iii) the reviewed balance sheet of Company as at March 31, 1996 and
the related statements of income, retained earnings and cash flows for the
year then ended, (iv) the reviewed balance sheets of Company as at March 31,
1995 and 1994 and the related statements of income, retained earnings and
cash flows for the years then ended, and (v) the unaudited balance sheet (the
"Balance Sheet") of Company as at January 31, 1998 (the "Balance Sheet Date")
and the related unaudited income statement for the one (1) month then ended.
All such financial statements (the "Financial Statements"), except as set
forth on SCHEDULE 5.7, have been prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied and were
prepared from the books and records of Company. Such books and records are
complete and correct in all material respects, accurately reflect all
transactions of the business of Company, and have been made available to
Parent for examination. The Financial Statements fairly present the
financial position of Company as of the dates thereof and the results of its
operations and cash flows for the periods ended on the dates thereof. The
Financial Statements reflect reserves appropriate and adequate for all known
material liabilities and reasonably anticipated losses as required by GAAP.
Since the Balance Sheet Date, (i) there has been no change in the assets,
liabilities or financial condition of Company from that reflected in the
Balance Sheet except for changes in the ordinary course of business
consistent with past practice and which have not been materially adverse, and
(ii) none of the business, prospects, financial condition, operations,
property or affairs of Company has been materially adversely affected by any
occurrence or development, individually or in the aggregate, whether or not
insured against. Company has disclosed to Parent all material facts relating
to the preparation of the Financial Statements.
5.8 EMPLOYMENT AND LABOR MATTERS.
(a) SCHEDULE 5.8 lists all employees and officers of Company
on the date hereof, along with the amount of the current annual salaries and
total compensation paid or due for services to each employee or officer for
the most recent fiscal year end and the year to date, and a full and complete
description of any commitments to such employees and officers with respect to
compensation payable thereafter. To the best knowledge of Company, no key
employee or group of employees has any plans to terminate employment with
Company.
(b) Company is not a party to or bound by any collective
bargaining agreement with any labor organization, group or association
covering any of its employees, and Company has no knowledge of any attempt to
organize Company's employees by any Person,
7
<PAGE>
unit or group seeking to act as their bargaining agent. There are no pending
or threatened charges (by employees, their representatives or governmental
authorities) of unfair labor practices or of employment discrimination or of
any other wrongful action with respect to any aspect of employment of any
person employed or formerly employed by Company. No union representation
election relating to employees of Company has been scheduled by any
governmental agency or authority, no organizational effort is being made with
respect to any of such employees, and there is no investigation of Company's
employment policies or practices by any governmental agency or authority
pending or threatened. Company is not currently, nor has it been, involved
in labor negotiations with any unit or group seeking to become the bargaining
unit for any employees of Company. Company has not experienced any material
work stoppages, and to the best knowledge of Company, no work stoppage is
planned.
5.9 REAL PROPERTY. Company owns no real property.
5.10 POWERS OF ATTORNEY; ABSENCE OF LIMITATIONS ON COMPETITION;
GUARANTEES.
Except as set forth in SCHEDULE 5.10, (i) no power of attorney or
similar authorization given by Company presently is in effect or outstanding;
(ii) no contract or agreement to which Company is a party or is bound or to
which Company's properties or assets are subject limits the freedom of
Company to compete in any line of business or with any Person; and (iii)
Company is not a party to or bound by any guarantee of any debt or obligation
of any other Person.
5.11 SIGNIFICANT SUPPLIERS. Set forth on SCHEDULE 5.11 is a true
and correct list of Company's ten largest suppliers for the most recent
twelve (12) month period ending December 31, 1997 and for the three (3) month
period ending March 27, 1998, together with the amount attributable to such
suppliers expressed in dollars and as a percentage of total supplies
purchased. None of the suppliers identified on SCHEDULE 5.11 has terminated,
materially reduced or threatened to terminate or materially reduce its
supplies to Company during the period covered by such schedule.
5.12 GOVERNMENTAL APPROVALS. Except as set forth on SCHEDULE 5.12,
no registration or filing with, or consent or approval of or other action by,
any Federal, state or other governmental agency or instrumentality is or will
be necessary for the valid execution, delivery and performance by Company of
this Agreement.
5.13 VALIDITY, ETC. Except as set forth on SCHEDULE 5.13, neither
the execution and delivery of this Agreement or the other Documents, the
consummation of the transactions contemplated hereby or thereby, nor the
performance of this Agreement or the other Documents in compliance with the
terms and conditions hereof and thereof by Company will (i) violate, conflict
with or result in any breach of any trust agreement, Articles of
Incorporation, bylaw, judgment, decree, order, statute or regulation
applicable to Company, (ii) violate, conflict with or result in a breach,
default or termination or give rise to any right of termination, cancellation
or acceleration of the maturity of any payment date of any of the obligations
of Company or increase or otherwise affect the obligations of Company under
any law, rule, regulation or any judgment, decree, order, governmental
permit, license or order or any of the terms, conditions or provisions of any
mortgage, indenture, note, license, agreement or other instrument or
obligation
8
<PAGE>
related to Company or to Company's ability to consummate the transactions
contemplated hereby or thereby, except for such defaults (or rights of
termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained in writing and provided to Parent, or (iii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Company.
5.14 ABSENCE OF ADVERSE CHANGE; CONDUCT OF BUSINESS.
During the period from the Balance Sheet Date to and including the
date of this Agreement, except as set forth on SCHEDULE 5.14, Company has not
(i) borrowed or agreed to borrow any material amount of funds or incurred any
liability or obligation of any nature (whether accrued, absolute, contingent
or otherwise), or guaranteed or agreed to guarantee any obligations of
others, (ii) canceled any indebtedness owing to it or any claims that it
might have possessed, waived any material rights of substantial value or
sold, leased, encumbered, transferred or otherwise disposed of, or agreed to
sell, lease, encumber, or otherwise dispose of its assets or permitted any of
its assets to be subjected to any mortgage, pledge, lien, security interest,
encumbrance, restriction or charge of any kind, (iii) made any capital
expenditure or commitment therefor, (iv) declared or paid any dividend or
made any distribution on any shares of its capital stock, or redeemed,
purchased or otherwise acquired any shares of its capital stock or any
option, warrant or other right to purchase or acquire any such shares, (v)
increased its indebtedness for borrowed money, or made any loan to any
Person, (vi) written off as uncollectible any notes or accounts receivable,
except write-offs in the ordinary course of business charged to applicable
reserves, (vii) made any material change in any method of accounting or
auditing practice, (viii) otherwise conducted its business or entered into
any transaction, except in the usual and ordinary manner, or (ix) agreed,
whether or not in writing, to do any of the foregoing.
5.15 CERTAIN PRACTICES. None of Company, any of Company's directors
or officers, or to the best knowledge of Company, Company's employees has,
directly or indirectly, used any corporate funds for unlawful contributions,
gifts, entertainment, or other unlawful expenses relating to political
activity; made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; made any false or
fictitious entry on the books or records of Company or any subsidiary; made
any bribe, rebate, payoff, influence payment, kickback, or other unlawful
payment; given any favor or gift which is not deductible for federal income
tax purposes; or made any bribe, kickback, or other payment of a similar or
comparable nature, whether lawful or not, to any person or entity, private or
public, regardless of form, whether in money, business or to obtain special
concessions, or to pay for favorable treatment for business secured or for
special concessions already obtained.
5.16 COMPLIANCE WITH LAW; LICENSES AND PERMITS.
Except as set forth on SCHEDULE 5.16, Company has complied in all
material respects with all laws, ordinances, legal requirements, rules,
regulations and orders applicable to it, its
9
<PAGE>
operations, properties, assets, products and services. Except as set forth
on SCHEDULE 5.16, there is no existing law, rule, regulation or order, and
Company is not aware of any proposed law, rule, regulation or order, whether
Federal, state or local, which would prohibit or materially restrict Sub
from, or otherwise materially adversely affect Sub in, conducting the
business of Company in the manner heretofore conducted by Company in any
jurisdiction in which such business is now conducted. Company possesses all
franchises, permits, licenses, certificates and consents required from any
governmental or regulatory authority in order for Company to carry on its
business as currently conducted and to own and operate its properties and
assets as now owned and operated and all of such licenses and permits are set
forth on SCHEDULE 5.16.
5.17 EMPLOYEE BENEFITS.
(a) Set forth on SCHEDULE 5.17 is a list of all pension,
profit sharing, retirement, deferred compensation, stock purchase, stock
option, incentive, bonus, vacation, severance, disability, hospitalization,
medical insurance, life insurance, fringe benefit, welfare and other employee
benefit plans, programs or arrangements pursuant to which Company or its
ERISA Affiliates provides (directly or indirectly, individually or jointly
through others) benefits or compensation to or on behalf of employees or
independent contractors or former employees or former independent contractors
of Company or its ERISA Affiliates, whether formal or informal, whether or
not written ("Employee Plan"). On request by Parent, Company shall furnish a
copy of each Employee Plan and a copy of any related materials. Company will
maintain the benefits listed on SCHEDULE 5.17 in full force and effect
through the Effective Date. Except as set forth on SCHEDULE 5.17, Parent
shall not have any obligation or liability of any kind or nature for any
compensation or benefits of any kind or nature to the employees or
consultants of Company for services rendered prior to the Effective Date.
(b) Each Employee Plan covering any present or former
employee of Company which is subject to the continuation health coverage
requirements of Section 4980B of the Code or Section 601 of ERISA or any
applicable state law has complied with all such requirements for continuation
coverage.
(c) There are no actions, suits or claims pending (other
than routine claims for benefits) or threatened against or with respect to
any Employee Plan or the assets of any Employee Plan.
(d) Each Employee Plan (and the related trust or funding
vehicle, if any) has been administered and maintained in accordance with its
terms and with applicable law. Except as set forth on SCHEDULE 5.17(d), each
Employee Plan which is intended to be qualified under Section 401 of the Code
and each amendment to such plan is subject to a favorable determination
letter from the Internal Revenue Service ("IRS") and each such plan has at
all times been maintained, by its terms and in operation, in accordance with
Section 401 of the Code. The assets of each Employee Plan which is not
funded through the general assets of Company are at least equal to the
liabilities under such Employee Plan, and all assets of each Employee Plan
are shown on the books and records of such Employee Plan at fair market
value. No Employee Plan
10
<PAGE>
has unfunded liabilities that as of the Effective Time are not accurately and
fully reflected on Company's Balance Sheet.
(e) Neither Company nor any of its ERISA Affiliates is or
has been a participant in, or is or has been obligated to maintain or to make
contributions to, a multi-employer plan (within the meaning of ERISA Section
3(37) and ERISA Section 4001(a)(3)) or an Employee Plan which is subject to
Title IV of ERISA. Neither Company nor any ERISA Affiliate has sponsored,
contributed to or been obligated under Title I or IV of ERISA to contribute
to a "defined benefit plan" (as defined in ERISA Section 3(35)). Company is
not obligated to provide post-retirement medical benefits or any other
unfunded post-retirement welfare benefits to or on behalf of any persons
whatsoever (except the benefits pursuant to the continuation health coverage
requirements under Section 4980B of the Code, ERISA Section 601, or
applicable state law).
(f) Neither Company nor its ERISA Affiliates is subject to
and, to the best knowledge of Company, no facts exist which could subject
Company or any of its ERISA Affiliates to, any liability whatsoever which is
directly or indirectly related to any Employee Plan, including, but not
limited to, liability for benefit payments or related claims, any liability
for any tax or related penalty under the Code, or liability for any damages
or penalties arising under Title I or Title IV of ERISA. No reportable event
under Section 4043 of ERISA has occurred or, to the best knowledge of
Company, will occur with respect to such Employee Plan.
(g) Termination of or withdrawal from any Employee Plan
immediately after the Effective Time would not subject Parent to any
liability, tax or penalty whatsoever.
(h) The execution or performance of the transactions
contemplated by this Agreement will not create, accelerate or increase any
obligations under the Employee Plans, including any obligation to make any
payment which would not be deductible as an excess golden parachute payment
under Section 280G of the Code.
(i) All contributions to or under each Employee Plan and all
expenses of each Employee Plan are fully deductible for income tax purposes
for the taxable year for which such contributions are made or such expenses
are paid. All contributions to or under each Employee Plan have been made
when due under the terms of such Employee Plan in accordance with applicable
law.
(j) For purposes of this Section 5.17, the term "ERISA"
shall mean the Employee Retirement Income Security Act of 1974, as amended,
and the term "ERISA Affiliate" shall mean each trade or business (whether or
not incorporated) which together with Company is treated as a single employer
under Section 414(b), (c), (m), (o) or (t) of the Code.
(k) Immediately before the Effective Date, the sum of the
account balances maintained for all participants under the Primax Window
Company, Inc. 401(k) Plan equals the fair market value of the assets of such
plan.
11
<PAGE>
5.18 FIXED ASSETS. SCHEDULE 5.18 contains a true and complete list
of all of Company's fixed assets with a net book value of greater than
$1,000.00, whether owned or leased. Except as shown on SCHEDULE 5.18,
Company has good and marketable title to all of its fixed assets, free and
clear of all claims, liens, mortgages, charges and encumbrances except as
disclosed in the Balance Sheet. All of Company's fixed assets, whether owned
or leased, are adequate and usable for the purposes for which they are
currently used, are in good operating condition and repair and have been
properly maintained.
5.19 INSURANCE. Company is, and will be through the Closing,
insured with insurers in respect of its properties, assets and businesses as
set forth on the attached SCHEDULE 5.19. SCHEDULE 5.19 lists the insurance
coverage carried by Company, which insurance will remain in full force and
effect with respect to all events occurring prior to the Effective Date.
Except as set forth on SCHEDULE 5.19, Company (i) has not failed to give any
notice or present any claim under any such policy or binder in due and timely
fashion, (ii) has not received notice of cancellation or non-renewal of any
such policy or binder, (iii) is not aware of any threatened or proposed
cancellation or non-renewal of any such policy or binder, (iv) has not
received notice of any insurance premium which will be materially increased
in the future, and (v) is not aware of any insurance premium which will be
materially increased in the future. There are no outstanding claims under
any such policy which have gone unpaid for more than 45 days, or as to which
the insurer has disclaimed liability.
5.20 ACCOUNTS RECEIVABLE. The accounts receivable and other debts
due or recorded in the respective records and books of account of Company as
being due to Company as of the Effective Date, all of which are set forth on
SCHEDULE 5.20, arose in the ordinary course of business of Company, are not
subject to any counterclaim or set-off and are fully collectible within 120
days after the Effective Date without resort to litigation and without offset
or counterclaim.
5.21 OUTSTANDING CONTRACTS. SCHEDULE 5.21 sets forth a description
of all existing contracts, agreements, leases, commitments, licenses and
franchises, which involve obligations or commitments by Company of $10,000 or
more and are not cancelable by Company without penalty within 30 days
(collectively "Contracts"), whether written or oral, relating to Company,
except for customer contracts which arose in the ordinary course of business.
Company has delivered or made available to Parent true, correct and complete
copies of all of the Contracts specified on SCHEDULE 5.21 which are in
writing, and such schedule sets forth a complete description of all Contracts
which are not in writing. All of the Contracts are in full force and effect
and enforceable in accordance with their terms, except to the extent that the
enforceability thereof may be subject to or affected by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, or
other laws relating to or affecting the rights of creditors generally.
Except as set forth on SCHEDULE 5.21, Company and, to the best knowledge of
Company, each other party thereto has materially performed all the
obligations required to be performed by it, has received no notice of default
and is not in default (with due notice or lapse of time or both) under any of
the Contracts. Company has no present expectation or intention of not fully
performing all its obligations under each of the Contracts, and Company has
no knowledge of any breach or anticipated breach by the other party to any of
the Contracts to
12
<PAGE>
which Company is a party. Except as set forth on SCHEDULE 5.21, none of the
Contracts has been terminated; no notice has been given by any party thereto
of any alleged default by any party thereunder; and Company is not aware of
any intention or right of any party to declare another party to any of the
Contracts to be in default. Except as set forth on SCHEDULE 5.21, there
exists no actual or, to the best knowledge of Company, threatened
termination, cancellation or limitation of the business relationship of
Company by any party to any of the Contracts.
5.22 OUTSTANDING LEASES. SCHEDULE 5.22 sets forth a description of
each agreement by which Company leases each parcel of real property (the
"Leased Parcels") used in connection with the business (collectively, the
"Leases"). Company has delivered or made available to Parent true, correct
and complete copies of all of the Leases specified on SCHEDULE 5.22. All
rents due under the Leases have been paid. All of the Leases are in full
force and effect and enforceable in accordance with their terms, except to
the extent that the enforceability thereof may be subject to or affected by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, or other laws relating to or affecting the rights of creditors
generally. Except as set forth on SCHEDULE 5.22, Company and, to the best
knowledge of Company, each other party thereto has performed all the
obligations required to be performed by it, has received no notice of default
and is not in default (with due notice or lapse of time or both) under any of
the Leases. Company has no present expectation or intention of not fully
performing all its obligations under each of the Leases, and Company has no
knowledge of any breach or anticipated breach by the other party to any of
the Leases. Except as set forth on SCHEDULE 5.22, none of the Leases has
been terminated; no notice has been given by any party thereto of any alleged
default by any party thereunder; and Company is not aware of any intention or
right of any party to declare another party to any of the Leases to be in
default. There exists no actual or, to the best knowledge of Company,
threatened termination, cancellation or limitation of the business
relationship of Company with any party to any of the Leases.
5.23 INTELLECTUAL PROPERTIES. SCHEDULE 5.23 contains an accurate
and complete list of all domestic and foreign letters patent, patents, patent
applications, patent licenses, software licenses and know-how licenses, trade
names, trademarks, copyrights, unpatented inventions, service marks,
trademark registrations and applications, service mark registrations and
applications and copyright registrations and applications, trade secrets or
other confidential proprietary information owned or used by Company in the
operation of the business (collectively the "Intellectual Property"). Except
as set forth on SCHEDULE 5.23 and except for commercial software licensed for
use on personal computers, Company owns the entire right, title and interest
in and to the Intellectual Property, trade secrets and technology used in the
operation of its business and each item constituting part of the Intellectual
Property and trade secrets and technology which is owned by Company has been,
to the extent indicated in SCHEDULE 5.23, duly registered with, filed in or
issued by, as the case may be, the United States Patent and Trademark office
or such other government entities, domestic or foreign, as are indicated in
SCHEDULE 5.23 and such registrations, filings and issuances remain in full
force and effect. There have been and are no pending or, to the best
knowledge of Company, threatened proceedings or litigation or other adverse
claims affecting or with respect to the Intellectual Property. There is, to
the best knowledge of Company, no reasonable basis upon which a claim may be
asserted against Company for infringement of any domestic or foreign letters
patent, patents, patent applications,
13
<PAGE>
patent licenses and know-how licenses, trade names, trademark registrations
and applications, common law trademarks, service marks, service mark
registrations or applications, copyrights, copyright registrations or
applications, trade secrets or other confidential proprietary information.
To the best knowledge of Company, no Person is infringing the Intellectual
Property.
5.24 PROPRIETARY INFORMATION OF THIRD PARTIES.
Except as disclosed on SCHEDULE 5.24, no third party has claimed or,
to the best knowledge of Company, has reason to claim that any Person
employed by or consulting with Company ("Related Person") has (i) violated or
may be violating any of the terms or conditions of such person's employment,
non-competition or non-disclosure agreement with such third party, (ii)
disclosed or may be disclosing or utilized or may be utilizing any trade
secret or proprietary information or documentation of such third party, or
(iii) interfered or may be interfering in the employment relationship between
such third party and any of its present or former employees. No third party
has requested information from Company which suggests that such a claim might
be contemplated. Except as disclosed on SCHEDULE 5.24, to the best knowledge
of Company, no Related Person has employed or proposes to employ any trade
secret or any information or documentation proprietary to any former employer
and no Related Person has violated any confidential relationship which such
person may have had with any third party, in connection with the development
or sale of any service of Company, and Company has no reason to believe there
will be any such employment or violation.
5.25 TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE
5.25, to the best knowledge of Company, no director, officer or shareholder
of Company, or member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or any member of
the family of any such person, has a beneficial interest greater than 5% or
is an officer, director, trustee, partner or holder of any equity interest
greater than 5% (an "Affiliate"), is a party to any transaction with Company,
including any contract, agreement or other arrangement providing for the
employment of, furnishing of services by, rental of real or personal property
from or otherwise requiring payments or involving other obligations to any
such person or firm.
5.26 ABSENCE OF UNDISCLOSED LIABILITIES.
(a) Except as and to the extent of the amounts specifically reflected
or reserved against in the Balance Sheet, or except as set forth
on SCHEDULE 5.26, Company has no liabilities or obligations of any
nature whatsoever due or to become due, accrued, absolute,
contingent or otherwise, except for liabilities and obligations
incurred since the date thereof in the ordinary course of business
and consistent with past practice. Company does not know of, and
has no reason to know of, any basis for the assertion against
Company of any liability or obligation not fully reflected or
reserved against in the Balance Sheet.
14
<PAGE>
(b) Company is not bound by any agreement, or subject to any
charter or other corporate restriction or any legal requirement,
which has, or in the future can reasonably be expected to have, a
material adverse effect on the business or prospects of Company.
5.27 TAXES. Company has timely filed a valid election to be treated
as an S corporation in accordance with the provisions of Section 1361 of the
Code, effective for its tax year ended December 31, 1997 and has qualified
and shall continue to qualify as an S corporation for all years and periods
thereafter until the Effective Time. SCHEDULE 5.27 lists all the states and
localities with respect to which Company is required to file any corporate,
income and/or franchise tax returns and sets forth whether Company is treated
as the equivalent of an S corporation by or with respect to each such state
and/or locality. Company has not engaged in any activity which would
disqualify its treatment as an S corporation for those tax purposes. Except
as set forth on SCHEDULE 5.27, all federal, state, local and foreign tax
returns and tax reports required to be filed by Company on or before the date
hereof have been timely filed with the appropriate governmental agencies in
all jurisdictions in which such returns and reports are required to be filed
and all amounts shown as owing thereon have been paid. All taxes (including,
without limitation, income, accumulated earnings, property, sales, use,
franchise, excise, license, value added, fuel, employees' income withholding
and social security taxes) which have become due or payable or are required
to be collected by Company or are otherwise attributable to any periods
ending on or before the Effective Date and all interest and penalties
thereon, whether disputed or not, have been paid or will be paid in full or
adequately reflected on the Balance Sheet or Company's books and records in
accordance with generally accepted accounting principles on or prior to the
Effective Time. Except as set forth on SCHEDULE 5.27, all deposits required
by law to be made by Company with respect to employees' withholding taxes
have been duly made, and as of the Effective Time all such deposits due will
have been made. Company has delivered to Parent true and complete copies of
all of Company's federal and state income tax returns for the fiscal periods
ended December 31, 1997 and March 31, 1997, 1996 and 1995 and all reports and
results of income tax audits, if any, related thereto. Except as set forth
on SCHEDULE 5.27, no examination of any tax return of Company is currently in
progress. There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any such tax return.
5.28 LITIGATION. Except as set forth on SCHEDULE 5.28, there is no
(i) action, suit, claim, proceeding or investigation pending or, to the best
knowledge of Company, threatened against or affecting Company (whether or not
such Company is a party or prospective party thereto), at law or in equity,
or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) arbitration proceeding pending relating to Company or (iii)
governmental inquiry pending or threatened against or involving Company, and
there is no basis for any of the foregoing. Company has not received any
opinion or memorandum or legal advice from legal counsel to the effect that
it is exposed, from a legal standpoint, to any liability or disadvantage
which may be material to the business, prospects, financial condition,
operations, property or affairs of Company. There are no outstanding orders,
writs, judgments, injunctions or decrees served upon Company by any court,
governmental agency or arbitration tribunal against Company. To the
15
<PAGE>
best knowledge of Company, there are no facts or circumstances which may
result in institution of any action, suit, claim or legal, administrative or
arbitration proceeding or investigation against, involving or affecting
Company or the transactions contemplated hereby. Company is not in default
with respect to any order, writ, injunction or decree known to or served upon
it from any court or of any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign. Except as disclosed on SCHEDULE 5.28, there is no action or suit by
Company pending or threatened against others.
5.29 ENVIRONMENTAL MATTERS.
(a) COMPLIANCE. Company and all Leased Parcels are in
compliance with all applicable laws, rules, regulations, orders, ordinances,
judgments and decrees of all governmental authorities with respect to all
environmental statutes, rules and regulations. Except as set forth on
SCHEDULE 5.29, Company has not received notice of, nor does Company have
knowledge of, any past, present or future events, conditions, circumstances,
activities, practices, incidents, actions or plans of Company or Company's
predecessors, either collectively, individually or severally, which may
interfere with or prevent continued compliance with, or which may give rise
to any common law or legal liability or otherwise form the basis of any
claim, action, suit, proceeding, hearing, or investigation, based on or
related to the disposal, storage, handling, manufacture, processing,
distribution, use, treatment or transport, or the emission, discharge,
release or threatened release into the environment, of any Substance. As
used in this Section 5.29, the term "Substance" or "Substances" shall mean
any pollutant, contaminant, hazardous substance, hazardous material,
hazardous waste or toxic waste, as defined in any presently enacted federal,
state or local statute or any regulation that has been promulgated pursuant
thereto. No part of any of the Leased Parcels has been listed or proposed
for listing on the National Priorities List established by the United States
Environmental Protection Agency, or any corresponding list by any state or
local authorities.
(b) ENVIRONMENTAL SUBSTANCE LIABILITY. No event has
occurred or condition exists or operating practice is being employed that
could give rise to liability on the part of Company, either at the present
time or in the future, for any losses, liabilities, damages (whether
consequential or otherwise), settlements, penalties, interest, expenses and
costs of responses, including any such liability on account of the right of
any governmental or private entity or person, and including closure expenses,
costs of assessment, containment, removal, or response (other than monitoring
or transportation or disposal of materials required to be transported or
disposed of in the ordinary course of business consistent with past practice)
arising under any rule or federal, state, or local statute, or any regulation
that has been promulgated pursuant thereto, or common law, as a result of or
in connection with, or alleged to be as a result of or in connection with,
the following (collectively the "Hazardous Activities"):
(i) the handling, storage, use, transportation or
disposal of any Substances in or near or from the
Leased Parcels;
(ii) the handling, storage, use, transportation or
disposal of any Substances by Company or its
predecessors which Substances were a product,
by-product or otherwise resulted from the
16
<PAGE>
operations conducted by or on behalf of Company or
its predecessors;
(iii) any intentional or unintentional emission, discharge
or release of any Substances in or near or from
facilities into or upon the air, surface water,
ground water or land or any disposal, handling,
manufacturing, processing, distribution, use,
treatment, or transport of such substances in or
near or from facilities by or on behalf of Company
or its predecessors; or
(iv) the presence of any toxic or hazardous building
materials (including but not limited to friable
asbestos or similar substances) in any facilities of
Company, including but not limited to the inclusion
of such materials in the exterior and interior
walls, floors, ceilings, tile, insulation or any
other portion of building structures.
(c) ENVIRONMENTAL PERMITS. Company has obtained and holds
all registrations, permits, licenses, and approvals issued by or on behalf of
any federal, state or local governmental body or agency if any
("Environmental Permits") that are required in connection with the operation
by Company of the Leased Parcels, the discharge or emission of Substances by
Company from the Leased Parcels or the generation, treatment, storage,
transportation, or disposal of any such Substances by Company. Such
Environmental Permits, which are described on SCHEDULE 5.29, are currently
effective and sufficient for the operation of the Leased Parcels and the
business of Company as currently conducted and intended to be conducted.
Company is in compliance with all terms and conditions of the Environmental
Permits, and is also in compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules,
and timetables contained in those laws or provisions or contained in any
regulation, code, plan, order, decree, judgment, notice or demand letter
issued, entered, promulgated or approved thereunder and applicable to Company
(d) DELIVERIES. Company has delivered to Parent true and
complete copies and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by Company pertaining to Substances or
Hazardous Activities in, on, or under the Leased Parcels or concerning
compliance by Company or any other Person for whose conduct they are or may
be held responsible, with environmental statutes, rules and regulations.
5.30 INVENTORY. All inventory of the Company, whether or not
reflected in the Financial Statements or Balance Sheet, consists of a quality
and quantity usable and salable in the ordinary course of business, except
for obsolete items and items of below-standard quality, all of which have
been written off or written down to net realizable value in the Financial
Statements or the Balance Sheet, as the case may be. All inventories not
written off have been priced at the lower of cost or market on a first in,
first out basis. The quantities of each item of inventory (whether raw
materials, work-in-process, or finished goods) are not excessive, but are
reasonable in the present circumstances of the Company.
17
<PAGE>
5.31 YEAR-2000 COMPLIANCE.
(a) SCHEDULE 5.31 contains a true and complete list of all Systems (as
hereinafter defined), and each System is Year-2000 Compliant (as
hereinafter defined) to the extent indicated on SCHEDULE 5.31.
(b) As used throughout this Agreement, the following definitions
shall have the following meanings:
(1) "External Systems" shall mean all services which are
provided to Company by third parties and which are
dependent on information technology, including, but not
limited to, any external payroll, accounting, or tax
filing services or any checking, savings, or other
financial services.
(2) "Internal Systems" shall mean all technology products and
systems generally operated or controlled in-house by
Company, or its employees, agents, or independent
contractors including, but not limited to, computers,
computer networks, telephone systems, voicemail systems,
intercom systems, pager systems, and software applications.
(3) "Licensed Systems" shall mean all products and systems
developed by or for Company which are licensed, sold,
distributed, or otherwise transferred by Company to third
parties.
(4) "System" or "Systems" shall mean any, all, or any
combination of any Internal System, External System, or
Licensed System.
(5) "Year-2000 Compliant" shall mean, with respect to each
System, that such System is designed to be used before,
during, and after the calendar year 2000 A.D. and will
accurately accept date input and process, store, and output
date data and date-related data, including, without
limitation, calculating, comparing, sorting, and
sequencing such data and calculating leap years before,
during, and after the calendar year 2000 A.D. without any
manual intervention.
5.32 DISCLOSURE. All Documents delivered or to be delivered by or
on behalf of Company in connection with this Agreement and the transactions
contemplated hereby are true, complete and correct. Neither this Agreement,
nor any of the other Documents contains any untrue statement of a material
fact or omits a material fact necessary to make the statements made by
Company herein or therein, in light of the circumstances in which made, not
misleading. There is no fact known to Company which materially and adversely
affects the business, prospects or financial condition of Company or its
properties or assets, which has not been set forth in the Documents.
18
<PAGE>
5.33 TAX AND REGULATORY MATTERS. Neither Company nor any Affiliate
thereof has any knowledge of any fact or circumstance that is reasonably
likely to (i) prevent the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code, or (ii) materially impede or delay
receipt of any consents of any federal, state, county, local or other
governmental or regulatory agencies having jurisdiction over the parties or
result in the imposition of a condition or restriction of the type referred
to in the last sentence of Section 9.1(a).
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each of the Shareholders represents and warrants to Parent as follows:
6.1 OWNERSHIP OF SHARES. Each Shareholder individually represents
and warrants as to herself or himself (a) that such Shareholder owns the
shares of Company Common Stock listed opposite such Shareholder's name on
SCHEDULE 6.1 hereto, free and clear of all pledges, security interests,
liens, charges, encumbrances, equities, claims, options or limitations of
every kind ("Claims"), and (b) that the delivery to Parent of the Common
Stock pursuant to the provisions of this Agreement will transfer to Parent
valid title thereto, free and clear of all Claims.
6.2 AUTHORITY AND APPROVAL; NO BREACH BY AGREEMENT. Each
Shareholder individually represents and warrants as to herself or himself (a)
that such Shareholder has full legal power, capacity and authority to
execute, deliver and perform this Agreement and the other Documents and to
consummate the transactions contemplated hereby and thereby. This Agreement
and the other Documents have been duly and validly executed and delivered by
such Shareholder and constitute valid and binding obligations of such
Shareholder, enforceable against such Shareholder in accordance with their
terms. No notice to, filing with, or consent of, any public body or
authority or other Person is necessary for the consummation by such
Shareholder of the transactions contemplated in this Agreement. Execution of
this Agreement by such Shareholder shall constitute such Shareholder's
written consent to approval of this Agreement and Plan of Merger in such
Shareholder's capacity as a holder of shares of Company Common Stock, and
such Shareholder hereby waives receipt of any further notice of the Merger,
including notice of the availability of dissenters' rights.
6.3 PURCHASE FOR INVESTMENT; RESTRICTED SECURITIES. Each
Shareholder individually represents and warrants as to himself (a) that such
Shareholder is acquiring shares of Parent Common Stock for investment and not
with a present view toward, or for sale in connection with, any distribution
thereof, nor with any present intention of distributing or selling the shares
of Parent Common Stock so acquired; (b) that such Shareholder has no present
plan or intention to sell, exchange or otherwise dispose of any of the shares
of Parent Common Stock received in the Merger; and (c) such Shareholder
acknowledges that (i) the shares of Parent Common Stock are not and will not
be registered under the Securities Act of 1933, as amended (the "1933 Act"),
and (ii) that Parent does not file periodic reports with the Securities and
Exchange Commission
19
<PAGE>
pursuant to the requirements of Section 12 or 15(d) of the Securities
Exchange Act of 1934, as amended.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to Company and the Shareholders
as follows:
7.1 ORGANIZATION. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada duly
qualified to transact business as a foreign corporation in each jurisdiction
in which the failure to so qualify would have a material adverse impact on
Parent's ability to merge with Company pursuant to this Agreement and perform
its obligations under this Agreement.
7.2 CORPORATE POWER AND AUTHORITY. Parent has the corporate power
and authority to execute, deliver and perform this Agreement and the other
Documents. The execution, delivery and performance of the Documents
contemplated hereby and the consummation of the transactions contemplated
hereby and thereby have been duly authorized and approved by all necessary
corporate action of Parent. The Documents to be executed and delivered by
Parent have been duly executed and delivered by, and constitute the legal,
valid and binding obligation of Parent enforceable against Parent in
accordance with their terms.
7.3 VALIDITY, ETC. Neither the execution and delivery by Parent of
this Agreement and the other Documents, the consummation by Parent of the
transactions contemplated hereby or thereby, nor the performance by Parent of
this Agreement and such other agreements in compliance with the terms and
conditions hereof and thereof will (i) violate, conflict with or result in
any breach of any trust agreement, articles of incorporation, bylaw,
judgment, decree, order, statute or regulation applicable to Parent, (ii)
violate, conflict with or result in a breach of or default (or give rise to
any right of termination, cancellation or acceleration) under any law, rule
or regulation or any judgment, decree, order, governmental permit, license or
order or any of the terms, conditions or provisions of any mortgage,
indenture, note, license, agreement or other instrument to which Parent is a
party, or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Parent.
7.4 CAPITAL STOCK. The authorized capital stock of Parent consists
of 50,000,000 shares of Parent Common Stock, of which 990,000 shares were
issued and outstanding as of December 31, 1997. All of the issued and
outstanding shares of Parent Capital Stock are, and all of the shares of
Parent Common Stock to be issued in exchange for shares of Company Common
Stock upon consummation of the Merger, when issued in accordance with the
terms of this Agreement, will be, duly and validly issued and outstanding and
fully paid and nonassessable. None of the outstanding shares of Parent
Capital Stock has been, and none of the shares of Parent Common Stock to be
issued in exchange for shares of Company Common Stock upon consummation of
the Merger will be, issued in violation of any preemptive rights of the
current or past shareholders of Parent.
20
<PAGE>
7.5 AUTHORITY OF SUB. Sub is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of Kentucky
as a wholly owned subsidiary of Parent. The authorized capital stock of Sub
shall consist of 1,000 shares of Sub Common Stock, all of which is validly
issued and outstanding, fully paid and nonassessable and is owned by Parent
free and clear of any Claims. Sub (a) has the corporate power and authority
to execute, deliver and perform this Agreement and the other Documents and to
consummate the transactions contemplated hereby and thereby and (b) has taken
all necessary corporate and shareholder action to authorize and approve the
execution, delivery and performance of this Agreement and the other Documents
and the consummation of the transactions contemplated hereby and thereby.
This Agreement and the other Documents have been duly and validly executed
and delivered by Sub and constitute valid and binding obligations of Sub,
enforceable against Sub in accordance with their terms.
7.6 TAX AND REGULATORY MATTERS. Neither Parent nor any Affiliate
thereof has any knowledge of any fact or circumstance that is reasonably
likely to (i) prevent the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code, or (ii) materially impede or delay
receipt of any consents of any federal, state, county, local or other
governmental or regulatory agencies having jurisdiction over the parties or
result in the imposition of a condition or restriction of the type referred
to in the last sentence of Section 9.1(a).
7.7 DISCLOSURE STATEMENT. Parent's Disclosure Statement, dated
April 17, 1998 and as supplemented on April 21, 1998, which has been
previously delivered to the Shareholders is true, complete and correct in all
material respects.
7.8 DISCLOSURE. All Documents delivered or to be delivered by or
on behalf of Parent in connection with this Agreement and the transactions
contemplated hereby are true, complete and correct. Neither this Agreement,
nor any of the other Documents contains any untrue statement of a material
fact or omits a material fact necessary to make the statements made by Parent
herein or therein, in light of the circumstances in which made, not
misleading. There is no fact known to Parent which may have a material
adverse effect on Parent's ability to pay its obligations under this
Agreement, which has not been set forth in the Documents.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 FILINGS WITH STATE OFFICES. Upon the terms and subject to the
conditions of this Agreement, Company shall and Parent shall cause Sub to
execute and file the Articles of Merger with the Kentucky Secretary of State
in connection with the Closing.
8.2 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms
and conditions of this Agreement, each party hereto agrees to use its
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things reasonably necessary, proper, or advisable under
applicable laws to consummate and make effective, as soon as reasonably
practicable after the date of this Agreement, the transactions contemplated
by this Agreement, including using its reasonable efforts to lift or rescind
any order adversely affecting its ability to
21
<PAGE>
consummate the transactions contemplated herein and to cause to be satisfied
the conditions referred to in Article 9; provided, that nothing herein shall
preclude either party hereto from exercising its rights under this Agreement.
Each party hereto shall use its reasonable efforts to obtain all consents
necessary or desirable for the consummation of the transactions contemplated
by this Agreement.
8.3 INVESTIGATION AND CONFIDENTIALITY.
(a) Prior to the Effective Time, each party hereto shall keep the
other party advised of all material developments relevant to its
business and to consummation of the Merger and shall permit the
other party to make or cause to be made such investigation of the
business and properties of it and of its financial and legal
conditions as the other party reasonably requests, provided that
such investigation shall be reasonably related to the transactions
contemplated hereby and shall not interfere unnecessarily with
normal operations. No investigation by a party shall affect the
representations and warranties of the other party.
(b) Each party hereto shall, and shall cause its advisers and agents
to, maintain the confidentiality of all confidential information
furnished to it by the other party concerning its and its
subsidiaries' businesses, operations, and financial positions and
shall not use such information for any purpose except in
furtherance of the transactions contemplated by this Agreement.
For purposes hereof, the term "confidential information" does not
include any information which at the time of disclosure to the
receiving party was or thereafter became publicly available or a
matter of public knowledge, without a breach of this Agreement by
the receiving party, or was disclosed by the receiving party
pursuant to a requirement of law, or in response to a court order,
subpoena or governmental authority.
8.4 PRESS RELEASES. Prior to the Effective Time, Company and
Parent shall consult with each other as to the form and substance of any
press release or other public disclosure materially related to this Agreement
or any other transaction contemplated hereby; provided, that nothing in this
Section 8.4 shall be deemed to prohibit any party from making any disclosure
which its counsel deems necessary or advisable in order to satisfy such
party's disclosure obligations imposed by law.
8.5 NO SOLICITATION. Except with respect to this Agreement and the
transactions contemplated hereby, neither Company, nor any Shareholder, shall
solicit or enter into discussions with any third party (a) to purchase any
shares of capital stock of Company or an option or warrant to purchase shares
of such capital stock or any securities convertible into such capital stock,
(b) to make an offer of any kind for any shares of such capital stock, (c)
purchase all or a substantial portion of the assets of Company or (d) to
merge, consolidate, engage in a share exchange or otherwise combine with
Company.
22
<PAGE>
8.6 SHAREHOLDER RELEASES. Each Shareholder hereby releases and
forever discharges Company and its officers, directors, employees and
insurers, and their respective successors and assigns, and each of them
(hereinafter individually and collectively, the "Releasees") of and from any
and all claims, demands, debts, accounts, covenants, agreements, obligations,
costs, expenses, actions or causes of action of every nature, character or
description, now accrued or which may hereafter accrue, without limitation of
law, equity or otherwise, based in whole or in part on any facts, conduct,
activities, transactions, events or occurrences known or unknown, which have
or allegedly have existed, occurred, happened, arisen or transpired from the
beginning of time to the Effective Time; excluding, however, (i) claims
arising under this Agreement and the transactions contemplated hereby, and
(ii) compensation and other employee benefits accrued but not yet payable as
reflected on the books and records of Company (the "Released Claims"). Each
Shareholder represents and warrants that no Released Claim released herein
has been assigned, expressly, impliedly, or by operation of law, and that all
Released Claims of such Shareholder released herein are owned by such
Shareholder, who has the sole authority to release them. Each Shareholder
agrees that such holder shall forever refrain and forebear from commencing,
instituting or prosecuting any lawsuit action or proceeding, judicial,
administrative, or otherwise, or otherwise attempting to collect or enforce
any Released Claims which are released and discharged herein.
8.7 ACCOUNTING AND TAX TREATMENT. Each party undertakes and agrees
to use its reasonable efforts to cause the Merger to qualify for treatment as
a "reorganization" within the meaning of Section 368(a), including Section
368(a)(1)(D) and (a)(2)(D), of the Code for federal income tax purposes, and
each party covenants and agrees that each representation made by such party
in the certificates executed by or on behalf of such party and attached to
the tax opinion of Stites & Harbison referred to in Section 9.1(c) is true
and correct. Notwithstanding the foregoing, no party shall have any liability
to any other party in the event the Merger ultimately is determined not to
qualify as a "reorganization" within the meaning of Section 368(a) of the
Code as a result of a breach of any covenant or representation in such
certificates by the Shareholders.
8.8 CHARTER PROVISIONS. Company shall take all necessary action to
ensure that the entering into of this Agreement and the consummation of the
Merger and the other transactions contemplated hereby do not and will not
result in the grant of any rights to any Person under the Articles of
Incorporation, Bylaws or other governing instruments of Company or restrict
or impair the ability of Parent or any of its subsidiaries to vote, or
otherwise to exercise the rights of a shareholder with respect to, shares of
Company that may be directly or indirectly acquired or controlled by them.
8.9 CERTAIN TAX RETURNS OF COMPANY. For income tax purposes, (i)
the status of Company as an "S Corporation" shall continue until the
Effective Time of the Merger, (ii) Company's final S corporation tax year
will end at the Effective Time. The Shareholders shall cause to be prepared
and filed all income tax returns of Company (including IRS Form 1120S and
Schedule K-1(1120S) and similar state tax returns) for the tax year ending at
the Effective Time, as well as for the tax year ended December 31, 1997 (if
not filed before the Effective Time). Parent and Company (and not the
Shareholders) shall be responsible for the preparation
23
<PAGE>
and filing of all income tax returns and the payment of all income taxes of
Company for its tax year beginning on the day on which the Effective Time
occurs and all subsequent periods.
8.10 LANDLORD CONSENTS. The Shareholders shall, on or before the
expiration of thirty (30) days after the Effective Time, cause the Company to
obtain from its landlords (to the extent required under the pertinent
premises lease) written consent to the assignment of said leases to Parent
which assignment is deemed to have resulted from the transactions
contemplated by this Agreement.
8.11 AUDITED FINANCIAL STATEMENTS. The Shareholders shall furnish
to the Parent, as soon as practical and at Parent's expense, audited
financial statements of the Company for the three (3) fiscal periods ending
December 31, 1997, March 31, 1997, March 31, 1996 as prepared by an
accounting firm selected by Parent.
8.12 LEASES. The Shareholders shall cause Company to terminate its
current lease for its facility located at 5611 Fern Valley Road, Louisville,
Kentucky and Sub shall enter into a new lease for such facility, the form of
which shall be reasonably acceptable to Sub.
8.13 401(k) PLAN. Subject to compliance with all applicable law, by
the end of the "transition period" as defined in Section 410(b)(6)(C) of the
Code, Parent agrees to create a retirement plan designed to meet the
requirements of Section 401(k) of the Code available to the employees of
Company who meet the conditions under such plan.
8.14 CONTRIBUTIONS TO COMPANY BENEFIT PLANS. Company and the
Shareholders agree that after the Effective Date, only Sub and its eligible
employees may contribute to any Company sponsored 401(k) plan and participate
in the Company health insurance program and that no other employer nor any of
its employees may contribute to such plan or participate in such program.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each party to perform this Agreement and consummate the Merger
and the other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by both parties:
(a) CONSENTS AND APPROVALS. Each party shall have obtained any and
all consents required for consummation of the Merger or for the
preventing of any default under any contract or permit of such
party which, if not obtained or made, is reasonably likely to
have, individually or in the aggregate, a material adverse effect
on such party. No consent so obtained which is necessary to
consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner which in the reasonable
judgment of the Board of Directors of Parent would so materially
adversely impact the economic or business benefits of the
transactions
24
<PAGE>
contemplated by this Agreement that, had such condition or
requirement been known, such party would not, in its reasonable
judgment, have entered into this Agreement.
(b) LEGAL PROCEEDINGS. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law or order (whether
temporary, preliminary or permanent) or taken any other action
which prohibits, restricts or makes illegal consummation of the
transactions contemplated by this Agreement.
(c) TAX MATTERS. Each party shall have received a written opinion of
counsel from Stites & Harbison, in form reasonably satisfactory to
such parties (the "Tax Opinion"), to the effect that (i) the
Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, (ii) the exchange in the Merger of
Company Common Stock for Parent Common Stock will not give rise to
gain or loss to the shareholders of Company with respect to such
exchange (except with respect to any cash received), and (iii)
none of Company, Sub or Parent will recognize gain or loss as a
consequence of the Merger (except for amounts resulting from any
required change in accounting methods). In rendering such Tax
Opinion, such counsel shall be entitled to rely upon
representations of officers of Company, the Shareholders and
Parent reasonably satisfactory in form and substance to such
counsel.
9.2 CONDITIONS TO OBLIGATIONS OF PARENT. The obligations of Parent
to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by Parent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Company and the Shareholders herein contained shall
be true in all material respects as stated herein, both when made
and with the same effect as though made again as of the Effective
Time except to the extent of changes permitted by this Agreement.
Company and the Shareholders shall have performed all obligations
and complied with all covenants required by this Agreement to be
performed or complied with by Company and the Shareholders prior
to the Effective Time.
(b) CERTIFICATES. Company and the Shareholders shall have delivered
to Parent (i) a certificate, dated as of the Effective Time and
signed on Company's behalf by its president and secretary and
signed by each Shareholder, to the effect that the conditions set
forth in Section 9.1 as relates to Company and the Shareholders
and in Section 9.2(a) have been satisfied, and (ii) certified
copies of resolutions duly adopted by Company's Board of Directors
and shareholders evidencing the taking of all corporate action
necessary to authorize the execution, delivery and performance of
this Agreement, and the consummation of the transactions
25
<PAGE>
contemplated hereby, all in such reasonable detail as Parent and
its counsel shall request.
9.3 CONDITIONS TO OBLIGATIONS OF COMPANY AND SHAREHOLDERS. The
obligations of Company and the Shareholders to perform this Agreement and
consummate the Merger and the other transactions contemplated hereby are
subject to the satisfaction of the following conditions, unless waived by
Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent herein contained shall be true in all
material respects as stated herein, both when made and with the
same effect as though made again as of the Effective Time except
to the extent of changes permitted by the terms of this Agreement.
Parent shall have performed all obligations and complied with all
covenants required by this Agreement to be performed or complied
with by Parent prior to the Effective Time.
(b) CERTIFICATES. Parent shall have delivered to Company and the
Shareholders (i) a certificate, dated as of the Effective Time
and signed on its behalf by its president and secretary, to the
effect that the conditions set forth in Section 9.1 as relates to
Parent and in Section 9.3(a) have been satisfied, and (ii)
certified copies of resolutions duly adopted by Parent's Board of
Directors and Sub's Board of Directors and sole shareholder
evidencing the taking of all corporate action necessary to
authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated
hereby, all in such reasonable detail as Company and its counsel
shall request.
ARTICLE 10
INDEMNIFICATION
10.1 SURVIVAL. Except as set forth on Schedule 3.6 hereto, all
representations and warranties in this Agreement and the other Documents
shall survive the Merger and any investigation at any time made by or on
behalf of any party for a period of three years and all such representations
and warranties shall expire on the third anniversary of the Effective Date,
except that (a) claims, if any, asserted in writing prior to such third
anniversary identified as a claim for indemnification pursuant to this
Article 10 shall survive until finally resolved and satisfied in full; (b)
any Year-2000 Indemnification Obligations (as hereinafter defined) shall
survive until February 1, 2003 and until finally resolved and satisfied in
full if asserted on or prior to February 1, 2003; and (c) tax or
environmental claims arising from a breach of Section 5.27 or Section 5.29,
respectively, shall survive for the full period of the applicable statute of
limitations, and until finally resolved and satisfied in full if asserted on
or prior to the expiration of any such period. The representations and
warranties shall not be affected or otherwise diminished by any investigation
at any time by or on behalf of the party for whose benefit such
representations and warranties were made.
26
<PAGE>
10.2 INDEMNIFICATION BY COMPANY AND SHAREHOLDERS. Subject to the
terms herein, Company and the Shareholders shall jointly and severally
indemnify, defend, and hold Parent and the respective officers, directors,
and employees of Parent, and their successors and assigns (the "Shareholders'
Indemnitees") harmless from, against and with respect to any claim,
liability, obligation, loss, damage, assessment, judgment, cost or expense of
any kind or character, including reasonable attorneys' fees (the "Damages"),
arising out of or in any manner incident, relating or attributable to:
(a) Any inaccuracy in any representation or breach of any warranty of
Company or the Shareholders contained in this Agreement;
(b) Any failure by Company or the Shareholders to perform or observe,
or to have performed or observed, in full, any covenant, agreement
or condition to be performed or observed by it under this
Agreement;
(c) Reliance by Parent on any books or records of Company or written
information furnished to Parent pursuant to this Agreement by or
on behalf of Company or the Shareholders in the event that such
books and records or written information are false or materially
inaccurate; or
(d) Liabilities or obligations of, or claims against, Company or
Parent (whether absolute, accrued, contingent or otherwise)
relating to, or arising out of, the operation of the business
prior to the Effective Time or facts and circumstances relating
specifically to the business, the Leased Parcels, or Company
existing at or prior to the Effective Time, including but not
limited to matters set forth on SCHEDULE 5.28, whether or not such
liabilities, obligations or claims were known on such date,
excluding only liabilities set forth in the Balance Sheet and
liabilities and obligations incurred since the date thereof in the
ordinary course of business and consistent with past practice.
Provided, however, the Shareholders' Indemnitees shall not be entitled
to indemnification or offset hereunder until Damages in total exceed $25,000
and then only to the extent of aggregate Damages in excess of $25,000;
PROVIDED FURTHER, HOWEVER, such deductible shall not apply to any Damages
arising from a breach of Sections 5.27, 5.28, 6.1, or 6.2, respectively.
10.3 NOTICE TO SHAREHOLDERS, ETC. If any of the matters as to which
the Shareholders' Indemnitees are entitled to receive indemnification under
Section 10.2 should entail litigation with or claims asserted by parties
other than Company, Shareholders' Agent shall be given prompt notice thereof
and shall have the right, at the Shareholders' expense, to control such claim
or litigation upon prompt notice to Parent of his election to do so. To the
extent requested by Shareholders' Agent, Parent, at its expense, shall
cooperate with and assist Shareholders' Agent, in connection with such claim
or litigation. Parent shall have the right to appoint, at its expense,
single counsel to consult with and remain advised by the Shareholders in
connection with such claim or litigation. Shareholders' Agent shall have
final authority to determine all matters in connection with such claim or
litigation; PROVIDED, HOWEVER, that Shareholders' Agent shall not
27
<PAGE>
settle any third party claim without the consent of Parent, which shall not
be unreasonably denied or delayed.
10.4 INDEMNIFICATION BY PARENT. Parent shall indemnify, defend, and
hold the Shareholders and their heirs, executors and legal representatives
("Parent's Indemnitees") harmless from, against and with respect to any
Damages, arising out of or in any manner incident, relating or attributable
to:
(a) Any inaccuracy in any representation or breach of warranty of
Parent contained in this Agreement;
(b) Any failure by Parent to perform or observe, or to have performed
or observed, in full, any covenant, agreement or condition to be
performed or observed by it under any of the Documents;
(c) Reliance by the Shareholders on any books or records of Parent or
reliance by the Shareholders on any written information furnished
to the Shareholders or Company pursuant to this Agreement by or on
behalf of Parent in the event that such books and records or
written information are false or inaccurate; and
(d) The operation of Company subsequent to the Effective Time.
Provided, however, Parent's Indemnitees shall not be entitled to
indemnification hereunder until Damages in total exceed $25,000 and then only
to the extent of aggregate damages in excess of $25,000.
10.5 NOTICE TO PARENT, ETC. If any of the matters as to which
Parent's Indemnitees are entitled to receive indemnification under Section
10.4 should entail litigation with or claims asserted by parties other than
Parent, Parent shall be given prompt notice thereof and shall have the right,
at its expense, to control such claim or litigation upon prompt notice to the
Shareholders' Agent of its election to do so. To the extent requested by
Parent, Shareholders' Agent, at the expense of the Shareholders, shall
cooperate with and assist Parent, in connection with such claim or
litigation. Shareholders' Agent shall have the right to appoint, at their
expense, single counsel to consult with and remain advised by Parent in
connection with such claim or litigation. Parent shall have final authority
to determine all matters in connection with such claim or litigation;
PROVIDED, HOWEVER, that Parent shall not settle any third party claim without
the consent of Shareholders' Agent, which shall not be unreasonably denied or
delayed.
10.6 SURVIVAL OF INDEMNIFICATION. Except as set forth on Schedule
3.6 hereto, the obligations to indemnify and hold harmless pursuant to this
Article 10 shall survive the Effective Time of the Merger, for a period of
three years, notwithstanding any investigation at any time made by or on
behalf of any party, except that (a) claims, if any, asserted in writing
prior to such third anniversary identified as a claim for indemnification
pursuant to this Article 10 shall survive until finally resolved and
satisfied in full; (b) any Year-2000 Indemnification Obligations (as
hereinafter defined) shall survive until February 1, 2003 and until finally
resolved and
28
<PAGE>
satisfied in full if asserted on or prior to February 1, 2003; and (c) tax or
environmental claims arising from a breach of Section 5.27 or Section 5.29,
respectively, shall survive for the full period of the applicable statute of
limitations, and until finally resolved and satisfied in full if asserted on
or prior to the expiration of any such period. As used in this Article 10,
the term "Year-2000 Indemnification Obligations" shall mean Company's and
Shareholders' obligation to indemnify, defend, and hold the Shareholder's
Indemnitees harmless from, against and with respect to any Damages arising
out of or in any manner incident, relating or attributable to (i) any claim
or allegation that any Licensed System is not Year-2000 Compliant and (ii)
any claim arising from a breach of Section 5.31.
10.7 OFFSET. The Shareholders acknowledge and agree that Parent
shall be entitled to offset any indemnity claim under Section 10.2 against
any payment due to Shareholders under Section 3.6 hereunder. Parent shall
deliver to Shareholders' Agent written notice not less than fifteen (15) days
prior to exercising its right of offset pursuant to this Section 10.7, which
notice shall set forth in reasonable detail Parent's basis for exercising its
right of offset and the amount of the proposed offset. If within fifteen
(15) days of receiving Parent's notice of its intent to exercise its right of
offset Shareholders' Agent delivers to Parent written notice setting forth
Shareholders' Agent's objection to Parent's exercise of its right of offset,
then Parent shall place into an interest-bearing escrow account the amount of
the proposed offset, which amount, along with all accrued interest, shall be
distributed to the Parent or Shareholders or both, as appropriate, upon
resolution of such dispute or upon the written consent of Parent and
Shareholders' Agent. Neither the exercise of nor the failure to give a
notice of a Claim shall constitute an election of remedies nor limit
Indemnitee in any manner in the enforcement of any other remedies that may be
available to it.
ARTICLE 11
MISCELLANEOUS
11.1 KNOWLEDGE OF COMPANY. Where any representation or warranty
contained in this Agreement is expressly qualified by reference to the best
knowledge of Company, Company confirms that it has made due and diligent
inquiry of its President and other officers as to the matters that are the
subject of such representation and warranty.
11.2 KNOWLEDGE OF PARENT. Where any representation or warranty
contained in this Agreement is expressly qualified by reference to the best
of knowledge of Parent, Parent confirms that it has made due and diligent
inquiry of its President as to the matters that are the subject of such
representations and warranties.
11.3 "PERSON" DEFINED. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or other department or agency
thereof.
11.4 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by
29
<PAGE>
hand, (ii) sent by recognized overnight courier, (iii) made by telecopy or
facsimile transmission, or (iv) sent by registered or certified mail, return
receipt requested, postage prepaid.
If to Parent:
ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
Attn: Stephen A. Hoffmann, President
Fax No: (502) 425-5603
With a copy to:
Stites & Harbison
400 W. Market Street, Suite 1800
Louisville, Kentucky 40202
Attn: Ralston W. Steenrod, Esq.
Fax No: (502) 587-6391
If to Company:
Primax Window Co.
5611 Fern Valley Road
P.O. Box 39219
Louisville, Kentucky 40223
Attn: President
Fax No: (502) 962-9484
If to the Shareholders:
c/o Shareholders' Agent
Charles L. Smith
5611 Fern Valley Road
Louisville, Kentucky 40223
Fax No: (502) 962-9484
With a copy to:
Greenebaum, Doll & McDonald
3300 National City Towers
Louisville, Kentucky 40202
Attn: Ivan Diamond, Esq.
Fax No: (502) 540-2134
All notices, requests, consents and other communications hereunder shall be
deemed to have
30
<PAGE>
been given (i) if by hand, at the time of the delivery thereof to the
receiving party at the address of such party set forth above, (ii) if sent by
overnight courier, on the next business day following the day such notice is
delivered to the courier service, (iii) if made by telecopy or facsimile
transmission, at the time that receipt thereof has been acknowledged by
electronic confirmation or otherwise, or (iv) if sent by registered or
certified mail, on the fifth business day following the day such mailing is
sent. The address of any party herein may be changed at any time by written
notice to the parties.
11.5 SHAREHOLDERS' AGENT. Each Shareholder hereby constitutes and
appoints Charles L. Smith ("Shareholders' Agent") as his or her
attorney-in-fact with full authority to act for such Shareholder for the
purposes of giving and receiving notices, requests, consents and other
communications pursuant to Section 11.4 and for purposes of Article 10. Each
Shareholder agrees to be conclusively bound by any action taken by the
Shareholders' Agent, in connection with the agency and power of attorney
conferred hereunder. The Shareholders' Agent shall have no liability to any
such Shareholder for any act, omission or judgment (except in the case of
willful misconduct or gross negligence). This agency and power of attorney
may be revoked at any time by any Shareholder. Parent shall be entitled, in
the absence of such notice of revocation, to rely upon any notice, request,
consent, or other communication from the Shareholders' Agent as a duly
authorized act on behalf of all the Shareholders.
11.6 ENTIRE AGREEMENT. This Agreement and the other Documents
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in the other Documents shall affect, or be used to
interpret, change or restrict, the express terms and provisions of this
Agreement.
11.7 MODIFICATIONS AND AMENDMENTS. The terms and provisions of this
Agreement may be modified or amended only by written agreement executed by
all parties hereto.
11.8 ASSIGNMENT/BINDING EFFECT. Neither this Agreement, nor any
right hereunder, may be assigned by any of the parties hereto without the
prior written consent of the other parties. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
heirs, personal representatives, successors and permitted assigns.
11.9 PARTIES IN INTEREST. Nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies
of any nature whatsoever under or by reason of this Agreement. Nothing in
this Agreement shall be construed to create any rights or obligations except
among the parties hereto, and no person or entity shall be regarded as a
third-party beneficiary of this Agreement.
11.10 GOVERNING LAW. This Agreement and the rights and obligations
of the parties hereunder shall be construed in accordance with and governed
by the internal laws of the Commonwealth of Kentucky without giving effect to
the conflict of law principles thereof.
31
<PAGE>
11.11 ARBITRATION. Except as set forth in Section 3.7 of this
Agreement, any dispute or difference between the parties hereto arising out
of or relating to this Agreement shall be finally settled by arbitration in
accordance with the Commercial Rules of the American Arbitration Association
by a panel of three qualified arbitrators. Shareholders' Agent and Parent
shall each choose an arbitrator and the third shall be chosen by the two so
chosen. If either Shareholders' Agent or Parent fails to choose an arbitrator
within 30 days after notice of commencement of arbitration or if the two
arbitrators fail to choose a third arbitrator within 30 days after their
appointment, the American Arbitration Association shall, upon the request of
any party to the dispute or difference, appoint the arbitrator or arbitrators
to constitute or complete the panel as the case may be. Arbitration
proceedings hereunder may be initiated by either Shareholders' Agent or
Parent making a written request to the American Arbitration Association,
together with any appropriate filing fee, at the office of the American
Arbitration Association in Louisville, Kentucky. All arbitration proceedings
shall be held in Louisville, Kentucky. Any order or determination of the
arbitral tribunal shall be final and binding upon the parties to the
arbitration and may be entered in any court having jurisdiction.
11.12 SEVERABILITY. In the event that any arbitral tribunal of
competent jurisdiction shall finally determine that any provision, or any
portion thereof, contained in this Agreement shall be void or unenforceable
in any respect, then such provision shall be deemed limited to the extent
that such arbitral tribunal determines it enforceable, and as so limited
shall remain in full force and effect. In the event that such arbitral
tribunal shall determine any such provision, or portion thereof, wholly
unenforceable, the remaining provisions of this Agreement shall nevertheless
remain in full force and effect.
11.13 INTERPRETATION. The parties hereto acknowledge and agree that:
(i) the rule of construction to the effect that any ambiguities are resolved
against the drafting party shall not be employed in the interpretation of
this Agreement, and (ii) the terms and provisions of this Agreement shall be
construed fairly as to all parties hereto and not in favor of or against any
party, regardless of which party was generally responsible for the
preparation of this Agreement.
11.14 HEADINGS AND CAPTIONS. The headings and captions of the
various subdivisions of this Agreement are for convenience of reference only
and shall in no way modify, or affect, or be considered in construing or
interpreting the meaning or construction of any of the terms or provisions
hereof.
11.15 RELIANCE. The parties hereto agree that, notwithstanding any
right of any party to this Agreement to investigate the affairs of any other
party to this Agreement, the party having such right to investigate shall
have the right to rely fully upon the representations and warranties of the
other party expressly contained herein.
11.16 EXPENSES. Each party shall pay its own fees and expenses
(including the fees of any attorneys, accountants, appraisers or others
engaged by such party) incurred in connection with this Agreement and the
transactions contemplated hereby whether or not the transactions contemplated
hereby are consummated.
32
<PAGE>
11.17 GENDER. All pronouns and any variation thereof shall be deemed
to refer to the masculine, feminine, neuter, singular, or plural as the
identity of the person or entity or the context may require.
11.18 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by different parties hereto on separate counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
33
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf as of the day and year first above written.
THERMOVIEW INDUSTRIES, INC.
By: /s/ Stephen A. Hoffmann
----------------------------------
Stephen A. Hoffmann, President
THERMOVIEW MERGER CORP.
By: /s/ Stephen A. Hoffmann
----------------------------------
Stephen A. Hoffmann, President
PRIMAX WINDOW CO.
By: /s/ Charles L. Smith
----------------------------------
Charles L. Smith, President
SHAREHOLDERS:
/s/ Charles L. Smith
-------------------------------------
Charles L. Smith
/s/ George M. Jenkins
-------------------------------------
George M. Jenkins III
34
<PAGE>
LEASE
THIS LEASE is entered into on April 29, 1998, by and between CHARLES
L. SMITH, 5611 Fern Valley Road, Louisville, Kentucky 40223 ("Landlord") and
PRIMAX WINDOW CO., f/k/a ThermoView Merger Corp., c/o ThermoView Industries,
Inc., 1101 Herr Lane, Louisville, Kentucky 40222, Attention: Stephen A.
Hoffmann ("Tenant").
In consideration of the mutual covenants hereinafter contained, and
each act performed hereunder by either of the parties, Landlord and Tenant
agree as follows:
ARTICLE 1
DEMISED PREMISES
Section 1.1 Demised Premises. Landlord hereby lets and demises to
Tenant, and Tenant hereby leases from Landlord that portion of the real
property, described in Exhibit A attached hereto and by reference made a part
hereof (the "Demised Premises").
ARTICLE 2
TERM AND RENEWALS
Section 2.1 Demised Term. The "Demised Term" of this Lease shall
be for a period of four (4) years beginning on May 1, 1998, and ending on
April 30, 2002.
Section 2.2 Holding Over. In the event Tenant remains in
possession of the Demised Premises after the expiration of the Demised Term
and without the execution of a new lease, it shall be deemed to be occupying
the Demised Premises as a tenant from month to month, subject to all
conditions, provisions and obligations of this Lease insofar as the same are
applicable to a month-to-month tenancy.
ARTICLE 3
RENT
Section 3.1 Rental During Demised Term. Tenant shall pay to
Landlord throughout the Demised Term rental as follows: $82,200 for each
year of the Demised Term payable on the first day of each month in advance in
equal monthly installments of $6,850.
Section 3.2 Payments. Rental checks are to be made payable to
Landlord and mailed to Landlord at the address shown in the caption of this
Lease, or otherwise as designated by Landlord from time to time in a written
instrument delivered to Tenant.
<PAGE>
ARTICLE 4
TAXES
Section 4.1 Real Estate Taxes.
(A) As additional rental hereunder Tenant shall pay and
discharge as they become due, all taxes and assessments on the Demised
Premises.
(B) Tenant shall have the right at its own expense to
challenge any tax or assessment; such challenge will not, however, relieve
Tenant's obligation to pay such taxes promptly when due. If such challenge
results in a reduction of taxes or assessments, Tenant shall be entitled to a
refund of such reduction within fourteen (14) days of the date such refund
amount is received by Landlord. If the challenge results in reduction of a
bill prior to payment by Landlord, Tenant shall not be entitled to a refund,
but shall have its bill appropriately reduced.
(C) If this Lease expires or terminates before a tax or
assessment bill is rendered for the year in which such expiration or
termination occurs, Tenant shall pay to Landlord on January 1 of such year of
expiration or termination the proportionate amount of the anticipated tax for
the entire calendar year. The said proportional amount shall be computed as
a fraction the numerator of which shall be the number of months of the lease
term within the last calendar year and denominator of which shall be twelve
(12).
ARTICLE 5
USE OF DEMISED PREMISES
Section 5.1 Use. Tenant shall not use or allow the Demised
Premises to be used for any unlawful, disreputable or immoral purpose or in
any way that will injure the reputation of the Demised Premises.
ARTICLE 6
UTILITY SERVICES
Section 6.1 Payment by Tenant. Payment for all utilities used
upon or in connection with the Demised Premises shall be made by Tenant.
Such utility services shall include, but not be limited to, water,
electricity, gas and trash collection.
2
<PAGE>
ARTICLE 7
MAINTENANCE
Section 7.1 Landlord's Maintenance. Tenant shall keep, maintain
and make replacements within the interior and exterior of the Demised
Premises in good condition and repair. Provided, however, should the
aggregate amount of expenses for the repair or replacement to equipment
(including but not limited to electrical systems, lights, plumbing, heating
and cooling systems, and all similar equipment) during the Demised Term
exceed $24,000, then Landlord and Tenant hereby agree to each pay one-half of
such additional expenses. Landlord and Tenant shall each agree on any such
expense in excess of $3,000.
ARTICLE 8
ALTERATIONS
Section 8.1 Alterations. Tenant shall not alter or add to any
part of the Demised Premises except with Landlord's prior consent, such
consent not to be unreasonably withheld. Unless otherwise specifically
provided in writing, any such alteration or addition shall remain in the
Demised Premises upon the expiration or termination of this Lease, free of
any claim by Tenant. Tenant shall furnish evidence to Landlord that all
claims for labor and materials furnished for such remodeling, alteration or
addition have been paid or provided for. Should Tenant fail to pay for such
labor or materials, Landlord may pay such amount and add the cost thereof to
the rental provided for herein.
ARTICLE 9
TRADE FIXTURES
Section 9.1 Trade Fixtures. All fixtures, equipment and other
personal property placed in or upon the Demised Premises by Tenant shall
remain property of Tenant and Tenant shall have the right to remove such
property at any time, providing that any damage caused by such removal shall
be repaired at Tenant's expense.
ARTICLE 10
INSURANCE
Section 10.1 Liability Insurance. Tenant shall, during the Demised
Term, keep in force and effect a policy of public liability and property
damage insurance with respect to the Demised Premises operated by Tenant.
Tenant shall name Landlord as an additional insured.
3
<PAGE>
Section 10.2 Casualty and Other Insurance. Tenant shall carry during
the Demised Term fire and extended coverage insurance on the Demised
Premises. Tenant shall provide Landlord with certificates of insurance
showing that all insurance is effective, payable to Landlord and Tenant (as
their respective interests appear) and not cancelable without ten (10) days'
prior written notice to Landlord. Tenant shall name Landlord as an
additional insured.
Section 10.3 Subrogation. The fire and extended coverage insurance
policies kept and maintained by the parties shall be endorsed to provide for
or shall otherwise contain a waiver of subrogation by the insurance company
or companies except for intentional or grossly negligent acts of the parties,
it being the intent of the parties that in the event of loss caused by
ordinary negligence, the parties agree to look solely to the proceeds of
insurance policies.
ARTICLE 11
DEFAULT AND REMEDIES
Section 11.1 Default by Tenant. In event of any failure of Tenant to
pay any rent due hereunder within ten (10) days after the same shall be due,
or any failure to perform any other of the terms or conditions of this Lease
to be observed or performed by Tenant for more than thirty (30) days after
notice of such default shall have been given to Tenant, then Landlord, may
terminate this Lease.
Section 11.2 Default by Landlord. If Landlord shall fail to promptly
keep and perform any of its representations and warranties strictly in
accordance with the terms of this Lease and shall continue in default for a
period of thirty (30) days after written notice thereof to Landlord, then
Tenant may, at its sole option and discretion, exercise any or all of the
following remedies:
(A) declare this Lease ended and vacate the Demised Premises
without incurring additional rent or other costs associated with the lease of
the Demised Premises; or
(B) remain in the Demised Premises and withhold rent and
other costs due Landlord until such time as Landlord cures such default; or
(C) perform any Landlord obligation, and all expenses
(including without limitation, reasonable attorney fees) incurred by Tenant
in performing such obligation shall be deemed an obligation of Landlord to
Tenant and shall be paid to Tenant on demand.
ARTICLE 12
DAMAGE
Section 12.1 Damage to the Demised Premises. In the event the
Demised Premises are damaged by fire, explosion or any other casualty, the
damage shall promptly be repaired by
4
<PAGE>
Landlord at Landlord's expense, provided (i) no Event of Default shall exist
at the time of such casualty, (ii) sufficient insurance proceeds shall be
made available in a timely manner to Landlord to pay for such reconstruction,
and (iii) Tenant shall have in writing agreed to occupy the Demised Premises
after reconstruction for the full remaining portion of the Demised Term. If
any of the requirements in (i) - (iii) of the preceding sentence shall not be
satisfied, Landlord may in its sole discretion, terminate the Lease and be
under no further obligation to Tenant. In no event shall Landlord be
required to repair or replace Tenant's stock in trade, fixtures, furniture,
furnishings, floor coverings and equipment. If the casualty, repairing, or
rebuilding shall render the Demised Premises untenantable, in whole or in
part, and the damage shall not have been due to the default or neglect of
Tenant, then a proportionate abatement of the rent shall be allowed from the
date when the damage occurred until the date Landlord completes its work,
said proportion to be computed on the basis of the relation which the gross
square foot area of the space rendered untenantable bears to the floor space
of the Demised Premises. Tenant shall have the option to terminate the Lease
if the Demised Premises cannot be fully restored within six (6) months of the
date of damage.
ARTICLE 13
CONDEMNATION
Section 13.1 Condemnation. If the Demised Premises or any part
thereof shall be acquired by any authority having power of eminent domain,
whether directly pursuant to such power or under threat of use of such power,
either Landlord or Tenant shall have the option to terminate this Lease as of
the date when possession is taken by the acquiring authority. Any award or
settlement for damages or sale proceeds shall be distributed to the parties
in proportion to the value of their respective interests in the Demised
Premises. In such taking, condemnation, change of grade, limitation of
access or like proceeding, the parties thereto shall represent their own
interests and shall present and prosecute their own claims for damages and
neither party shall be liable to the other for any recovery obtained.
Section 13.2 Tenant's Option. In the event neither party exercises
its option to terminate as aforesaid, Tenant shall be entitled to a reduction
of rental payments in proportion to the amount by which the gross area of the
Demised Premises is reduced by such taking or loss and such reduction shall
be retroactive to the date when Tenant was deprived of the full and complete
use of all the Demised Premises.
ARTICLE 14
INSPECTION AND ACCESS
Section 14.1 Inspection and Access. Landlord or its agents may,
during normal business hours and with 24 hours prior notice, inspect the
Demised Premises and make such repairs thereto as Landlord deems necessary
for its preservation. Any repairs made by Landlord
5
<PAGE>
because of Tenant's breach of covenant to repair or maintain shall be at
Tenant's expense. In case of an emergency, Landlord shall have access to the
Demised Premises at any time for the purpose of inspecting such facilities or
of making such repairs or changes thereto as Landlord deems necessary.
ARTICLE 15
ASSIGNMENT, SUBLEASE OR LICENSE
Section 15.1 Assignment, Sublease or License. Tenant shall not
assign or sublease the Demised Premises without first obtaining the written
consent of Landlord.
ARTICLE 16
NOTICE
Section 16.1 Notices and Payments. All notices, consents, waivers,
releases, certifications, statements, requests, payments, and other
communications of any kind hereunder shall be in writing and shall be
addressed and sent to the parties at their addresses shown in the caption of
this Lease, subject to thirty (30) days' notice of change. Such
communications shall be effective when deposited in United States Mail,
postage prepaid, unless otherwise agreed or provided herein.
ARTICLE 17
SIGNS
Section 17.1 Signs. Tenant may not erect, maintain, permit and
remove any signs on or about the Demised Premises without the consent of
Landlord, such consent not to be unreasonably withheld.
ARTICLE 18
TIME OF ESSENCE
Section 18.1 Time of Essence. Time shall be deemed of the essence in
all matters pertaining to this Lease.
6
<PAGE>
ARTICLE 19
INDEMNIFICATION
Section 19.1 Indemnification by Tenant. Except as otherwise provided
in Article 10, Tenant covenants at all times to save the Landlord harmless
from all loss, cost or damage which may occur or be claimed with respect to
any person or persons, corporation, property or chattels on or about the
Demised Premises, or to the property itself, resulting from the intentional
or grossly negligent acts of Tenant, its invitees, servants and agents.
Section 19.2 Indemnification by Landlord. Except as otherwise
provided in Article 10, Landlord covenants at all times to save the Tenant
harmless from all loss, cost or damage which may occur or be claimed with
respect to any person or persons, corporation, property or chattels on or
about the Demised Premises, or to the property itself, resulting from the
intentional or grossly negligent acts of Landlord, its invitees, servants and
agents.
ARTICLE 20
SUBORDINATION
Section 20.1 Priority. It is understood that this Lease is subject
and subordinate to any first mortgage and advances thereon and to all
renewals, extensions, modifications, consolidations, participations,
replacements, and amendments of such mortgage.
Section 20.2 Nondisturbance. Provided, however, that so long as
Tenant shall not be in default under the terms of this Lease, said Lease
shall not be terminated nor shall any of Tenant's rights and obligations
under this Lease be disturbed by any steps or proceedings taken by any
mortgagee, lessor or other holder of a right of record effecting the real
property in the exercise of any of its rights under the instrument wherein
the right is authorized.
ARTICLE 21
MISCELLANEOUS
Section 21.1 Covenant of Title. Landlord covenants, represents and
warrants that it has full right and power to execute and perform its
obligations under this Lease and to grant the estate demised herein and that
Tenant, on payment of the rent herein reserved and performance of the
covenants and agreements herein contained, shall peaceably and quietly have,
hold and enjoy the Demised Premises during the Demised Term without
molestation or hindrance by any person, and, if at any time during the
Demised Term, the title of Landlord shall fail or it shall be discovered that
its title does not enable Landlord to grant the term hereby demised, or
action is taken by governmental authority which prevents Tenant from using
the Demised Premises for the use contemplated by it, Tenant shall have the
option at Landlord's expense to correct or
7
<PAGE>
contest such defect or action, or to annul and void this Lease with full
reservation of its rights to damages, if any, against Landlord.
Section 21.2 Waiver. No waiver of any covenant or condition or the
breach of any covenant or condition of this Lease shall be deemed to
constitute a waiver of subsequent breach of such covenant or condition, nor
to justify or authorize the nonobservance on any other occasion of the same
or of any other covenant or condition hereof, nor shall the acceptance of
rent by Landlord at any time when Tenant is in default under any covenant or
condition hereof be construed as a waiver of such default, nor shall any
waiver or indulgence granted by Landlord to Tenant be taken as an estoppel
against Landlord during the continuance of such default.
Section 21.3 Remedies Cumulative. The remedies of Landlord and
Tenant shall be cumulative, and no one of them shall be construed as
exclusive of any other or of any remedy provided by law.
Section 21.4 Relationship of Parties. Nothing herein contained shall
be deemed or construed by the parties hereto, nor by any third party, as
creating the relationship of principal and agent, or of partnership, or of
joint venture, between the parties hereto, it being agreed that neither the
method of computation of rents nor any other provisions named herein, nor any
acts of the parties herein, shall be deemed to create any relationship
between the parties hereto other than the relationship of Landlord and Tenant.
Section 21.5 Governmental Regulation. Landlord and Tenant shall each
comply with all of the requirements of all county, municipal, state, federal
and other applicable governmental authorities, pertaining to the Demised
Premises.
Section 21.6 Construction. Whenever a word appears herein in its
singular form, such word shall include the plural; and the neuter gender
shall include the masculine and feminine genders. This Lease shall be
construed without reference to titles of Articles, Sections or Clauses, which
are inserted for reference only.
Section 21.7 Enjoyment and Relocation. Landlord covenants that it
has full right and power to execute and perform this Lease and to grant the
estate hereby conveyed and, if Tenant fully performs its duties under this
Lease, that Tenant shall throughout the term hereof have the peaceable and
quiet enjoyment and possession of the Demised Premises without interference
from Landlord or from anyone lawfully claiming through Landlord.
Section 21.8 Successors. This Lease shall inure to the benefit of
and be binding upon the parties hereto, their respective heirs, personal
representatives, successors and assigns.
Section 21.9 Attornment. Tenant shall, in the event of any sale,
assignment, or foreclosure of Landlord's rights in the Demised Premises,
attorn to and recognize such assignee or purchaser thereof as the Landlord
under this Lease.
8
<PAGE>
Section 21.10 Entirety, Severability and Law. This Lease shall
constitute the entire agreement between the parties and shall not be modified
in any manner except by written instrument executed by the parties. The
invalidity or unperformability of any provision hereof shall not affect or
impair any other provision hereof. Each term and provision hereof shall be
performed and enforced to the fullest extent permitted by and in accordance
with Kentucky law.
Section 21.11 Consent. Whenever it is necessary under the terms of
the Lease for either party to obtain the consent or approval of the other
party, such consent or approval shall not be unreasonably withheld.
Section 21.12 Law of Kentucky. This Lease shall be governed by the
laws of the Commonwealth of Kentucky.
To indicate their understanding of and consent to the foregoing terms,
the parties have executed this Lease on the date first above written.
LANDLORD:
/s/ Charles L. Smith
- -------------------------------
CHARLES L. SMITH
TENANT:
PRIMAX WINDOW CO.,
f/k/a Thermoview Merger Corp.
BY: /s/ Stephen A. Hoffmann
----------------------------
TITLE: President
----------------------------
9
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of April 29, 1998, by and among THERMOVIEW INDUSTRIES, INC.
("Parent"), a Nevada corporation having its principal office located in
Louisville, Kentucky; THERMOVIEW MERGER CORP. ("Sub"), a Kansas corporation
having its principal office located in Louisville, Kentucky; ROLOX OF KANSAS
CITY, INC. ("Rolox-KC"), a Missouri corporation, and ROLOX OF WICHITA, INC.
("Rolox-W"), a Kansas corporation (Rolox-KC and Rolox-W are sometimes
hereinafter referred to collectively as "Companies" and individually as
"Company"), each having its principal office located in Grandview, Missouri;
and the shareholders of Companies identified on SCHEDULE 6.1 hereto (each a
"Shareholder" and collectively the "Shareholders").
PREAMBLE
The Boards of Directors of each Company, Sub and Parent are of the
opinion that the transactions described herein are in the best interests of
the parties to this Agreement and their respective shareholders. This
Agreement provides for the acquisition of Companies by Parent pursuant to the
merger of Companies with and into Sub. At the Effective Time of the Merger,
the outstanding shares of the capital stock of Companies shall be converted
into the right to receive shares of the common stock of Parent (except as
provided herein). As a result, shareholders of Companies shall become
shareholders of Parent. Also at the Effective Time of the Merger, Companies
shall cease to exist by operation of law and the business formerly conducted
by Companies shall thereafter be conducted by and in the name of Sub. The
transactions described in this Agreement are subject to receipt of required
regulatory consents and approvals and the satisfaction of certain other
conditions described in this Agreement. It is the intention of the parties
to this Agreement that the Merger shall qualify as a "reorganization" within
the meaning of Section 368(a), including Section 368(a)(1)(A) and (a)(2)(D),
of the Internal Revenue Code of 1986, as amended (the "Code") for federal
income tax purposes.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants, and agreements set forth herein, the
parties agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 MERGER. Subject to the terms and conditions of this Agreement
and the provisions of the Plan of Merger attached as EXHIBIT A, at the
Effective Time, Companies shall be merged with and into Sub in accordance
with the applicable provisions of the Kansas General
<PAGE>
Corporation Code ("KGCC") and The General and Business Corporation Law of
Missouri ("TG&BCLM") and with the effect provided in the KGCC and TG&BCLM
(the "Merger"). Sub shall be the surviving corporation resulting from the
Merger and shall be a wholly-owned subsidiary of Parent and shall continue to
be governed by the laws of the State of Kansas. The Merger shall be
consummated pursuant to the terms of this Agreement, the Plan of Merger and
the Certificate of Merger, which have been approved and adopted by the
respective Boards of Directors of Companies, Sub and Parent, by the
Shareholders as the only shareholders of Companies, and by Parent, as the
sole shareholder of Sub.
1.2 TIME AND PLACE OF CLOSING. The closing of the transactions
contemplated hereby (the "Closing") will take place at 9:00 A.M. on the date
hereof. The Closing shall be held at such location as may be mutually agreed
upon by the parties.
1.3 EFFECTIVE TIME. The Merger and other transactions contemplated
by this Agreement shall become effective at 11:59 p.m. E.D.T. (the "Effective
Time") on April 30, 1998 (the "Effective Date").
ARTICLE 2
TERMS OF MERGER
2.1 CHARTER.
The Articles of Incorporation of Sub in effect immediately
prior to the Effective Time shall be the Articles of Incorporation of the
surviving corporation resulting from the Merger until otherwise amended or
repealed.
2.2 BYLAWS.
The Bylaws of Sub in effect immediately prior to the Effective
Time shall be the Bylaws of the surviving corporation resulting from the
Merger until otherwise amended or repealed.
2.3 DIRECTORS AND OFFICERS.
The directors of Sub in office immediately prior to the
Effective Time, together with such additional persons as may thereafter be
elected, shall serve as the directors of the surviving corporation resulting
from the Merger from and after the Effective Time in accordance with the
Bylaws of such corporation. The officers of Sub in office immediately prior
to the Effective Time, together with such additional persons as may
thereafter be elected, shall serve as the officers of the surviving
corporation resulting from the Merger from and after the Effective Time in
accordance with the Bylaws of such corporation.
2.4 CERTAIN CLOSING DELIVERIES. In connection with the Closing, each
of Parent, Companies and the Shareholders agrees to execute and deliver to each
other party the following:
2
<PAGE>
(a) Sub and Robert L. Cox II shall have executed and
delivered to the other an Employment Agreement, which shall be in the form of
EXHIBIT B.
(b) Parent and each of the Shareholders shall have executed
and delivered to the other a Noncompetition Agreement, which shall be in the
form of EXHIBIT C.
(c) Parent and each of the Shareholders shall have executed
and delivered to the other a Registration Rights Agreement, which shall be in
the form of EXHIBIT D.
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 CONVERSION OF SHARES. Subject to the provisions of this
Article 3, at the Effective Time, by virtue of the Merger and without any
action on the part of Parent, Companies, Sub or the shareholders of any of
the foregoing, the shares of the constituent corporations shall be converted
as follows:
(a) Each share of $.001 par value common stock of Parent
("Parent Common Stock") and any other class or series of capital stock of
Parent (collectively, "Parent Capital Stock") issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
from and after the Effective Time.
(b) Each share of the no par value common stock of Sub ("Sub
Common Stock") issued and outstanding immediately prior to the Effective Time
shall remain issued and outstanding from and after the Effective Time.
(c) All of the shares of Rolox-KC Common Stock, defined in
Section 5.4 below, (excluding shares held by either Company or Parent or any
of its subsidiaries) issued and outstanding immediately prior to the
Effective Time shall cease to be outstanding and shall be converted into and
exchanged for (i) the right to receive an aggregate of 750,000 shares of
Parent Common Stock, and (ii) the right to receive an aggregate of
$1,725,000.
(d) All of the shares of Rolox-W Common Stock, defined in
Section 5.4 below, (excluding shares held by either Company or Parent or any
of its subsidiaries) issued and outstanding immediately prior to the
Effective Time shall cease to be outstanding and shall be converted into and
exchanged for (i) the right to receive an aggregate of 370,000 shares of
Parent Common Stock and (ii) the right to receive an aggregate of $845,000.
3.2 ANTI-DILUTION PROVISIONS. In the event Parent changes the
number of shares of Parent Common Stock issued and outstanding prior to the
Effective Time as a result of a stock split, stock dividend, or similar
recapitalization with respect to such stock and the record date therefor (in
the case of a stock dividend) or the effective date thereof (in the case of a
stock split or similar recapitalization for which a record date is not
established) shall be prior to the
3
<PAGE>
Effective Time, the aggregate number of shares Parent Common Stock delivered
pursuant to Section 3.1(c) and (d) shall be proportionately adjusted.
3.3 SHARES HELD BY COMPANIES OR PARENT. Each of the shares of
Company Common Stock held by either Company or Parent or any of its
subsidiaries shall be canceled and retired at the Effective Time and no
consideration shall be issued in exchange therefor.
3.4 DISSENTING SHAREHOLDERS. Each of the Shareholders agrees that
he will not seek to assert dissenters' rights to which such Shareholder
otherwise would be entitled under KGCC 17-6711 and Section 351.455 of TG&BCLM.
3.5 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, each holder of shares of Company Common Stock exchanged pursuant
to the Merger who would otherwise have been entitled to receive a fraction of
a share of Parent Common Stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of Parent
Common Stock multiplied by the market value of one share of Parent Common
Stock at the Effective Time. The market value of one share of Parent Common
Stock at the Effective Time shall be the highest bid price of such common
stock as quoted by the National Association of Securities Dealers (as
reported by The Wall Street Journal or, if not reported thereby, any other
authoritative source selected by Parent) on the last trading day preceding
the Effective Time. No such holder will be entitled to dividends, voting
rights, or any other rights as a shareholder in respect of any fractional
shares.
3.6 POST-CLOSING EARN-OUT. The Shareholders shall be entitled to
receive post-closing earn-outs as set forth on SCHEDULE 3.6.
ARTICLE 4
EXCHANGE OF SHARES
4.1 EXCHANGE PROCEDURES. At the Closing (or as soon as reasonably
practicable thereafter), each holder of shares of Company Common Stock (other
than shares to be canceled pursuant to Section 3.3) issued and outstanding at
the Effective Time shall surrender the certificate or certificates
representing such shares to Parent and shall promptly upon surrender thereof
receive in exchange therefor the consideration provided in Section 3.1,
together with all undelivered dividends or distributions in respect of such
shares (without interest thereon) pursuant to Section 4.2. To the extent
required by Section 3.5, each holder of shares of Company Common Stock issued
and outstanding at the Effective Time also shall receive, upon surrender of
the certificate or certificates representing such shares, cash in lieu of any
fractional share of Parent Common Stock to which such holder may be otherwise
entitled (without interest). Parent shall not be obligated to deliver the
consideration to which any former holder of Company Common Stock is entitled
as a result of the Merger until such holder surrenders such holder's
certificate or certificates representing the shares of Company Common Stock
for exchange as
4
<PAGE>
provided in this Section 4.1. The certificate or certificates of Company
Common Stock so surrendered shall be duly endorsed as Parent may require.
4.2 RIGHTS OF FORMER SHAREHOLDERS. At the Effective Time, the
stock transfer books of each Company shall be closed as to holders of Company
Common Stock immediately prior to the Effective Time and no transfer of
Company Common Stock by any such holder shall thereafter be made or
recognized. Until surrendered for exchange in accordance with the provisions
of Section 4.1, each certificate theretofore representing shares of Company
Common Stock (other than shares to be canceled pursuant to Section 3.3) shall
from and after the Effective Time represent for all purposes only the right
to receive the consideration provided in Sections 3.1 and 3.5 in exchange
therefor, subject, however, to each Company's obligation to pay any dividends
or make any other distributions with a record date prior to the Effective
Time which have been declared or made by either Company in respect of such
shares of Company Common Stock in accordance with the terms of this Agreement
and which remain unpaid at the Effective Time. Whenever a dividend or other
distribution is declared by Parent on the Parent Common Stock, the record
date for which is at or after the Effective Time, the declaration shall
include dividends or other distributions on all shares of Parent Common Stock
issuable pursuant to this Agreement, but no dividend or other distribution
payable to the holders of record of Parent Common Stock as of any time
subsequent to the Effective Time shall be delivered to the holder of any
certificate representing shares of Company Common Stock issued and
outstanding at the Effective Time until such holder surrenders such
certificate for exchange as provided in Section 4.1. However, upon surrender
of such Company Common Stock certificate, both the Parent Common Stock
certificate (together with all such undelivered dividends or other
distributions without interest) and any undelivered dividends and cash
payments payable hereunder (without interest) shall be delivered and paid
with respect to each share represented by such certificate.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF COMPANIES
Companies hereby represent and warrant to Parent as follows:
5.1 ORGANIZATION AND QUALIFICATION. Rolox-KC is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Missouri. Rolox-W is a corporation duly organized, validly existing and
in good standing under the laws of the State of Kansas. Each Company is
qualified to do business as a foreign corporation and is in good standing in
the states set forth on SCHEDULE 5.1. The nature of the business of
Companies does not require Companies to be licensed or qualified in any other
jurisdiction. Each Company has made available to Parent complete and correct
copies of the Articles of Incorporation and By-laws of such Company as
currently in effect.
5.2 CORPORATE POWER AND AUTHORITY. Each Company has the corporate
power and authority to own and hold its properties and to carry on its
business as now conducted. Each Company (a) has the corporate power and
authority to execute, deliver and perform this
5
<PAGE>
Agreement and the Exhibits and to deliver the Schedules hereto and the other
documents and instruments contemplated hereby (collectively this Agreement,
the Exhibits and Schedules hereto, and the other documents and instruments
contemplated hereby shall constitute the "Documents") and to consummate the
transactions contemplated hereby and thereby and (b) has taken all necessary
corporate and shareholder action to authorize and approve the execution,
delivery and performance of this Agreement and the other Documents and the
consummation of the transactions contemplated hereby and thereby. This
Agreement and the other Documents have been duly and validly executed and
delivered by each Company and constitute valid and binding obligations of
such Company, enforceable against such Company in accordance with their terms.
5.3 FOREIGN PERSON. Neither Company is a foreign person as that
term is defined in Section 1445(f)(3) of the Code and applicable regulations.
5.4 CAPITALIZATION. Authorized capital of the Companies is as
follows: (a) Rolox-KC has authorized capital consisting of (i) 15,000 shares
of Class A Voting common stock, with a par value of $.02 per share, of which
250 shares are issued and outstanding and (ii) 1,485,000 shares of Class A
Non-Voting common stock, with a par value of $.02 per share, of which 24,750
shares are issued and outstanding (collectively, the "Rolox-KC Common
Stock"), and no shares are held as treasury stock and (b) Rolox-W has
authorized capital consisting of (i) 100 shares of Class A Voting common
stock, with a par value of $1.00 per share, of which 10 shares are issued and
outstanding and (ii) 9,900 shares of Class A Non-Voting common stock with a
par value of $1.00 per share, of which 990 shares are issued and outstanding
(collectively, the "Rolox-W Common Stock"), and no shares are held as
treasury stock (the Rolox-KC Common Stock and the Rolox-W Common Stock are
sometimes hereinafter referred to collectively as the "Company Common
Stock"). All of the outstanding shares of each Company have been duly
authorized and validly issued and are fully paid and nonassessable. None of
the outstanding shares of either Company has been issued in violation of any
preemptive right. There are no outstanding options, warrants, rights, calls,
commitments, conversion rights, rights of exchange, plans or other agreements
of any character providing for the purchase, issuance or sale of any shares
of capital stock of either Company, other than as contemplated by this
Agreement.
5.5 SUBSIDIARIES AND INVESTMENTS. Neither Company has any
subsidiaries nor owns, directly or indirectly, any capital stock or other
equity or ownership or proprietary interest in any other corporation,
partnership, association, trust, joint venture or other entity.
5.6 BOOKS AND RECORDS. The minute books of each Company, which
have been and will be made available to Parent and its representatives,
contain accurate records of all meetings of and corporate actions or written
consents by the shareholders and Board of Directors of each Company set forth
in such minute books. Neither Company has any of its records, systems,
controls, data or information recorded, stored, maintained, operated or
otherwise wholly or partly dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
which (including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of either Company.
6
<PAGE>
5.7 FINANCIAL STATEMENTS. Each Company has previously furnished to
Parent, and attached hereto as SCHEDULE 5.7 are, the unaudited balance sheet
of each Company as at December 31, 1997, 1996 and 1995 the related unaudited
income statement for the fiscal year ended December 31, 1997, 1996 and 1995
and the unaudited balance sheet (the "Balance Sheet") of each Company as at
April 10, 1998 (the "Balance Sheet Date") and the related unaudited income
statement for the 3 months and 10 days then ended. All such financial
statements (the "Financial Statements") have been prepared or modified on
cash basis and were prepared from the books and records of each Company.
Such books and records are complete and correct in all material respects,
accurately reflect all transactions of the business of each Company, and have
been made available to Parent for examination. The Financial Statements
fairly present the financial position of each Company as of the dates
thereof. Since the Balance Sheet Date, (i) there has been no change in the
assets, liabilities or financial condition of either Company from that
reflected in the Balance Sheet except for changes in the ordinary course of
business consistent with past practice and which have not been materially
adverse, and (ii) none of the business, prospects, financial condition,
operations, property or affairs of either Company has been materially
adversely affected by any occurrence or development, individually or in the
aggregate, whether or not insured against. Each Company has disclosed to
Parent all material facts relating to the preparation of the Financial
Statements.
5.8 EMPLOYMENT AND LABOR MATTERS.
(a) SCHEDULE 5.8 lists all employees and officers of each
Company on the date hereof, along with the amount of the current annual
salaries and total compensation paid or due for services to each employee or
officer for the most recent fiscal year end and the year to date, and a full
and complete description of any commitments to such employees and officers
with respect to compensation payable thereafter. To the best knowledge of
each Company, no key employee or group of employees has any plans to
terminate employment with either Company.
(b) Neither Company is a party to or bound by any collective
bargaining agreement with any labor organization, group or association
covering any of its employees, and neither Company has any knowledge of any
attempt to organize either Company's employees by any Person, unit or group
seeking to act as their bargaining agent. There are no pending or threatened
charges (by employees, their representatives or governmental authorities) of
unfair labor practices or of employment discrimination or of any other
wrongful action with respect to any aspect of employment of any person
employed or formerly employed by either Company. No union representation
election relating to employees of either Company has been scheduled by any
governmental agency or authority, no organizational effort is being made with
respect to any of such employees, and there is no investigation of either
Company's employment policies or practices by any governmental agency or
authority pending or threatened. Neither Company is currently, or has it
been, involved in labor negotiations with any unit or group seeking to become
the bargaining unit for any employees of either Company. Neither Company has
experienced any material work stoppages, and to the best knowledge of each
Company, no work stoppage is planned.
7
<PAGE>
5.9 REAL PROPERTY. Neither Company owns any real property.
5.10 POWERS OF ATTORNEY; ABSENCE OF LIMITATIONS ON COMPETITION;
GUARANTEES. Except as set forth in SCHEDULE 5.10, (i) no power of attorney or
similar authorization given by either Company presently is in effect or
outstanding; (ii) no contract or agreement to which either Company is a party
or is bound or to which either Company's properties or assets are subject
limits the freedom of such Company to compete in any line of business or with
any Person; and (iii) neither Company is a party to or bound by any guarantee
of any debt or obligation of any other Person.
5.11 SIGNIFICANT SUPPLIERS. Set forth on SCHEDULE 5.11 is a true
and correct list of each Company's ten largest suppliers for the most recent
twelve (12) month period ending December 31, 1997 and for the three (3) month
period ending March 31, 1998, together with the amount attributable to such
suppliers expressed in dollars and as a percentage of total supplies
purchased. None of the suppliers identified on SCHEDULE 5.11 has terminated,
materially reduced or threatened to terminate or materially reduce its
supplies to each Company during the period covered by such schedule.
5.12 GOVERNMENTAL APPROVALS. Except as set forth on SCHEDULE 5.12,
no registration or filing with, or consent or approval of or other action by,
any Federal, state or other governmental agency or instrumentality is or will
be necessary for the valid execution, delivery and performance by each
Company of this Agreement.
5.13 VALIDITY, ETC. Except as set forth on SCHEDULE 5.13, neither
the execution and delivery of this Agreement or the other Documents, the
consummation of the transactions contemplated hereby or thereby, nor the
performance of this Agreement or the other Documents in compliance with the
terms and conditions hereof and thereof by either Company will (i) violate,
conflict with or result in any breach of any trust agreement, Articles of
Incorporation, bylaw, judgment, decree, order, statute or regulation
applicable to either Company, (ii) violate, conflict with or result in a
breach, default or termination or give rise to any right of termination,
cancellation or acceleration of the maturity of any payment date of any of
the obligations of either Company or increase or otherwise affect the
obligations of either Company under any law, rule, regulation or any
judgment, decree, order, governmental permit, license or order or any of the
terms, conditions or provisions of any mortgage, indenture, note, license,
agreement or other instrument or obligation related to either Company or to
such Company's ability to consummate the transactions contemplated hereby or
thereby, except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained in
writing and provided to Parent, or (iii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to either Company.
5.14 ABSENCE OF ADVERSE CHANGE; CONDUCT OF BUSINESS. During the
period from the Balance Sheet Date to and including the date of this
Agreement, except as set forth on SCHEDULE 5.14, neither Company has (i)
borrowed or agreed to borrow any material amount of funds or incurred any
liability or obligation of any nature (whether accrued, absolute, contingent
or
8
<PAGE>
otherwise), or guaranteed or agreed to guarantee any obligations of others,
(ii) canceled any indebtedness owing to it or any claims that it might have
possessed, waived any material rights of substantial value or sold, leased,
encumbered, transferred or otherwise disposed of, or agreed to sell, lease,
encumber, or otherwise dispose of its assets or permitted any of its assets
to be subjected to any mortgage, pledge, lien, security interest,
encumbrance, restriction or charge of any kind, (iii) made any capital
expenditure or commitment therefor, (iv) declared or paid any dividend or
made any distribution on any shares of its capital stock, or redeemed,
purchased or otherwise acquired any shares of its capital stock or any
option, warrant or other right to purchase or acquire any such shares, (v)
increased its indebtedness for borrowed money, or made any loan to any
Person, (vi) written off as uncollectible any notes or accounts receivable,
except write-offs in the ordinary course of business charged to applicable
reserves, (vii) made any material change in any method of accounting or
auditing practice, (viii) otherwise conducted its business or entered into
any transaction, except in the usual and ordinary manner, or (ix) agreed,
whether or not in writing, to do any of the foregoing.
5.15 CERTAIN PRACTICES. Neither Company, none of its respective
directors or officers, or to the best knowledge of either Company, any of
such Company's employees has, directly or indirectly, used any corporate
funds for unlawful contributions, gifts, entertainment, or other unlawful
expenses relating to political activity; made any unlawful payment to foreign
or domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds; violated any provision
of the Foreign Corrupt Practices Act of 1977, as amended; established or
maintained any unlawful or unrecorded fund of corporate monies or other
assets; made any false or fictitious entry on the books or records of either
Company or any subsidiary; made any bribe, rebate, payoff, influence payment,
kickback, or other unlawful payment; given any favor or gift which is not
deductible for federal income tax purposes; or made any bribe, kickback, or
other payment of a similar or comparable nature, whether lawful or not, to
any person or entity, private or public, regardless of form, whether in
money, business or to obtain special concessions, or to pay for favorable
treatment for business secured or for special concessions already obtained.
5.16 COMPLIANCE WITH LAW; LICENSES AND PERMITS. Except as set forth
on SCHEDULE 5.16, each Company has complied in all material respects with all
laws, ordinances, legal requirements, rules, regulations and orders
applicable to it, its operations, properties, assets, products and services.
Except as set forth on SCHEDULE 5.16, there is no existing law, rule,
regulation or order, and neither Company is aware of any proposed law, rule,
regulation or order, whether Federal, state or local, which would prohibit or
materially restrict Sub from, or otherwise materially adversely affect Sub
in, conducting the business of both Companies in the manner heretofore
conducted by such Company in any jurisdiction in which such business is now
conducted. Each Company possesses all franchises, permits, licenses,
certificates and consents required from any governmental or regulatory
authority in order for each Company to carry on its business as currently
conducted and to own and operate its properties and assets as now owned and
operated and all of such licenses and permits are set forth on SCHEDULE 5.16.
9
<PAGE>
5.17 EMPLOYEE BENEFITS.
(a) Set forth on SCHEDULE 5.17 is a list of all pension,
profit sharing, retirement, deferred compensation, stock purchase, stock
option, incentive, bonus, vacation, severance, disability, hospitalization,
medical insurance, life insurance, fringe benefit, welfare and other employee
benefit plans, programs or arrangements pursuant to which each Company or its
ERISA Affiliates provides (directly or indirectly, individually or jointly
through others) benefits or compensation to or on behalf of employees or
independent contractors or former employees or former independent contractors
of each Company or its ERISA Affiliates, whether formal or informal, whether
or not written ("Employee Plan"). On request by Parent, each Company shall
furnish a copy of each Employee Plan and a copy of any related materials.
Companies will maintain the benefits listed on SCHEDULE 5.17 in full force
and effect through the Effective Date. Except as set forth on SCHEDULE 5.17,
Parent shall not have any obligation or liability of any kind or nature for
any compensation or benefits of any kind or nature to the employees or
consultants of either Company for services rendered prior to the Effective
Date.
(b) Each Employee Plan covering any present or former
employee of either Company which is subject to the continuation health
coverage requirements of Section 4980B of the Code or Section 601 of ERISA or
any applicable state law has complied with all such requirements for
continuation coverage.
(c) There are no actions, suits or claims pending (other
than routine claims for benefits) or threatened against or with respect to
any Employee Plan or the assets of any Employee Plan.
(d) Each Employee Plan (and the related trust or funding
vehicle, if any) has been administered and maintained in accordance with its
terms and with applicable law. Except as set forth on SCHEDULE 5.17(d), each
Employee Plan which is intended to be qualified under Section 401 of the Code
and each amendment to such plan is subject to a favorable determination
letter from the Internal Revenue Service ("IRS") and each such plan has at
all times been maintained, by its terms and in operation, in accordance with
Section 401 of the Code. The assets of each Employee Plan which is not
funded through the general assets of either Company are at least equal to the
liabilities under such Employee Plan, and all assets of each Employee Plan
are shown on the books and records of such Employee Plan at fair market
value. No Employee Plan has unfunded liabilities that as of the Effective
Time are not accurately and fully reflected on either Company's Balance Sheet.
(e) Neither Company nor any of its respective ERISA
Affiliates is or has been a participant in, or is or has been obligated to
maintain or to make contributions to, a multi-employer plan (within the
meaning of ERISA Section 3(37) and ERISA Section 4001(a)(3)) or an Employee
Plan which is subject to Title IV of ERISA. Neither Company nor any of its
respective ERISA Affiliates has sponsored, contributed to or been obligated
under Title I or IV of ERISA to contribute to a "defined benefit plan" (as
defined in ERISA Section 3(35)). Neither Company is obligated to provide
post-retirement medical benefits or any other unfunded post-retirement
welfare benefits to or on behalf of any persons whatsoever (except the
benefits
10
<PAGE>
pursuant to the continuation health coverage requirements under Section 4980B
of the Code, ERISA Section 601, or applicable state law).
(f) Neither Company nor any of its respective ERISA
Affiliates is subject to and, to the best knowledge of each Company, no facts
exist which could subject either Company or any of its respective ERISA
Affiliates to, any liability whatsoever which is directly or indirectly
related to any Employee Plan, including, but not limited to, liability for
benefit payments or related claims, any liability for any tax or related
penalty under the Code, or liability for any damages or penalties arising
under Title I or Title IV of ERISA. No reportable event under Section 4043
of ERISA has occurred or, to the best knowledge of each Company, will occur
with respect to such Employee Plan.
(g) Termination of or withdrawal from any Employee Plan
immediately after the Effective Time would not subject Parent to any
liability, tax or penalty whatsoever.
(h) The execution or performance of the transactions
contemplated by this Agreement will not create, accelerate or increase any
obligations under the Employee Plan, including any obligation to make any
payment which would not be deductible as an excess golden parachute payment
under Section 280G of the Code.
(i) All contributions to or under each Employee Plan and all
expenses of each Employee Plan are fully deductible for income tax purposes
for the taxable year for which such contributions are made or such expenses
are paid. All contributions to or under each Employee Plan have been made
when due under the terms of such Employee Plan in accordance with applicable
law.
(j) For purposes of this Section 5.17, the term "ERISA"
shall mean the Employee Retirement Income Security Act of 1974, as amended,
and the term "ERISA Affiliate" shall mean each trade or business (whether or
not incorporated) which together with either Company is treated as a single
employer under Section 414(b), (c), (m), (o) or (t) of the Code.
(k) Immediately before the Effective Date, the sum of the
account balances maintained for all participants under the Rolox 401(k)
Profit Sharing Plan equals the fair market value of the assets of such plan.
5.18 FIXED ASSETS. SCHEDULE 5.18 contains a true and complete list
of all of each Company's fixed assets with a net book value of greater than
$1,000.00, whether owned or leased. Except as shown on SCHEDULE 5.18, each
Company has good and marketable title to all of its fixed assets, free and
clear of all claims, liens, mortgages, charges and encumbrances except as
disclosed in the Balance Sheet. All of each Company's fixed assets, whether
owned or leased, are adequate and usable for the purposes for which they are
currently used, are in good operating condition and repair and have been
properly maintained.
5.19 INSURANCE. Each Company is, and will be through the Closing,
insured with insurers in respect of its properties, assets and businesses as
set forth on the attached SCHEDULE 5.19. SCHEDULE 5.19 lists the insurance
coverage carried by each Company, which
11
<PAGE>
insurance will remain in full force and effect with respect to all events
occurring prior to the Effective Date. Except as set forth on SCHEDULE 5.19,
neither Company (i) has failed to give any notice or present any claim under
any such policy or binder in due and timely fashion, (ii) has received notice
of cancellation or non-renewal of any such policy or binder, (iii) is aware
of any threatened or proposed cancellation or non-renewal of any such policy
or binder, (iv) has received notice of any insurance premium which will be
materially increased in the future, and (v) is aware of any insurance premium
which will be materially increased in the future. There are no outstanding
claims under any such policy which have gone unpaid for more than 45 days, or
as to which the insurer has disclaimed liability.
5.20 OUTSTANDING INVOICES. The outstanding invoices and other debts
due or recorded in the respective records and books of account of each
Company as being due to each Company as of the Effective Date, all of which
are set forth on SCHEDULE 5.20, arose in the ordinary course of business of
each Company, are not subject to any counterclaim or set-off and are
substantially collectible within 120 days after the Effective Date without
resort to litigation and without offset or counterclaim.
5.21 OUTSTANDING CONTRACTS. SCHEDULE 5.21 sets forth a description
of all existing contracts, agreements, leases, commitments, licenses and
franchises, which involve obligations or commitments by each Company of
$10,000 or more and are not cancelable by such Company without penalty within
30 days (collectively "Contracts"), whether written or oral, relating to such
Company, except for customer contracts which arose in the ordinary course of
business. Each Company has delivered or made available to Parent true,
correct and complete copies of all of the Contracts specified on SCHEDULE
5.21 which are in writing, and such schedule sets forth a complete
description of all Contracts which are not in writing. All of the Contracts
are in full force and effect and enforceable in accordance with their terms,
except to the extent that the enforceability thereof may be subject to or
affected by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, or other laws relating to or affecting the rights
of creditors generally. Except as set forth on SCHEDULE 5.21, each Company
and, to the best knowledge of each Company, each other party thereto has
materially performed all the obligations required to be performed by it, has
received no notice of default and is not in default (with due notice or lapse
of time or both) under any of the Contracts. Neither Company has any present
expectation or intention of not fully performing all its obligations under
each of the Contracts, and neither Company has any knowledge of any breach or
anticipated breach by the other party to any of the Contracts to which such
Company is a party. Except as set forth on SCHEDULE 5.21, none of the
Contracts has been terminated; no notice has been given by any party thereto
of any alleged default by any party thereunder; and neither Company is aware
of any intention or right of any party to declare another party to any of the
Contracts to be in default. Except as set forth on SCHEDULE 5.21, there
exists no actual or, to the best knowledge of either Company, threatened
termination, cancellation or limitation of the business relationship of such
Company by any party to any of the Contracts.
5.22 OUTSTANDING LEASES. SCHEDULE 5.22 sets forth a description of
each agreement by which each Company leases each parcel of real property (the
"Leased Parcels") used in connection with the business (collectively, the
"Leases"). Each Company has delivered or made
12
<PAGE>
available to Parent true, correct and complete copies of all of the Leases
specified on SCHEDULE 5.22. All rents due under the Leases have been paid.
All of the Leases are in full force and effect and enforceable in accordance
with their terms, except to the extent that the enforceability thereof may be
subject to or affected by applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium, or other laws relating to or
affecting the rights of creditors generally. Except as set forth on SCHEDULE
5.22, each Company and, to the best knowledge of each Company, each other
party thereto has performed all the obligations required to be performed by
it, has received no notice of default and is not in default (with due notice
or lapse of time or both) under any of the Leases. Neither Company has any
present expectation or intention of not fully performing all its obligations
under each of the Leases, and neither Company has any knowledge of any breach
or anticipated breach by the other party to any of the Leases. Except as set
forth on SCHEDULE 5.22, none of the Leases has been terminated; no notice has
been given by any party thereto of any alleged default by any party
thereunder; and neither Company is aware of any intention or right of any
party to declare another party to any of the Leases to be in default. There
exists no actual or, to the best knowledge of each Company, threatened
termination, cancellation or limitation of the business relationship of such
Company with any party to any of the Leases.
5.23 INTELLECTUAL PROPERTIES. SCHEDULE 5.23 contains an accurate
and complete list of all domestic and foreign letters patent, patents, patent
applications, patent licenses, software licenses and know-how licenses, trade
names, trademarks, copyrights, unpatented inventions, service marks,
trademark registrations and applications, service mark registrations and
applications and copyright registrations and applications, trade secrets or
other confidential proprietary information owned or used by each Company in
the operation of the business (collectively the "Intellectual Property").
Except as set forth on SCHEDULE 5.23 and except for commercial software
licensed for use on personal computers, each Company owns the entire right,
title and interest in and to the Intellectual Property, trade secrets and
technology used in the operation of its business and each item constituting
part of the Intellectual Property and trade secrets and technology which is
owned by each Company has been, to the extent indicated in SCHEDULE 5.23,
duly registered with, filed in or issued by, as the case may be, the United
States Patent and Trademark office or such other government entities,
domestic or foreign, as are indicated in SCHEDULE 5.23 and such
registrations, filings and issuances remain in full force and effect. There
have been and are no pending or, to the best knowledge of each Company,
threatened proceedings or litigation or other adverse claims affecting or
with respect to the Intellectual Property. There is, to the best knowledge
of each Company, no reasonable basis upon which a claim may be asserted
against either Company for infringement of any domestic or foreign letters
patent, patents, patent applications, patent licenses and know-how licenses,
trade names, trademark registrations and applications, common law trademarks,
service marks, service mark registrations or applications, copyrights,
copyright registrations or applications, trade secrets or other confidential
proprietary information. To the best knowledge of each Company, no Person is
infringing the Intellectual Property.
5.24 PROPRIETARY INFORMATION OF THIRD PARTIES. Except as disclosed
on SCHEDULE 5.24, no third party has claimed or, to the best knowledge of
either Company, has reason to claim that any Person employed by or consulting
with either Company ("Related
13
<PAGE>
Person") has (i) violated or may be violating any of the terms or conditions
of such person's employment, non-competition or non-disclosure agreement with
such third party, (ii) disclosed or may be disclosing or utilized or may be
utilizing any trade secret or proprietary information or documentation of
such third party, or (iii) interfered or may be interfering in the employment
relationship between such third party and any of its present or former
employees. No third party has requested information from either Company
which suggests that such a claim might be contemplated. Except as disclosed
on SCHEDULE 5.24, to the best knowledge of each Company, no Related Person
has employed or proposes to employ any trade secret or any information or
documentation proprietary to any former employer and no Related Person has
violated any confidential relationship which such person may have had with
any third party, in connection with the development or sale of any service of
either Company, and neither Company has any reason to believe there will be
any such employment or violation.
5.25 TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE
5.25, to the best knowledge of each Company, no director, officer or
shareholder of either Company, or member of the family of any such person, or
any corporation, partnership, trust or other entity in which any such person,
or any member of the family of any such person, has a beneficial interest
greater than 5% or is an officer, director, trustee, partner or holder of any
equity interest greater than 5% (an "Affiliate"), is a party to any
transaction with either Company, including any contract, agreement or other
arrangement providing for the employment of, furnishing of services by,
rental of real or personal property from or otherwise requiring payments or
involving other obligations to any such person or firm.
5.26 ABSENCE OF UNDISCLOSED LIABILITIES.
(a) Except as and to the extent of the amounts specifically
reflected or reserved against in the Balance Sheet, or except as set forth on
SCHEDULE 5.26, neither Company has any liabilities or obligations of any
nature whatsoever due or to become due, accrued, absolute, contingent or
otherwise, except for liabilities and obligations incurred since the date
thereof in the ordinary course of business and consistent with past practice.
Neither Company knows of, and has any reason to know of, any basis for the
assertion against such Company of any liability or obligation not fully
reflected or reserved against in the Balance Sheet.
(b) Neither Company is bound by any agreement, or subject to
any charter or other corporate restriction or any legal requirement, which
has, or in the future can reasonably be expected to have, a material adverse
effect on the business or prospects of such Company.
5.27 TAXES. Rolox-KC has timely filed a valid election to be
treated as an S corporation in accordance with the provisions of Section 1361
of the Code, effective for its tax year ended December 31, 1987; Rolox-W has
timely filed a valid election to be treated as an S corporation in accordance
with the provisions of Section 1361 of the Code, effective for its tax year
ended December 31, 1985; and each Company has qualified and shall continue to
qualify as an S corporation for all years and periods thereafter until the
Effective Time. SCHEDULE 5.27 lists all the states and localities with
respect to which each Company is required to file any corporate, income
and/or franchise tax returns and sets forth whether each Company is treated
as the
14
<PAGE>
equivalent of an S corporation by or with respect to each such state and/or
locality. Neither Company has engaged in any activity which would disqualify
its treatment as an S corporation for those tax purposes. Except as set
forth on SCHEDULE 5.27, all federal, state, local and foreign tax returns and
tax reports required to be filed by each Company on or before the date
hereof have been timely filed with the appropriate governmental agencies in
all jurisdictions in which such returns and reports are required to be filed
and all amounts shown as owing thereon have been paid. All taxes (including,
without limitation, income, accumulated earnings, property, sales, use,
franchise, excise, license, value added, fuel, employees' income withholding
and social security taxes) which have become due or payable or are required
to be collected by each Company or are otherwise attributable to any periods
ending on or before the Effective Date and all interest and penalties
thereon, whether disputed or not, have been paid or will be paid in full or
adequately reflected on the Balance Sheet or each Company's books and records
in accordance with generally accepted accounting principles on or prior to
the Effective Time. Except as set forth on SCHEDULE 5.27, all deposits
required by law to be made by each Company with respect to employees'
withholding taxes have been duly made, and as of the Effective Time all such
deposits due will have been made. Each Company has delivered to Parent true
and complete copies of all of such Company's federal and state income tax
returns for the fiscal periods ended December 31, 1997, 1996 and 1995 and all
reports and results of income tax audits, if any, related thereto. Except as
set forth on SCHEDULE 5.27, no examination of any tax return of either
Company is currently in progress. There are no outstanding agreements or
waivers extending the statutory period of limitations applicable to any such
tax return.
5.28 LITIGATION. Except as set forth on SCHEDULE 5.28, there is no
(i) action, suit, claim, proceeding or investigation pending or, to the best
knowledge of each Company, threatened against or affecting either Company
(whether or not such Company is a party or prospective party thereto), at law
or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceeding pending
relating to either Company or (iii) governmental inquiry pending or
threatened against or involving either Company, and there is no basis for any
of the foregoing. Neither Company has received any opinion or memorandum or
legal advice from legal counsel to the effect that such Company is exposed,
from a legal standpoint, to any liability or disadvantage which may be
material to the business, prospects, financial condition, operations,
property or affairs of such Company. There are no outstanding orders, writs,
judgments, injunctions or decrees served upon either Company by any court,
governmental agency or arbitration tribunal against such Company. To the
best knowledge of Company, there are no facts or circumstances which may
result in institution of any action, suit, claim or legal, administrative or
arbitration proceeding or investigation against, involving or affecting
either Company or the transactions contemplated hereby. Neither Company is
in default with respect to any order, writ, injunction or decree known to or
served upon it from any court or of any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. Except as disclosed on SCHEDULE 5.28,
there is no action or suit by either Company pending or threatened against
others.
15
<PAGE>
5.29 ENVIRONMENTAL MATTERS.
(a) COMPLIANCE. Each Company and all Leased Parcels are in
compliance with all applicable laws, rules, regulations, orders, ordinances,
judgments and decrees of all governmental authorities with respect to all
environmental statutes, rules and regulations. Except as set forth on
SCHEDULE 5.29, neither Company has received notice of, nor does either
Company have knowledge of, any past, present or future events, conditions,
circumstances, activities, practices, incidents, actions or plans of such
Company or such Company's predecessors, either collectively, individually or
severally, which may interfere with or prevent continued compliance with, or
which may give rise to any common law or legal liability or otherwise form
the basis of any claim, action, suit, proceeding, hearing, or investigation,
based on or related to the disposal, storage, handling, manufacture,
processing, distribution, use, treatment or transport, or the emission,
discharge, release or threatened release into the environment, of any
Substance. As used in this Section 5.29, the term "Substance" or
"Substances" shall mean any pollutant, contaminant, hazardous substance,
hazardous material, hazardous waste or toxic waste, as defined in any
presently enacted federal, state or local statute or any regulation that has
been promulgated pursuant thereto. No part of any of the Leased Parcels has
been listed or proposed for listing on the National Priorities List
established by the United States Environmental Protection Agency, or any
corresponding list by any state or local authorities.
(b) ENVIRONMENTAL SUBSTANCE LIABILITY. No event has
occurred or condition exists or operating practice is being employed that
could give rise to liability on the part of either Company, either at the
present time or in the future, for any losses, liabilities, damages (whether
consequential or otherwise), settlements, penalties, interest, expenses and
costs of responses, including any such liability on account of the right of
any governmental or private entity or person, and including closure expenses,
costs of assessment, containment, removal, or response (other than monitoring
or transportation or disposal of materials required to be transported or
disposed of in the ordinary course of business consistent with past practice)
arising under any rule or federal, state, or local statute, or any regulation
that has been promulgated pursuant thereto, or common law, as a result of or
in connection with, or alleged to be as a result of or in connection with,
the following (collectively the "Hazardous Activities"):
(i) the handling, storage, use, transportation or
disposal of any Substances in or near or from the Leased Parcels;
(ii) the handling, storage, use, transportation or
disposal of any Substances by either Company or their predecessors which
Substances were a product, by-product or otherwise resulted from the
operations conducted by or on behalf of either Company or their predecessors;
(iii) any intentional or unintentional emission,
discharge or release of any Substances in or near or from facilities into or
upon the air, surface water, ground water or land or any disposal, handling,
manufacturing, processing, distribution, use, treatment, or transport of such
Substances in or near or from facilities by or on behalf of either Company or
their predecessors; or
16
<PAGE>
(iv) the presence of any toxic or hazardous building
materials (including but not limited to friable asbestos or similar
substances) in any facilities of either Company, including but not limited to
the inclusion of such materials in the exterior and interior walls, floors,
ceilings, tile, insulation or any other portion of building structures.
(c) ENVIRONMENTAL PERMITS. Each Company has obtained and
holds all registrations, permits, licenses, and approvals issued by or on
behalf of any federal, state or local governmental body or agency if any
("Environmental Permits") that are required in connection with the operation
by such Company of the Leased Parcels, the discharge or emission of
Substances by such Company from the Leased Parcels or the generation,
treatment, storage, transportation, or disposal of any such Substances by
such Company. Such Environmental Permits, which are described on SCHEDULE
5.29, are currently effective and sufficient for the operation of the Leased
Parcels and the business of each Company as currently conducted and intended
to be conducted. Each Company is in compliance with all terms and conditions
of the Environmental Permits, and is also in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables contained in those laws or provisions
or contained in any regulation, code, plan, order, decree, judgment, notice
or demand letter issued, entered, promulgated or approved thereunder and
applicable to each Company.
(d) DELIVERIES. Each Company has delivered to Parent true
and complete copies and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by either Company pertaining to Substances
or Hazardous Activities in, on, or under the Leased Parcels or concerning
compliance by either Company or any other Person for whose conduct they are
or may be held responsible, with environmental statutes, rules and
regulations.
5.30 INVENTORY. All inventory of each Company, whether or not
reflected in the Financial Statements or Balance Sheet, consists of a quality
and quantity usable and salable in the ordinary course of business, except
for obsolete items and items of below-standard quality, all of which have
been written off or written down to net realizable value in the Financial
Statements or the Balance Sheet, as the case may be. All inventories not
written off have been priced at the lower of cost or market on a first in,
first out basis. The quantities of each item of inventory (whether raw
materials, work-in-process, or finished goods) are not excessive, but are
reasonable in the present circumstances of each Company.
5.31 YEAR-2000 COMPLIANCE.
(a) SCHEDULE 5.31 contains a true and complete list of all
Systems (as hereinafter defined), and each System is Year-2000 Compliant (as
hereinafter defined) to the extent indicated on SCHEDULE 5.31.
(b) As used throughout this Agreement, the following
definitions shall have the following meanings:
(1) "External Systems" shall mean all services which
are provided to either Company by third parties and which are dependent on
information technology, including, but not
17
<PAGE>
limited to, any external payroll, accounting, or tax filing services or any
checking, savings, or other financial services.
(2) "Internal Systems" shall mean all technology
products and systems generally operated or controlled in-house by either
Company, or its employees, agents, or independent contractors including, but
not limited to, computers, computer networks, telephone systems, voicemail
systems, intercom systems, pager systems, and software applications.
(3) "Licensed Systems" shall mean all products and
systems developed by or for either Company which are licensed, sold,
distributed, or otherwise transferred by either Company to third parties.
(4) "System" or "Systems" shall mean any, all, or
any combination of any Internal System, External System, or Licensed System.
(5) "Year-2000 Compliant" shall mean, with respect
to each System, that such System is designed to be used before, during, and
after the calendar year 2000 A.D. and will accurately accept date input and
process, store, and output date data and date-related data, including,
without limitation, calculating, comparing, sorting, and sequencing such data
and calculating leap years before, during, and after the calendar year 2000
A.D. without any manual intervention.
5.32 DISCLOSURE. All Documents delivered or to be delivered by or
on behalf of either Company in connection with this Agreement and the
transactions contemplated hereby are true, complete and correct. Neither
this Agreement, nor any of the other Documents contains any untrue statement
of a material fact or omits a material fact necessary to make the statements
made by either Company herein or therein, in light of the circumstances in
which made, not misleading. There is no fact known to either Company which
materially and adversely affects the business, prospects or financial
condition of such Company or its properties or assets, which has not been set
forth in the Documents.
5.33 TAX AND REGULATORY MATTERS. Neither Company nor any Affiliate
thereof has any knowledge of any fact or circumstance that is reasonably
likely to (i) prevent the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code, or (ii) materially impede or delay
receipt of any consents of any federal, state, county, local or other
governmental or regulatory agencies having jurisdiction over the parties or
result in the imposition of a condition or restriction of the type referred
to in the last sentence of Section 9.1(a).
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each of the Shareholders represents and warrants to Parent as follows:
18
<PAGE>
6.1 OWNERSHIP OF SHARES. Each Shareholder individually represents
and warrants as to himself (a) that such Shareholder owns the shares of
Company Common Stock listed opposite such Shareholder's name on SCHEDULE 6.1
hereto, free and clear of all pledges, security interests, liens, charges,
encumbrances, equities, claims, options or limitations of every kind
("Claims"), and (b) that the delivery to Parent of the Common Stock pursuant
to the provisions of this Agreement will transfer to Parent valid title
thereto, free and clear of all Claims.
6.2 AUTHORITY AND APPROVAL; NO BREACH BY AGREEMENT. Each
Shareholder individually represents and warrants as to himself (a) that such
Shareholder has full legal power, capacity and authority to execute, deliver
and perform this Agreement and the other Documents and to consummate the
transactions contemplated hereby and thereby. This Agreement and the other
Documents have been duly and validly executed and delivered by such
Shareholder and constitute valid and binding obligations of such Shareholder,
enforceable against such Shareholder in accordance with their terms. No
notice to, filing with, or consent of, any public body or authority or other
Person is necessary for the consummation by such Shareholder of the
transactions contemplated in this Agreement. Execution of this Agreement by
such Shareholder shall constitute such Shareholder's written consent to
approval of this Agreement and Plan of Merger in such Shareholder's capacity
as a holder of shares of Company Common Stock, and such Shareholder hereby
waives receipt of any further notice of the Merger, including notice of the
availability of dissenters' rights.
6.3 PURCHASE FOR INVESTMENT; RESTRICTED SECURITIES. Each
Shareholder individually represents and warrants as to himself (a) that such
Shareholder is acquiring shares of Parent Common Stock for investment and not
with a present view toward, or for sale in connection with, any distribution
thereof, nor with any present intention of distributing or selling the shares
of Parent Common Stock so acquired; (b) that such Shareholder has no present
plan or intention to sell, exchange or otherwise dispose of any of the shares
of Parent Common Stock received in the Merger; and (c) such Shareholder
acknowledges that (i) the shares of Parent Common Stock are not and will not
be registered under the Securities Act of 1933, as amended (the "1933 Act"),
and (ii) that Parent does not file periodic reports with the Securities and
Exchange Commission pursuant to the requirements of Section 12 or 15(d) of
the Securities Exchange Act of 1934, as amended.
6.4 BROKER'S OR FINDER'S FEES. Except as set forth on SCHEDULE
6.4, no agent, broker, person or firm acting on behalf of the Shareholders or
either Company is, or will be, entitled to any commission or broker's or
finder's fees from the Shareholders or either Company, or from any person
controlling, controlled by or under common control with the Shareholders or
either Company, in connection with any of the transactions contemplated
herein.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to Companies and the
Shareholders as follows:
19
<PAGE>
7.1 ORGANIZATION. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada, duly
qualified to transact business as a foreign corporation in each jurisdiction
in which the failure to so qualify would have a material adverse impact on
Parent's ability to effect the Merger with each Company pursuant to this
Agreement and perform its obligations under this Agreement.
7.2 CORPORATE POWER AND AUTHORITY. Parent has the corporate power
and authority to execute, deliver and perform this Agreement and the other
Documents. The execution, delivery and performance of the Documents
contemplated hereby and the consummation of the transactions contemplated
hereby and thereby have been duly authorized and approved by all necessary
corporate action of Parent. The Documents to be executed and delivered by
Parent have been duly executed and delivered by, and constitute the legal,
valid and binding obligation of Parent enforceable against Parent in
accordance with their terms.
7.3 VALIDITY, ETC. Neither the execution and delivery by Parent of
this Agreement and the other Documents, the consummation by Parent of the
transactions contemplated hereby or thereby, nor the performance by Parent of
this Agreement and such other agreements in compliance with the terms and
conditions hereof and thereof will (i) violate, conflict with or result in
any breach of any trust agreement, articles of incorporation, bylaw,
judgment, decree, order, statute or regulation applicable to Parent, (ii)
violate, conflict with or result in a breach of or default (or give rise to
any right of termination, cancellation or acceleration) under any law, rule
or regulation or any judgment, decree, order, governmental permit, license or
order or any of the terms, conditions or provisions of any mortgage,
indenture, note, license, agreement or other instrument to which Parent is a
party, or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Parent.
7.4 CAPITAL STOCK. The authorized capital stock of Parent consists
of 50,000,000 shares of Parent Common Stock, of which 990,000 shares were
issued and outstanding as of December 31, 1997. All of the issued and
outstanding shares of Parent Capital Stock are, and all of the shares of
Parent Common Stock to be issued in exchange for shares of Company Common
Stock upon consummation of the Merger, when issued in accordance with the
terms of this Agreement, will be, duly and validly issued and outstanding and
fully paid and nonassessable. None of the outstanding shares of Parent
Capital Stock has been, and none of the shares of Parent Common Stock to be
issued in exchange for shares of Company Common Stock upon consummation of
the Merger will be, issued in violation of any preemptive rights of the
current or past shareholders of Parent.
7.5 AUTHORITY OF SUB. Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Kansas as a
wholly owned subsidiary of Parent. The authorized capital stock of Sub shall
consist of 1,000 shares of Sub Common Stock, all of which is validly issued
and outstanding, fully paid and nonassessable and is owned by Parent free and
clear of any Claims. Sub (a) has the corporate power and authority to
execute, deliver and perform this Agreement and the other Documents and to
consummate the transactions contemplated hereby and thereby and (b) has taken
all necessary corporate and shareholder
20
<PAGE>
action to authorize and approve the execution, delivery and performance of
this Agreement and the other Documents and the consummation of the
transactions contemplated hereby and thereby. This Agreement and the other
Documents have been duly and validly executed and delivered by Sub and
constitute valid and binding obligations of Sub, enforceable against Sub in
accordance with their terms.
7.6 TAX AND REGULATORY MATTERS. Neither Parent nor any Affiliate
thereof has any knowledge of any fact or circumstance that is reasonably
likely to (i) prevent the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code, or (ii) materially impede or delay
receipt of any consents of any federal, state, county, local or other
governmental or regulatory agencies having jurisdiction over the parties or
result in the imposition of a condition or restriction of the type referred
to in the last sentence of Section 9.1(a).
7.7 DISCLOSURE STATEMENT. Parent's Disclosure Statement, dated
April 17, 1998 and as supplemented on April 21, 1998, which has been
previously delivered to the Shareholders is true, complete and correct in all
material respects.
7.8 DISCLOSURE. All Documents delivered or to be delivered by or
on behalf of Parent in connection with this Agreement and the transactions
contemplated hereby are true, complete and correct. Neither this Agreement,
nor any of the other Documents contains any untrue statement of a material
fact or omits a material fact necessary to make the statements made by Parent
herein or therein, in light of the circumstances in which made, not
misleading. There is no fact known to Parent which may have a material
adverse effect on Parent's ability to pay its obligations under this
Agreement, which has not been set forth in the Documents.
7.9 BROKER'S OR FINDER'S FEES. Except as set forth on SCHEDULE
7.9, no agent, broker, person or firm acting on behalf of Parent is, or will
be, entitled to any commission or broker's or finder's fees from Parent, or
from any person controlling, controlled by or under common control with
Parent, in connection with any of the transactions contemplated herein.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 FILINGS WITH STATE OFFICES. Upon the terms and subject to the
conditions of this Agreement, Rolox-KC shall and Parent shall cause Sub to
execute and file the Articles of Merger with the Missouri Secretary of State
in connection with the Closing and Rolox-W shall and Parent shall cause Sub
to execute and file a Certificate of Merger with the Kansas Secretary of
State in connection with the Closing.
8.2 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms
and conditions of this Agreement, each party hereto agrees to use its
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things reasonably necessary, proper, or advisable under
applicable laws to consummate and make effective, as soon as reasonably
21
<PAGE>
practicable after the date of this Agreement, the transactions contemplated
by this Agreement, including using its reasonable efforts to lift or rescind
any order adversely affecting its ability to consummate the transactions
contemplated herein and to cause to be satisfied the conditions referred to
in Article 9; provided, that nothing herein shall preclude either party
hereto from exercising its rights under this Agreement. Each party hereto
shall use its reasonable efforts to obtain all consents necessary or
desirable for the consummation of the transactions contemplated by this
Agreement.
8.3 Investigation and Confidentiality.
(a) Prior to the Effective Time, each party hereto shall
keep the other party advised of all material developments relevant to its
business and to consummation of the Merger and shall permit the other party
to make or cause to be made such investigation of the business and properties
of it and of its financial and legal conditions as the other party reasonably
requests, provided that such investigation shall be reasonably related to the
transactions contemplated hereby and shall not interfere unnecessarily with
normal operations. No investigation by a party shall affect the
representations and warranties of the other party.
(b) Each party hereto shall, and shall cause its advisers
and agents to, maintain the confidentiality of all confidential information
furnished to it by the other party concerning its and its subsidiaries'
businesses, operations, and financial positions and shall not use such
information for any purpose except in furtherance of the transactions
contemplated by this Agreement. For purposes hereof, the term "confidential
information" does not include any information which at the time of disclosure
to the receiving party was or thereafter became publicly available or a
matter of public knowledge, without a breach of this Agreement by the
receiving party, or was disclosed by the receiving party pursuant to a
requirement of law, or in response to a court order, subpoena or governmental
authority.
8.4 PRESS RELEASES. Prior to the Effective Time, each Company and
Parent shall consult with each other as to the form and substance of any
press release or other public disclosure materially related to this Agreement
or any other transaction contemplated hereby; provided, that nothing in this
Section 8.4 shall be deemed to prohibit any party from making any disclosure
which its counsel deems necessary or advisable in order to satisfy such
party's disclosure obligations imposed by law.
8.5 NO SOLICITATION. Except with respect to this Agreement and the
transactions contemplated hereby, neither Company, nor any Shareholder, shall
solicit or enter into discussions with any third party (a) to purchase any
shares of capital stock of either Company or an option or warrant to purchase
shares of such capital stock or any securities convertible into such capital
stock, (b) to make an offer of any kind for any shares of such capital stock,
(c) purchase all or a substantial portion of the assets of either Company or
(d) to merge, consolidate, engage in a share exchange or otherwise combine
with either Company.
8.6 SHAREHOLDER RELEASES. Each Shareholder hereby releases and
forever discharges each Company and its officers, directors, employees and
insurers, and their respective successors and assigns, and each of them
(hereinafter individually and collectively, the "Releasees") of and
22
<PAGE>
from any and all claims, demands, debts, accounts, covenants, agreements,
obligations, costs, expenses, actions or causes of action of every nature,
character or description, now accrued or which may hereafter accrue, without
limitation of law, equity or otherwise, based in whole or in part on any
facts, conduct, activities, transactions, events or occurrences known or
unknown, which have or allegedly have existed, occurred, happened, arisen or
transpired from the beginning of time to the Effective Time; excluding,
however, (i) claims arising under this Agreement and the transactions
contemplated hereby, and (ii) compensation and other employee benefits
accrued but not yet payable as reflected on the books and records of each
Company (the "Released Claims"). Each Shareholder represents and warrants
that no Released Claim released herein has been assigned, expressly,
impliedly, or by operation of law, and that all Released Claims of such
Shareholder released herein are owned by such Shareholder, who has the sole
authority to release them. Each Shareholder agrees that such holder shall
forever refrain and forebear from commencing, instituting or prosecuting any
lawsuit action or proceeding, judicial, administrative, or otherwise, or
otherwise attempting to collect or enforce any Released Claims which are
released and discharged herein.
8.7 ACCOUNTING AND TAX TREATMENT. Each party undertakes and agrees
to use its reasonable efforts to cause the Merger to qualify for treatment as
a "reorganization" within the meaning of Section 368(a), including Section
368(a)(1)(A) and (a)(2)(D), of the Code for federal income tax purposes, and
each party covenants and agrees that each representation made by such party
in the certificates executed by or on behalf of such party and attached to
the tax opinion of Stites & Harbison referred to in Section 9.1(c) is true
and correct. Notwithstanding the foregoing, no party shall have any liability
to any other party in the event the Merger ultimately is determined not to
qualify as a "reorganization" within the meaning of Section 368(a) of the
Code as a result of a breach of any covenant or representation in such
certificates by the Shareholders.
8.8 CHARTER PROVISIONS. Each Company shall take all necessary
action to ensure that the entering into of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby do
not and will not result in the grant of any rights to any Person under the
Articles of Incorporation, Bylaws or other governing instruments of each
Company or restrict or impair the ability of Parent or any of its
subsidiaries to vote, or otherwise to exercise the rights of a shareholder
with respect to, shares of each Company that may be directly or indirectly
acquired or controlled by them.
8.9 CERTAIN TAX RETURNS OF EACH COMPANY. For income tax purposes,
(i) the status of each Company as an "S Corporation" shall continue until the
Effective Time of the Merger, (ii) each Company's final S corporation tax
year will end at the Effective Time. The Shareholders shall cause to be
prepared and filed all income tax returns of each Company (including IRS Form
1120S and Schedule K-1(1120S) and similar state tax returns) for the tax year
ending at the Effective Time, as well as for the tax year ended December 31,
1997 (if not filed before the Effective Time). Parent and each Company (and
not the Shareholders) shall be responsible for the preparation and filing of
all income tax returns and the payment of all income taxes of each Company
for its tax year beginning on the day on which the Effective Time occurs and
all subsequent periods.
23
<PAGE>
8.10 WORKING CAPITAL. Each Company shall have working capital in
the amount of $1.00 as of the Effective Date.
8.11 NEW LEASES. The Shareholders shall cause each Company to
terminate its current leases for the Leased Parcels as set forth on SCHEDULE
5.21 and Sub shall enter into a new lease for each Leased Parcel as set forth
on SCHEDULE 5.21, the form of which shall be reasonably acceptable to Sub.
8.12 AUDITED FINANCIAL STATEMENTS. The Shareholders shall furnish
to Parent, as soon as practical and at Shareholder's expense, audited
financial statements of each Company for the three (3) fiscal years ending
December, 1997, 1996 and 1995, as prepared by an accounting firm selected by
Parent.
8.13 401(k) PLAN. Subject to compliance with all applicable law, by
the end of the "transition period" as defined in Section 410(b)(6)(C) of the
Code, Parent agrees to create a retirement plan designed to meet the
requirements of Section 401(k) of the Code available to the employees of the
Companies who meet the conditions under such plan.
8.14 CONTRIBUTIONS TO COMPANY BENEFIT PLANS. Each Company and the
Shareholders agree that after the Effective Date, only Sub and its eligible
employees may contribute to any 401(k) plan sponsored by either Company and
participate in any health insurance program sponsored by either Company and
that no other employer nor any of its employees may contribute to such plan
or participate in such program.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each party to perform this Agreement and consummate the Merger
and the other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by both parties:
(a) CONSENTS AND APPROVALS. Each party shall have obtained
any and all consents required for consummation of the Merger or for the
preventing of any default under any contract or permit of such party which,
if not obtained or made, is reasonably likely to have, individually or in the
aggregate, a material adverse effect on such party. No consent so obtained
which is necessary to consummate the transactions contemplated hereby shall
be conditioned or restricted in a manner which in the reasonable judgment of
the Board of Directors of Parent would so materially adversely impact the
economic or business benefits of the transactions contemplated by this
Agreement that, had such condition or requirement been known, such party
would not, in its reasonable judgment, have entered into this Agreement.
24
<PAGE>
(b) LEGAL PROCEEDINGS. No court or governmental or
regulatory authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law or order (whether temporary,
preliminary or permanent) or taken any other action which prohibits,
restricts or makes illegal consummation of the transactions contemplated by
this Agreement.
(c) TAX MATTERS. Each party shall have received a written
opinion of counsel from Stites & Harbison, in form reasonably satisfactory to
such parties (the "Tax Opinion"), to the effect that (i) the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code,
(ii) the exchange in the Merger of Company Common Stock for Parent Common
Stock will not give rise to gain or loss to the shareholders of either
Company with respect to such exchange (except with respect to any cash
received), and (iii) none of Companies, Sub or Parent will recognize gain or
loss as a consequence of the Merger (except for amounts resulting from any
required change in accounting methods). In rendering such Tax Opinion, such
counsel shall be entitled to rely upon representations of officers of each
Company, the Shareholders and Parent reasonably satisfactory in form and
substance to such counsel.
9.2 CONDITIONS TO OBLIGATIONS OF PARENT. The obligations of Parent
to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by Parent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Company and the Shareholders herein contained shall be
true in all material respects as stated herein, both when made and with the
same effect as though made again as of the Effective Time except to the
extent of changes permitted by this Agreement. Each Company and the
Shareholders shall have performed all obligations and complied with all
covenants required by this Agreement to be performed or complied with by each
Company and the Shareholders prior to the Effective Time.
(b) CERTIFICATES. Each Company and the Shareholders shall
have delivered to Parent (i) a certificate, dated as of the Effective Time
and signed on each Company's behalf by its president and secretary and signed
by each Shareholder, to the effect that the conditions set forth in Section
9.1 as relates to each Company and the Shareholders and in Section 9.2(a)
have been satisfied, and (ii) certified copies of resolutions duly adopted by
each Company's Board of Directors and shareholders evidencing the taking of
all corporate action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as Parent and its counsel
shall request.
9.3 CONDITIONS TO OBLIGATIONS OF EACH COMPANY AND SHAREHOLDERS.
The obligations of each Company and the Shareholders to perform this
Agreement and consummate the Merger and the other transactions contemplated
hereby are subject to the satisfaction of the following conditions, unless
waived by each Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent herein contained shall be true in all material respects
as stated herein, both when made and with the same effect as though made
again as of the Effective Time except to the extent of
25
<PAGE>
changes permitted by the terms of this Agreement. Parent shall have
performed all obligations and complied with all covenants required by this
Agreement to be performed or complied with by Parent prior to the Effective
Time.
(b) CERTIFICATES. Parent shall have delivered to each
Company and the Shareholders (i) a certificate, dated as of the Effective
Time and signed on its behalf by its president and secretary, to the effect
that the conditions set forth in Section 9.1 as relates to Parent and in
Section 9.3(a) have been satisfied, and (ii) certified copies of resolutions
duly adopted by Parent's Board of Directors and Sub's Board of Directors and
sole shareholder evidencing the taking of all corporate action necessary to
authorize the execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby, all in such reasonable
detail as each Company and its counsel shall request.
ARTICLE 10
INDEMNIFICATION
10.1 SURVIVAL. Except as set forth on SCHEDULE 3.6 hereto, all
representations and warranties in this Agreement and the other Documents
shall survive the Merger and any investigation at any time made by or on
behalf of any party for a period of three years and all such representations
and warranties shall expire on the third anniversary of the Effective Date,
except that (a) claims, if any, asserted in writing prior to such third
anniversary identified as a claim for indemnification pursuant to this
Article 10 shall survive until finally resolved and satisfied in full; (b)
any Year-2000 Indemnification Obligations (as hereinafter defined) shall
survive until February 1, 2003 and until finally resolved and satisfied in
full if asserted on or prior to February 1, 2003; and (c) tax or
environmental claims arising from a breach of Section 5.27 or Section 5.29,
respectively, shall survive for the full period of the applicable statute of
limitations, and until finally resolved and satisfied in full if asserted on
or prior to the expiration of any such period. The representations and
warranties shall not be affected or otherwise diminished by any investigation
at any time by or on behalf of the party for whose benefit such
representations and warranties were made.
10.2 INDEMNIFICATION BY EACH COMPANY AND PRINCIPAL SHAREHOLDERS.
Subject to the terms herein, each Company, Robert L. Cox and Robert L. Cox II
(the "Principal Shareholders") shall jointly and severally indemnify, defend,
and hold Parent and the respective officers, directors, and employees of
Parent, and their successors and assigns (the "Shareholders' Indemnitees")
harmless from, against and with respect to any claim, liability, obligation,
loss, damage, assessment, judgment, cost or expense of any kind or character,
including reasonable attorneys' fees (the "Damages"), arising out of or in
any manner incident, relating or attributable to:
(a) Any inaccuracy in any representation or breach of any
warranty of either Company or the Shareholders contained in this Agreement;
26
<PAGE>
(b) Any failure by either Company or the Shareholders to
perform or observe, or to have performed or observed, in full, any covenant,
agreement or condition to be performed or observed by it under this Agreement;
(c) Reliance by Parent on any books or records of either
Company or written information furnished to Parent pursuant to this Agreement
by or on behalf of such Company or the Shareholders in the event that such
books and records or written information are false or otherwise materially
inaccurate; or
(d) Liabilities or obligations of, or claims against, either
Company or Parent (whether absolute, accrued, contingent or otherwise)
relating to, or arising out of, the operation of the business prior to the
Effective Time or facts and circumstances relating specifically to the
business, the Leased Parcels, or either Company existing at or prior to the
Effective Time, including but not limited to matters set forth on SCHEDULE
5.28, whether or not such liabilities, obligations or claims were known on
such date, excluding only liabilities set forth in the Balance Sheet and
liabilities and obligations incurred since the date thereof in the ordinary
course of business and consistent with past practice.
Provided, however, the Shareholders' Indemnitees shall not be entitled
to indemnification or offset hereunder until Damages in total exceed $25,000
and then only to the extent of aggregate Damages in excess of $25,000;
PROVIDED FURTHER, HOWEVER, such deductible shall not apply to any Damages
arising from a breach of Sections 5.27, 5.28, 6.1, or 6.2, respectively.
10.3 NOTICE TO SHAREHOLDERS, ETC. If any of the matters as to which
the Shareholders' Indemnitees are entitled to receive indemnification under
Section 10.2 should entail litigation with or claims asserted by parties
other than either Company, Shareholders' Agent shall be given prompt notice
thereof and shall have the right, at the Principal Shareholders' expense, to
control such claim or litigation upon prompt notice to Parent of his election
to do so. To the extent requested by Shareholders' Agent, Parent, at its
expense, shall cooperate with and assist Shareholders' Agent, in connection
with such claim or litigation. Parent shall have the right to appoint, at
its expense, single counsel to consult with and remain advised by the
Principal Shareholders in connection with such claim or litigation.
Shareholders' Agent shall have final authority to determine all matters in
connection with such claim or litigation; PROVIDED, HOWEVER, that
Shareholders' Agent shall not settle any third party claim without the
consent of Parent, which shall not be unreasonably denied or delayed.
10.4 INDEMNIFICATION BY PARENT. Parent shall indemnify, defend, and
hold the Shareholders and their heirs, executors and legal representatives
("Parent's Indemnitees") harmless from, against and with respect to any
Damages, arising out of or in any manner incident, relating or attributable
to:
(a) Any inaccuracy in any representation or breach of warranty
of Parent contained in this Agreement;
27
<PAGE>
(b) Any failure by Parent to perform or observe, or to have
performed or observed, in full, any covenant, agreement or condition to be
performed or observed by it under any of the Documents;
(c) Reliance by the Shareholders on any books or records of
Parent or reliance by the Shareholders on any written information furnished
to the Shareholders or either Company pursuant to this Agreement by or on
behalf of Parent in the event that such books and records or written
information are false or otherwise materially inaccurate; and
(d) The operation of each Company subsequent to the
Effective Time.
Provided, however, Parent's Indemnitees shall not be entitled to
indemnification hereunder until Damages in total exceed $25,000 and then only
to the extent of aggregate damages in excess of $25,000.
10.5 NOTICE TO PARENT, ETC. If any of the matters as to which
Parent's Indemnitees are entitled to receive indemnification under Section
10.4 should entail litigation with or claims asserted by parties other than
Parent, Parent shall be given prompt notice thereof and shall have the right,
at its expense, to control such claim or litigation upon prompt notice to the
Shareholders' Agent of its election to do so. To the extent requested by
Parent, Shareholders' Agent, at the expense of the Shareholders, shall
cooperate with and assist Parent, in connection with such claim or
litigation. Shareholders' Agent shall have the right to appoint, at their
expense, single counsel to consult with and remain advised by Parent in
connection with such claim or litigation. Parent shall have final authority
to determine all matters in connection with such claim or litigation;
PROVIDED, HOWEVER, that Parent shall not settle any third party claim without
the consent of Shareholders' Agent, which shall not be unreasonably denied or
delayed.
10.6 SURVIVAL OF INDEMNIFICATION. Except as set forth on SCHEDULE
3.6 hereto, the obligations to indemnify and hold harmless pursuant to this
Article 10 shall survive the Effective Time of the Merger, for a period of
three years, notwithstanding any investigation at any time made by or on
behalf of any party, except that (a) claims, if any, asserted in writing
prior to such third anniversary identified as a claim for indemnification
pursuant to this Article 10 shall survive until finally resolved and
satisfied in full; (b) any Year-2000 Indemnification Obligations (as
hereinafter defined) shall survive until February 1, 2003 and until finally
resolved and satisfied in full if asserted on or prior to February 1, 2003;
and (c) tax or environmental claims arising from a breach of Section 5.27 or
Section 5.29, respectively, shall survive for the full period of the
applicable statute of limitations, and until finally resolved and satisfied
in full if asserted on or prior to the expiration of any such period. As used
in this Article 10, the term "Year-2000 Indemnification Obligations" shall
mean each Company's and Principal Shareholders' obligation to indemnify,
defend, and hold the Shareholder's Indemnitees harmless from, against and
with respect to any Damages arising out of or in any manner incident,
relating or attributable to (i) any claim or allegation that any Licensed
System is not Year-2000 Compliant and (ii) any claim arising from a breach of
Section 5.31.
28
<PAGE>
10.7 OFFSET. The Shareholders acknowledge and agree that Parent
shall be entitled to offset any indemnity claim under Section 10.2 against
any payment due to the Shareholders under Section 3.6 hereunder. Parent
shall deliver to Shareholders' Agent written notice not less than fifteen
(15) days prior to exercising its right of offset pursuant to this Section
10.7, which notice shall set forth in reasonable detail Parent's basis for
exercising its right of offset and the amount of the proposed offset. If
within fifteen (15) days of receiving Parent's notice of its intent to
exercise its right of offset Shareholders' Agent delivers to Parent written
notice setting forth Shareholders' Agent's objection to Parent's exercise of
its right of offset, then Parent shall place into an interest-bearing escrow
account the amount of the proposed offset, which amount, along with all
accrued interest, shall be distributed to the Parent or the Shareholders or
both, as appropriate, upon resolution of such dispute or upon the written
consent of Parent and Shareholders' Agent. Neither the exercise of nor the
failure to give a notice of a Claim shall constitute an election of remedies
nor limit Indemnitee in any manner in the enforcement of any other remedies
that may be available to it.
ARTICLE 11
MISCELLANEOUS
11.1 KNOWLEDGE OF EACH COMPANY. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to
the best knowledge of each Company, each Company confirms that it has made
due and diligent inquiry of its President and other officers as to the
matters that are the subject of such representation and warranty.
11.2 KNOWLEDGE OF PARENT. Where any representation or warranty
contained in this Agreement is expressly qualified by reference to the best
of knowledge of Parent, Parent confirms that it has made due and diligent
inquiry of its President as to the matters that are the subject of such
representations and warranties.
11.3 "PERSON" DEFINED. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or other department or agency
thereof.
11.4 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) sent by recognized overnight courier, (iii) made by telecopy or
facsimile transmission, or (iv) sent by registered or certified mail, return
receipt requested, postage prepaid.
29
<PAGE>
If to Parent:
ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
Attn: Stephen A. Hoffmann, President
Fax No: (502) 425-5603
With a copy to:
Stites & Harbison
400 W. Market Street, Suite 1800
Louisville, Kentucky 40202
Attn: Ralston W. Steenrod, Esq.
Fax No: (502) 587-6391
If to Companies:
Robert L. Cox II
4002 Main Street
Grandview, Missouri 64030
Fax No: ___________________
If to the Shareholders:
c/o Shareholders' Agent
Robert L. Cox II
250 Lakewood Boulevard
Lee's Summit, Missouri 64064
Fax No: ____________________
30
<PAGE>
With a copy to:
Greenebaum, Doll & McDonald
3300 National City Towers
Louisville, Kentucky 40202
Attn: Ivan Diamond, Esq.
Fax No: (502) 540-2134
and
Stilley Fowler & Stilley
6240 Raytown Road
Raytown, Missouri 64133
Attn: R. James Stilley, Esq.
Fax No: (816) 737-2778
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof
to the receiving party at the address of such party set forth above, (ii) if
sent by overnight courier, on the next business day following the day such
notice is delivered to the courier service, (iii) if made by telecopy or
facsimile transmission, at the time that receipt thereof has been
acknowledged by electronic confirmation or otherwise, or (iv) if sent by
registered or certified mail, on the fifth business day following the day
such mailing is sent. The address of any party herein may be changed at any
time by written notice to the parties.
11.5 SHAREHOLDERS' AGENT. Each Shareholder hereby constitutes and
appoints Robert L. Cox II ("Shareholders' Agent") as his or her
attorney-in-fact with full authority to act for such Shareholder for the
purposes of giving and receiving notices, requests, consents and other
communications pursuant to Section 11.4 and for purposes of Article 10. Each
Shareholder agrees to be conclusively bound by any action taken by the
Shareholders' Agent, in connection with the agency and power of attorney
conferred hereunder. The Shareholders' Agent shall have no liability to any
such Shareholder for any act, omission or judgment (except in the case of
willful misconduct or gross negligence). This agency and power of attorney
may be revoked at any time by any Shareholder. Parent shall be entitled, in
the absence of such notice of revocation, to rely upon any notice, request,
consent, or other communication from the Shareholders' Agent as a duly
authorized act on behalf of all the Shareholders.
11.5 ENTIRE AGREEMENT. This Agreement and the other Documents
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in the other Documents shall affect, or be used to
interpret, change or restrict, the express terms and provisions of this
Agreement.
31
<PAGE>
11.6 MODIFICATIONS AND AMENDMENTS. The terms and provisions of this
Agreement may be modified or amended only by written agreement executed by
all parties hereto.
11.7 ASSIGNMENT/BINDING EFFECT. Neither this Agreement, nor any
right hereunder, may be assigned by any of the parties hereto without the
prior written consent of the other parties. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
heirs, personal representatives, successors and permitted assigns.
11.8 PARTIES IN INTEREST. Nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies
of any nature whatsoever under or by reason of this Agreement. Nothing in
this Agreement shall be construed to create any rights or obligations except
among the parties hereto, and no person or entity shall be regarded as a
third-party beneficiary of this Agreement.
11.9 GOVERNING LAW. This Agreement and the rights and obligations
of the parties hereunder shall be construed in accordance with and governed
by the internal laws of the Commonwealth of Kentucky without giving effect to
the conflict of law principles thereof.
11.10 ARBITRATION. Any dispute or difference between the parties
hereto arising out of or relating to this Agreement shall be finally settled
by arbitration in accordance with the Commercial Rules of the American
Arbitration Association by a panel of three qualified arbitrators.
Shareholders' Agent, on the one hand, and Parent, on the other, shall each
choose an arbitrator and the third shall be chosen by the two so chosen. If
either Shareholders' Agent or Parent fails to choose an arbitrator within 30
days after notice of commencement of arbitration or if the two arbitrators
fail to choose a third arbitrator within 30 days after their appointment, the
American Arbitration Association shall, upon the request of any party to the
dispute or difference, appoint the arbitrator or arbitrators to constitute or
complete the panel as the case may be. Arbitration proceedings hereunder may
be initiated by either Shareholders' Agent, on the one hand, or Parent, on
the other, making a written request to the American Arbitration Association,
together with any appropriate filing fee, at the office of the American
Arbitration Association in Louisville, Kentucky. All arbitration proceedings
shall be held in Louisville, Kentucky. Any order or determination of the
arbitral tribunal shall be final and binding upon the parties to the
arbitration and may be entered in any court having jurisdiction.
11.11 SEVERABILITY. In the event that any arbitral tribunal of
competent jurisdiction shall finally determine that any provision, or any
portion thereof, contained in this Agreement shall be void or unenforceable
in any respect, then such provision shall be deemed limited to the extent
that such arbitral tribunal determines it enforceable, and as so limited
shall remain in full force and effect. In the event that such arbitral
tribunal shall determine any such provision, or portion thereof, wholly
unenforceable, the remaining provisions of this Agreement shall nevertheless
remain in full force and effect.
11.12 INTERPRETATION. The parties hereto acknowledge and agree that:
(i) the rule of construction to the effect that any ambiguities are resolved
against the drafting party shall not be employed in the interpretation of
this Agreement, and (ii) the terms and provisions of this
32
<PAGE>
Agreement shall be construed fairly as to all parties hereto and not in favor
of or against any party, regardless of which party was generally responsible
for the preparation of this Agreement.
11.13 HEADINGS AND CAPTIONS. The headings and captions of the
various subdivisions of this Agreement are for convenience of reference only
and shall in no way modify, or affect, or be considered in construing or
interpreting the meaning or construction of any of the terms or provisions
hereof.
11.14 RELIANCE. The parties hereto agree that, notwithstanding any
right of any party to this Agreement to investigate the affairs of any other
party to this Agreement, the party having such right to investigate shall
have the right to rely fully upon the representations and warranties of the
other party expressly contained herein.
11.15 EXPENSES. Each party shall pay its own fees and expenses
(including the fees of any attorneys, accountants, appraisers or others
engaged by such party) incurred in connection with this Agreement and the
transactions contemplated hereby whether or not the transactions contemplated
hereby are consummated.
11.16 GENDER. All pronouns and any variation thereof shall be deemed
to refer to the masculine, feminine, neuter, singular, or plural as the
identity of the person or entity or the context may require.
11.17 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by different parties hereto on separate counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf as of the day and year first above written.
THERMOVIEW INDUSTRIES, INC.
By: /s/ /Stephen A. Hoffmann
---------------------------------------
Stephen A. Hoffmann, President
33
<PAGE>
THERMOVIEW MERGER CORP.
By: Stephen A. Hoffmann
---------------------------------------
Stephen A. Hoffmann, President
ROLOX OF KANSAS CITY, INC.
By: /s/ Robert L. Cox
---------------------------------------
Robert L. Cox, President
ROLOX OF WICHITA, INC.
By: /s/ Robert L. Cox
---------------------------------------
Robert L. Cox, President
SHAREHOLDERS:
/s/ Robert L. Cox
---------------------------------------
Robert L. Cox
/s/ Robert L. Cox
---------------------------------------
Robert L. Cox II
/s/ Robert L. Cox
---------------------------------------
Robert L. Cox II, as Custodian for
Nicole J. Cox under the Missouri
Transfers to Minors Law
/s/ Robert L. Cox
---------------------------------------
Robert L. Cox II, as Custodian for
Robert L. Cox III under the Missouri
Transfers to Minors Law
34
<PAGE>
/s/ Brian D. Cox
---------------------------------------
Brian D. Cox
/s/ Brian D. Cox
---------------------------------------
Brian D. Cox, as Custodian for
Hannah L. Cox under the Missouri
Transfers to Minors Law
/s/ Brian D. Cox
---------------------------------------
Brian D. Cox, as Custodian for Isaac
Cox under the Missouri Transfers to
Minors Law
35
<PAGE>
LEASE
THIS LEASE is entered into on April 29, 1998, by and between Robert
L. Cox, 4002 Main Street, Grandview, Missouri 64030 ("Landlord") and ROLOX,
INC., f/k/a ThermoView Merger Corp., c/o ThermoView Industries, Inc., 1101
Herr Lane, Louisville, Kentucky 40222, Attention: Stephen A. Hoffmann
("Tenant").
In consideration of the mutual covenants hereinafter contained, and
each act performed hereunder by either of the parties, Landlord and Tenant
agree as follows:
ARTICLE 1
DEMISED PREMISES
Section 1.1. Demised Premises. Landlord hereby lets and demises
to Tenant, and Tenant hereby leases from Landlord that portion of the real
property, described in Exhibit A attached hereto and by reference made a part
hereof (the "Demised Premises").
ARTICLE 2
TERM AND RENEWALS
Section 2.1. Demised Term. The "Demised Term" of this Lease shall
be for a period of 3 years beginning on May 1, 1998, and ending on April 30,
2001.
Section 2.2. Holding Over. In the event Tenant remains in
possession of the Demised Premises after the expiration of the Demised Term
and without the execution of a new lease, it shall be deemed to be occupying
the Demised Premises as a tenant from month to month, subject to all
conditions, provisions and obligations of this Lease insofar as the same are
applicable to a month-to-month tenancy.
ARTICLE 3
RENT
Section 3.1. Rental During Demised Term. Tenant shall pay to
Landlord throughout the Demised Term rental as follows: $99,999.96 for each
year of the Demised Term payable on the first day of each month in advance in
equal monthly installments of $8,333.33.
<PAGE>
Section 3.2. Payments. Rental checks are to be made payable to
Landlord and mailed to Landlord at the address shown in the caption of this
Lease, or otherwise as designated by Landlord from time to time in a written
instrument delivered to Tenant.
ARTICLE 4
TAXES
Section 4.1. Real Estate Taxes.
(A) As additional rental hereunder Tenant shall
pay and discharge as they become due, all taxes and assessments on the
Demised Premises.
(B) Tenant shall have the right at its own
expense to challenge any tax or assessment; such challenge will not, however,
relieve Tenant's obligation to pay such taxes promptly when due. If such
challenge results in a reduction of taxes or assessments, Tenant shall be
entitled to a refund of such reduction within fourteen (14) days of the date
such refund amount is received by Landlord. If the challenge results in
reduction of a bill prior to payment by Landlord, Tenant shall not be
entitled to a refund, but shall have its bill appropriately reduced.
(C) If this Lease expires or terminates before a
tax or assessment bill is rendered for the year in which such expiration or
termination occurs, Tenant shall pay to Landlord on January 1 of such year of
expiration or termination the proportionate amount of the anticipated tax for
the entire calendar year. The said proportional amount shall be computed as
a fraction the numerator of which shall be the number of months of the lease
term within the last calendar year and denominator of which shall be twelve
(12).
ARTICLE 5
USE OF DEMISED PREMISES
Section 5.1. Use. Tenant shall not use or allow the Demised
Premises to be used for any unlawful, disreputable or immoral purpose or in
any way that will injure the reputation of the Demised Premises.
ARTICLE 6
UTILITY SERVICES
Section 6.1. Payment by Tenant. Payment for all utilities used
upon or in connection with the Demised Premises shall be made by Tenant.
Such utility services shall include, but not be limited to, water,
electricity, gas and trash collection.
2
<PAGE>
ARTICLE 7
MAINTENANCE
Section 7.1. Landlord's Maintenance. Tenant shall keep, maintain
and make replacements within the interior and exterior of the Demised
Premises in good condition and repair. Provided, however, should the
aggregate amount of expenses for the repair or replacement to equipment
(including but not limited to electrical systems, lights, plumbing, heating
and cooling systems, and all similar equipment) during the Demised Term
exceed $10,000, then Landlord and Tenant hereby agree to each pay one-half of
such additional expenses.
ARTICLE 8
ALTERATIONS
Section 8.1. Alterations. Tenant shall not alter or add to any
part of the Demised Premises except with Landlord's prior consent, such
consent not to be unreasonably withheld. Unless otherwise specifically
provided in writing, any such alteration or addition shall remain in the
Demised Premises upon the expiration or termination of this Lease, free of
any claim by Tenant. Tenant shall furnish evidence to Landlord that all
claims for labor and materials furnished for such remodeling, alteration or
addition have been paid or provided for. Should Tenant fail to pay for such
labor or materials, Landlord may pay such amount and add the cost thereof to
the rental provided for herein.
ARTICLE 9
TRADE FIXTURES
Section 9.1. Trade Fixtures. All fixtures, equipment and other
personal property placed in or upon the Demised Premises by Tenant shall
remain property of Tenant and Tenant shall have the right to remove such
property at any time, providing that any damage caused by such removal shall
be repaired at Tenant's expense.
ARTICLE 10
INSURANCE
Section 10.1. Liability Insurance. Tenant shall, during the
Demised Term, keep in force and effect a policy of public liability and
property damage insurance with respect to the Demised Premises operated by
Tenant. Tenant shall name Landlord as an additional insured.
3
<PAGE>
Section 10.2. Casualty and Other Insurance. Tenant shall carry
during the Demised Term fire and extended coverage insurance on the Demised
Premises. Tenant shall provide Landlord with certificates of insurance
showing that all insurance is effective, payable to Landlord and Tenant (as
their respective interests appear) and not cancelable without ten (10) days'
prior written notice to Landlord. Tenant shall name Landlord as an
additional insured.
Section 10.3. Subrogation. The fire and extended coverage
insurance policies kept and maintained by the parties shall be endorsed to
provide for or shall otherwise contain a waiver of subrogation by the
insurance company or companies except for intentional or grossly negligent
acts of the parties, it being the intent of the parties that in the event of
loss caused by ordinary negligence, the parties agree to look solely to the
proceeds of insurance policies.
ARTICLE 11
DEFAULT AND REMEDIES
Section 11.1. Default by Tenant. In event of any failure of Tenant
to pay any rent due hereunder within ten (10) days after the same shall be
due, or any failure to perform any other of the terms or conditions of this
Lease to be observed or performed by Tenant for more than thirty (30) days
after notice of such default shall have been given to Tenant, then Landlord,
may terminate this Lease.
Section 11.2. Default by Landlord. If Landlord shall fail to
promptly keep and perform any of its representations and warranties strictly
in accordance with the terms of this Lease and shall continue in default for
a period of thirty (30) days after written notice thereof to Landlord, then
Tenant may, at its sole option and discretion, exercise any or all of the
following remedies:
(A) declare this Lease ended and vacate the
Demised Premises without incurring additional rent or other costs associated
with the lease of the Demised Premises; or
(B) remain in the Demised Premises and withhold
rent and other costs due Landlord until such time as Landlord cures such
default; or
(C) perform any Landlord obligation, and all
expenses (including without limitation, reasonable attorney fees) incurred by
Tenant in performing such obligation shall be deemed an obligation of
Landlord to Tenant and shall be paid to Tenant on demand.
ARTICLE 12
DAMAGE
Section 12.1. Damage to the Demised Premises. In the event the
Demised Premises are damaged by fire, explosion or any other casualty, the
damage shall promptly be repaired by Landlord at Landlord's expense, provided
(i) no Event of Default shall exist at the time of such
4
<PAGE>
casualty, (ii) sufficient insurance proceeds shall be made available in a
timely manner to Landlord to pay for such reconstruction, and (iii) Tenant
shall have in writing agreed to occupy the Demised Premises after
reconstruction for the full remaining portion of the Demised Term. If any of
the requirements in (i) -(iii) of the preceding sentence shall not be
satisfied, Landlord may in its sole discretion, terminate the Lease and be
under no further obligation to Tenant. In no event shall Landlord be
required to repair or replace Tenant's stock in trade, fixtures, furniture,
furnishings, floor coverings and equipment. If the casualty, repairing, or
rebuilding shall render the Demised Premises untenantable, in whole or in
part, and the damage shall not have been due to the default or neglect of
Tenant, then a proportionate abatement of the rent shall be allowed from the
date when the damage occurred until the date Landlord completes its work,
said proportion to be computed on the basis of the relation which the gross
square foot area of the space rendered untenantable bears to the floor space
of the Demised Premises. Tenant shall have the option to terminate the Lease
if the Demised Premises cannot be fully restored within six (6) months of the
date of damage.
ARTICLE 13
CONDEMNATION
Section 13.1. Condemnation. If the Demised Premises or any part
thereof shall be acquired by any authority having power of eminent domain,
whether directly pursuant to such power or under threat of use of such power,
either Landlord or Tenant shall have the option to terminate this Lease as of
the date when possession is taken by the acquiring authority. Any award or
settlement for damages or sale proceeds shall be distributed to the parties
in proportion to the value of their respective interests in the Demised
Premises. In such taking, condemnation, change of grade, limitation of access
or like proceeding, the parties thereto shall represent their own interests
and shall present and prosecute their own claims for damages and neither
party shall be liable to the other for any recovery obtained.
Section 13.2. Tenant's Option. In the event neither party
exercises its option to terminate as aforesaid, Tenant shall be entitled to a
reduction of rental payments in proportion to the amount by which the gross
area of the Demised Premises is reduced by such taking or loss and such
reduction shall be retroactive to the date when Tenant was deprived of the
full and complete use of all the Demised Premises.
ARTICLE 14
INSPECTION AND ACCESS
Section 14.1. Inspection and Access. Landlord or its agents may,
during normal business hours and with 24 hours prior notice, inspect the
Demised Premises and make such repairs thereto as Landlord deems necessary
for its preservation. Any repairs made by Landlord because of Tenant's
breach of covenant to repair or maintain shall be at Tenant's expense. In
5
<PAGE>
case of an emergency, Landlord shall have access to the Demised Premises at
any time for the purpose of inspecting such facilities or of making such
repairs or changes thereto as Landlord deems necessary.
ARTICLE 15
ASSIGNMENT, SUBLEASE OR LICENSE
Section 15.1. Assignment, Sublease or License. Tenant shall not
assign or sublease the Demised Premises without first obtaining the written
consent of Landlord.
ARTICLE 16
NOTICE
Section 16.1. Notices and Payments. All notices, consents,
waivers, releases, certifications, statements, requests, payments, and other
communications of any kind hereunder shall be in writing and shall be
addressed and sent to the parties at their addresses shown in the caption of
this Lease, subject to thirty (30) days' notice of change. Such
communications shall be effective when deposited in United States Mail,
postage prepaid, unless otherwise agreed or provided herein.
ARTICLE 17
SIGNS
Section 17.1. Signs. Tenant may not erect, maintain, permit and
remove any signs on or about the Demised Premises without the consent of
Landlord, such consent not to be unreasonably withheld.
ARTICLE 18
TIME OF ESSENCE
Section 18.1. Time of Essence. Time shall be deemed of the essence
in all matters pertaining to this Lease.
6
<PAGE>
ARTICLE 19
INDEMNIFICATION
Section 19.1. Indemnification by Tenant. Except as otherwise
provided in Article 10, Tenant covenants at all times to save the Landlord
harmless from all loss, cost or damage which may occur or be claimed with
respect to any person or persons, corporation, property or chattels on or
about the Demised Premises, or to the property itself, resulting from the
intentional or grossly negligent acts of Tenant, its invitees, servants and
agents.
Section 19.2. Indemnification by Landlord. Except as otherwise
provided in Article 10, Landlord covenants at all times to save the Tenant
harmless from all loss, cost or damage which may occur or be claimed with
respect to any person or persons, corporation, property or chattels on or
about the Demised Premises, or to the property itself, resulting from the
intentional or grossly negligent acts of Landlord, its invitees, servants and
agents.
ARTICLE 20
SUBORDINATION
Section 20.1. Priority. It is understood that this Lease is
subject and subordinate to any first mortgage and advances thereon and to all
renewals, extensions, modifications, consolidations, participations,
replacements, and amendments of such mortgage.
Section 20.2. Nondisturbance. Provided, however, that so long as
Tenant shall not be in default under the terms of this Lease, said Lease
shall not be terminated nor shall any of Tenant's rights and obligations
under this Lease be disturbed by any steps or proceedings taken by any
mortgagee, lessor or other holder of a right of record effecting the real
property in the exercise of any of its rights under the instrument wherein
the right is authorized.
ARTICLE 21
MISCELLANEOUS
Section 21.1. Covenant of Title. Landlord covenants, represents
and warrants that it has full right and power to execute and perform its
obligations under this Lease and to grant the estate demised herein and that
Tenant, on payment of the rent herein reserved and performance of the
covenants and agreements herein contained, shall peaceably and quietly have,
hold and enjoy the Demised Premises during the Demised Term without
molestation or hindrance by any person, and, if at any time during the
Demised Term, the title of Landlord shall fail or it shall be discovered that
its title does not enable Landlord to grant the term hereby demised, or
action is taken by governmental authority which prevents Tenant from using
the Demised Premises for the use contemplated by it, Tenant shall have the
option at Landlord's expense to correct or
7
<PAGE>
contest such defect or action, or to annul and void this Lease with full
reservation of its rights to damages, if any, against Landlord.
Section 21.2. Waiver. No waiver of any covenant or condition or
the breach of any covenant or condition of this Lease shall be deemed to
constitute a waiver of subsequent breach of such covenant or condition, nor
to justify or authorize the nonobservance on any other occasion of the same
or of any other covenant or condition hereof, nor shall the acceptance of
rent by Landlord at any time when Tenant is in default under any covenant or
condition hereof be construed as a waiver of such default, nor shall any
waiver or indulgence granted by Landlord to Tenant be taken as an estoppel
against Landlord during the continuance of such default.
Section 21.3. Remedies Cumulative. The remedies of Landlord and
Tenant shall be cumulative, and no one of them shall be construed as
exclusive of any other or of any remedy provided by law.
Section 21.4. Relationship of Parties. Nothing herein contained
shall be deemed or construed by the parties hereto, nor by any third party,
as creating the relationship of principal and agent, or of partnership, or of
joint venture, between the parties hereto, it being agreed that neither the
method of computation of rents nor any other provisions named herein, nor any
acts of the parties herein, shall be deemed to create any relationship
between the parties hereto other than the relationship of Landlord and Tenant.
Section 21.5. Governmental Regulation. Landlord and Tenant shall
each comply with all of the requirements of all county, municipal, state,
federal and other applicable governmental authorities, pertaining to the
Demised Premises.
Section 21.6. Construction. Whenever a word appears herein in its
singular form, such word shall include the plural; and the neuter gender
shall include the masculine and feminine genders. This Lease shall be
construed without reference to titles of Articles, Sections or Clauses, which
are inserted for reference only.
Section 21.7. Enjoyment and Relocation. Landlord covenants that it
has full right and power to execute and perform this Lease and to grant the
estate hereby conveyed and, if Tenant fully performs its duties under this
Lease, that Tenant shall throughout the term hereof have the peaceable and
quiet enjoyment and possession of the Demised Premises without interference
from Landlord or from anyone lawfully claiming through Landlord.
Section 21.8. Successors. This Lease shall inure to the benefit of
and be binding upon the parties hereto, their respective heirs, personal
representatives, successors and assigns.
Section 21.9. Attornment. Tenant shall, in the event of any sale,
assignment, or foreclosure of Landlord's rights in the Demised Premises,
attorn to and recognize such assignee or purchaser thereof as the Landlord
under this Lease.
8
<PAGE>
Section 21.10. Entirety, Severability and Law. This Lease shall
constitute the entire agreement between the parties and shall not be modified
in any manner except by written instrument executed by the parties. The
invalidity or unperformability of any provision hereof shall not affect or
impair any other provision hereof. Each term and provision hereof shall be
performed and enforced to the fullest extent permitted by and in accordance
with Missouri law.
Section 21.11. Consent. Whenever it is necessary under the terms of
the Lease for either party to obtain the consent or approval of the other
party, such consent or approval shall not be unreasonably withheld.
Section 21.12. Law of Missouri. This Lease shall be governed by the
laws of the State of Missouri.
To indicate their understanding of and consent to the foregoing
terms, the parties have executed this Lease on the date first above written.
LANDLORD:
/s/ Robert L. Cox
- ----------------------------------
ROBERT L. COX
TENANT:
ROLOX, INC., f/k/a Thermoview Merger Corp.
BY: /s/ Stephen A. Hoffmann
-----------------------------------------
Stephen A. Hoffmann, President
9
<PAGE>
EXHIBIT A
Property located at 4002 Main Street, Grandview, Missouri 64030.
10
<PAGE>
LEASE
THIS LEASE is entered into on April 29, 1998, by and between Robert
L. Cox and Robert L. Cox II, 4002 Main Street, Grandview, Missouri 64030
("Landlord") and ROLOX, INC., f/k/a ThermoView Merger Corp., c/o ThermoView
Industries, Inc., 1101 Herr Lane, Louisville, Kentucky 40222, Attention:
Stephen A. Hoffmann ("Tenant").
In consideration of the mutual covenants hereinafter contained, and
each act performed hereunder by either of the parties, Landlord and Tenant
agree as follows:
ARTICLE 1
DEMISED PREMISES
Section 1.1. Demised Premises. Landlord hereby lets and demises
to Tenant, and Tenant hereby leases from Landlord that portion of the real
property, described in Exhibit A attached hereto and by reference made a part
hereof (the "Demised Premises").
ARTICLE 2
TERM AND RENEWALS
Section 2.1. Demised Term. The "Demised Term" of this Lease shall
be for a period of 3 years beginning on May 1, 1998, and ending on April 30,
2001.
Section 2.2. Holding Over. In the event Tenant remains in
possession of the Demised Premises after the expiration of the Demised Term
and without the execution of a new lease, it shall be deemed to be occupying
the Demised Premises as a tenant from month to month, subject to all
conditions, provisions and obligations of this Lease insofar as the same are
applicable to a month-to-month tenancy.
ARTICLE 3
RENT
Section 3.1. Rental During Demised Term. Tenant shall pay to
Landlord throughout the Demised Term rental as follows: $43,999.92 for each
year of the Demised Term payable on the first day of each month in advance in
equal monthly installments of $3,666.66.
Section 3.2. Payments. Rental checks are to be made payable to
Landlord and mailed to Landlord at the address shown in the caption of this
Lease, or otherwise as designated by Landlord from time to time in a written
instrument delivered to Tenant.
<PAGE>
ARTICLE 4
TAXES
Section 4.1. Real Estate Taxes.
(A) As additional rental hereunder Tenant shall
pay and discharge as they become due, all taxes and assessments on the
Demised Premises.
(B) Tenant shall have the right at its own
expense to challenge any tax or assessment; such challenge will not, however,
relieve Tenant's obligation to pay such taxes promptly when due. If such
challenge results in a reduction of taxes or assessments, Tenant shall be
entitled to a refund of such reduction within fourteen (14) days of the date
such refund amount is received by Landlord. If the challenge results in
reduction of a bill prior to payment by Landlord, Tenant shall not be
entitled to a refund, but shall have its bill appropriately reduced.
(C) If this Lease expires or terminates before a
tax or assessment bill is rendered for the year in which such expiration or
termination occurs, Tenant shall pay to Landlord on January 1 of such year of
expiration or termination the proportionate amount of the anticipated tax for
the entire calendar year. The said proportional amount shall be computed as
a fraction the numerator of which shall be the number of months of the lease
term within the last calendar year and denominator of which shall be twelve
(12).
ARTICLE 5
USE OF DEMISED PREMISES
Section 5.1. Use. Tenant shall not use or allow the Demised
Premises to be used for any unlawful, disreputable or immoral purpose or in
any way that will injure the reputation of the Demised Premises.
ARTICLE 6
UTILITY SERVICES
Section 6.1. Payment by Tenant. Payment for all utilities used
upon or in connection with the Demised Premises shall be made by Tenant.
Such utility services shall include, but not be limited to, water,
electricity, gas and trash collection.
2
<PAGE>
ARTICLE 7
MAINTENANCE
Section 7.1. Landlord's Maintenance. Tenant shall keep, maintain
and make replacements within the interior and exterior of the Demised
Premises in good condition and repair. Provided, however, should the
aggregate amount of expenses for the repair or replacement to equipment
(including but not limited to electrical systems, lights, plumbing, heating
and cooling systems, and all similar equipment) during the Demised Term
exceed $10,000, then Landlord and Tenant hereby agree to each pay one-half of
such additional expenses.
ARTICLE 8
ALTERATIONS
Alterations. Tenant shall not alter or add to any part of the
Demised Premises except with Landlord's prior consent, such consent not to be
unreasonably withheld. Unless otherwise specifically provided in writing,
any such alteration or addition shall remain in the Demised Premises upon the
expiration or termination of this Lease, free of any claim by Tenant. Tenant
shall furnish evidence to Landlord that all claims for labor and materials
furnished for such remodeling, alteration or addition have been paid or
provided for. Should Tenant fail to pay for such labor or materials,
Landlord may pay such amount and add the cost thereof to the rental provided
for herein.
ARTICLE 9
TRADE FIXTURES
Section 9.1. Trade Fixtures. All fixtures, equipment and other
personal property placed in or upon the Demised Premises by Tenant shall
remain property of Tenant and Tenant shall have the right to remove such
property at any time, providing that any damage caused by such removal shall
be repaired at Tenant's expense.
ARTICLE 10
INSURANCE
Section 10.1. Liability Insurance. Tenant shall, during the
Demised Term, keep in force and effect a policy of public liability and
property damage insurance with respect to the Demised Premises operated by
Tenant. Tenant shall name Landlord as an additional insured.
3
<PAGE>
Section 10.2. Casualty and Other Insurance. Tenant shall carry
during the Demised Term fire and extended coverage insurance on the Demised
Premises. Tenant shall provide Landlord with certificates of insurance
showing that all insurance is effective, payable to Landlord and Tenant (as
their respective interests appear) and not cancelable without ten (10) days'
prior written notice to Landlord. Tenant shall name Landlord as an
additional insured.
Section 10.3. Subrogation. The fire and extended coverage
insurance policies kept and maintained by the parties shall be endorsed to
provide for or shall otherwise contain a waiver of subrogation by the
insurance company or companies except for intentional or grossly negligent
acts of the parties, it being the intent of the parties that in the event of
loss caused by ordinary negligence, the parties agree to look solely to the
proceeds of insurance policies.
ARTICLE 11
DEFAULT AND REMEDIES
Section 11.1. Default by Tenant. In event of any failure of Tenant
to pay any rent due hereunder within ten (10) days after the same shall be
due, or any failure to perform any other of the terms or conditions of this
Lease to be observed or performed by Tenant for more than thirty (30) days
after notice of such default shall have been given to Tenant, then Landlord,
may terminate this Lease.
Section 11.2. Default by Landlord. If Landlord shall fail to
promptly keep and perform any of its representations and warranties strictly
in accordance with the terms of this Lease and shall continue in default for
a period of thirty (30) days after written notice thereof to Landlord, then
Tenant may, at its sole option and discretion, exercise any or all of the
following remedies:
(A) declare this Lease ended and vacate the
Demised Premises without incurring additional rent or other costs associated
with the lease of the Demised Premises; or
(B) remain in the Demised Premises and withhold
rent and other costs due Landlord until such time as Landlord cures such
default; or
(C) perform any Landlord obligation, and all
expenses (including without limitation, reasonable attorney fees) incurred by
Tenant in performing such obligation shall be deemed an obligation of
Landlord to Tenant and shall be paid to Tenant on demand.
ARTICLE 12
DAMAGE
Section 12.1. Damage to the Demised Premises. In the event the
Demised Premises are damaged by fire, explosion or any other casualty, the
damage shall promptly be repaired by Landlord at Landlord's expense, provided
(i) no Event of Default shall exist at the time of such
4
<PAGE>
casualty, (ii) sufficient insurance proceeds shall be made available in a
timely manner to Landlord to pay for such reconstruction, and (iii) Tenant
shall have in writing agreed to occupy the Demised Premises after
reconstruction for the full remaining portion of the Demised Term. If any of
the requirements in (i) - (iii) of the preceding sentence shall not be
satisfied, Landlord may in its sole discretion, terminate the Lease and be
under no further obligation to Tenant. In no event shall Landlord be
required to repair or replace Tenant's stock in trade, fixtures, furniture,
furnishings, floor coverings and equipment. If the casualty, repairing, or
rebuilding shall render the Demised Premises untenantable, in whole or in
part, and the damage shall not have been due to the default or neglect of
Tenant, then a proportionate abatement of the rent shall be allowed from the
date when the damage occurred until the date Landlord completes its work,
said proportion to be computed on the basis of the relation which the gross
square foot area of the space rendered untenantable bears to the floor space
of the Demised Premises. Tenant shall have the option to terminate the Lease
if the Demised Premises cannot be fully restored within six (6) months of the
date of damage.
ARTICLE 13
CONDEMNATION
Section 13.1. Condemnation. If the Demised Premises or any part
thereof shall be acquired by any authority having power of eminent domain,
whether directly pursuant to such power or under threat of use of such power,
either Landlord or Tenant shall have the option to terminate this Lease as of
the date when possession is taken by the acquiring authority. Any award or
settlement for damages or sale proceeds shall be distributed to the parties
in proportion to the value of their respective interests in the Demised
Premises. In such taking, condemnation, change of grade, limitation of access
or like proceeding, the parties thereto shall represent their own interests
and shall present and prosecute their own claims for damages and neither
party shall be liable to the other for any recovery obtained.
Section 13.2. Tenant's Option. In the event neither party
exercises its option to terminate as aforesaid, Tenant shall be entitled to a
reduction of rental payments in proportion to the amount by which the gross
area of the Demised Premises is reduced by such taking or loss and such
reduction shall be retroactive to the date when Tenant was deprived of the
full and complete use of all the Demised Premises.
ARTICLE 14
INSPECTION AND ACCESS
Section 14.1. Inspection and Access. Landlord or its agents may,
during normal business hours and with 24 hours prior notice, inspect the
Demised Premises and make such repairs thereto as Landlord deems necessary
for its preservation. Any repairs made by Landlord because of Tenant's
breach of covenant to repair or maintain shall be at Tenant's expense. In
5
<PAGE>
case of an emergency, Landlord shall have access to the Demised Premises at
any time for the purpose of inspecting such facilities or of making such
repairs or changes thereto as Landlord deems necessary.
ARTICLE 15
ASSIGNMENT, SUBLEASE OR LICENSE
Section 15.1. Assignment, Sublease or License. Tenant shall not
assign or sublease the Demised Premises without first obtaining the written
consent of Landlord.
ARTICLE 16
NOTICE
Section 16.1. Notices and Payments. All notices, consents,
waivers, releases, certifications, statements, requests, payments, and other
communications of any kind hereunder shall be in writing and shall be
addressed and sent to the parties at their addresses shown in the caption of
this Lease, subject to thirty (30) days' notice of change. Such
communications shall be effective when deposited in United States Mail,
postage prepaid, unless otherwise agreed or provided herein.
ARTICLE 17
SIGNS
Section 17.1. Signs. Tenant may not erect, maintain, permit and
remove any signs on or about the Demised Premises without the consent of
Landlord, such consent not to be unreasonably withheld.
ARTICLE 18
TIME OF ESSENCE
Section 18.1. Time of Essence. Time shall be deemed of the essence
in all matters pertaining to this Lease.
6
<PAGE>
ARTICLE 19
INDEMNIFICATION
Section 19.1. Indemnification by Tenant. Except as otherwise
provided in Article 10, Tenant covenants at all times to save the Landlord
harmless from all loss, cost or damage which may occur or be claimed with
respect to any person or persons, corporation, property or chattels on or
about the Demised Premises, or to the property itself, resulting from the
intentional or grossly negligent acts of Tenant, its invitees, servants and
agents.
Section 19.2. Indemnification by Landlord. Except as otherwise
provided in Article 10, Landlord covenants at all times to save the Tenant
harmless from all loss, cost or damage which may occur or be claimed with
respect to any person or persons, corporation, property or chattels on or
about the Demised Premises, or to the property itself, resulting from the
intentional or grossly negligent acts of Landlord, its invitees, servants and
agents.
ARTICLE 20
SUBORDINATION
Section 20.1. Priority. It is understood that this Lease is
subject and subordinate to any first mortgage and advances thereon and to all
renewals, extensions, modifications, consolidations, participations,
replacements, and amendments of such mortgage.
Section 20.2. Nondisturbance. Provided, however, that so long as
Tenant shall not be in default under the terms of this Lease, said Lease
shall not be terminated nor shall any of Tenant's rights and obligations
under this Lease be disturbed by any steps or proceedings taken by any
mortgagee, lessor or other holder of a right of record effecting the real
property in the exercise of any of its rights under the instrument wherein
the right is authorized.
ARTICLE 21
MISCELLANEOUS
Section 21.1. Covenant of Title. Landlord covenants, represents
and warrants that it has full right and power to execute and perform its
obligations under this Lease and to grant the estate demised herein and that
Tenant, on payment of the rent herein reserved and performance of the
covenants and agreements herein contained, shall peaceably and quietly have,
hold and enjoy the Demised Premises during the Demised Term without
molestation or hindrance by any person, and, if at any time during the
Demised Term, the title of Landlord shall fail or it shall be discovered that
its title does not enable Landlord to grant the term hereby demised, or
action is taken by governmental authority which prevents Tenant from using
the Demised Premises for the use contemplated by it, Tenant shall have the
option at Landlord's expense to correct or
7
<PAGE>
contest such defect or action, or to annul and void this Lease with full
reservation of its rights to damages, if any, against Landlord.
Section 21.2. Waiver. No waiver of any covenant or condition or
the breach of any covenant or condition of this Lease shall be deemed to
constitute a waiver of subsequent breach of such covenant or condition, nor
to justify or authorize the nonobservance on any other occasion of the same
or of any other covenant or condition hereof, nor shall the acceptance of
rent by Landlord at any time when Tenant is in default under any covenant or
condition hereof be construed as a waiver of such default, nor shall any
waiver or indulgence granted by Landlord to Tenant be taken as an estoppel
against Landlord during the continuance of such default.
Section 21.3. Remedies Cumulative. The remedies of Landlord and
Tenant shall be cumulative, and no one of them shall be construed as
exclusive of any other or of any remedy provided by law.
Section 21.4. Relationship of Parties. Nothing herein contained
shall be deemed or construed by the parties hereto, nor by any third party,
as creating the relationship of principal and agent, or of partnership, or of
joint venture, between the parties hereto, it being agreed that neither the
method of computation of rents nor any other provisions named herein, nor any
acts of the parties herein, shall be deemed to create any relationship
between the parties hereto other than the relationship of Landlord and Tenant.
Section 21.5. Governmental Regulation. Landlord and Tenant shall
each comply with all of the requirements of all county, municipal, state,
federal and other applicable governmental authorities, pertaining to the
Demised Premises.
Section 21.6. Construction. Whenever a word appears herein in its
singular form, such word shall include the plural; and the neuter gender
shall include the masculine and feminine genders. This Lease shall be
construed without reference to titles of Articles, Sections or Clauses, which
are inserted for reference only.
Section 21.7. Enjoyment and Relocation. Landlord covenants that it
has full right and power to execute and perform this Lease and to grant the
estate hereby conveyed and, if Tenant fully performs its duties under this
Lease, that Tenant shall throughout the term hereof have the peaceable and
quiet enjoyment and possession of the Demised Premises without interference
from Landlord or from anyone lawfully claiming through Landlord.
Section 21.8. Successors. This Lease shall inure to the benefit of
and be binding upon the parties hereto, their respective heirs, personal
representatives, successors and assigns.
Section 21.9. Attornment. Tenant shall, in the event of any sale,
assignment, or foreclosure of Landlord's rights in the Demised Premises,
attorn to and recognize such assignee or purchaser thereof as the Landlord
under this Lease.
8
<PAGE>
Section 21.10. Entirety, Severability and Law. This Lease shall
constitute the entire agreement between the parties and shall not be modified
in any manner except by written instrument executed by the parties. The
invalidity or unperformability of any provision hereof shall not affect or
impair any other provision hereof. Each term and provision hereof shall be
performed and enforced to the fullest extent permitted by and in accordance
with Missouri law.
Section 21.11. Consent. Whenever it is necessary under the terms of
the Lease for either party to obtain the consent or approval of the other
party, such consent or approval shall not be unreasonably withheld.
Section 21.12. Law of Missouri. This Lease shall be governed by the
laws of the State of Missouri.
To indicate their understanding of and consent to the foregoing
terms, the parties have executed this Lease on the date first above written.
LANDLORD:
/s/ Robert L. Cox
- ----------------------------------
ROBERT L. COX
/s/ Robert L. Cox
- ----------------------------------
ROBERT L. COX II
TENANT:
ROLOX, INC., f/k/a Thermoview Merger Corp.
BY: /s/ Stephen A. Hoffmann
-------------------------------------------
Stephen A. Hoffmann, President
9
<PAGE>
EXHIBIT A
Property located at 3940 Main Street, Grandview, Missouri 64030.
10
<PAGE>
LEASE
THIS LEASE is entered into on April 29, 1998, by and between L & D
PARTNERSHIP, 4002 Main Street, Grandview, Missouri 64030 ("Landlord") and
ROLOX, INC., f/k/a ThermoView Merger Corp., c/o ThermoView Industries, Inc.,
1101 Herr Lane, Louisville, Kentucky 40222, Attention: Stephen A. Hoffmann
("Tenant").
In consideration of the mutual covenants hereinafter contained, and
each act performed hereunder by either of the parties, Landlord and Tenant
agree as follows:
ARTICLE 1
DEMISED PREMISES
Section 1.1 Demised Premises. Landlord hereby lets and demises
to Tenant, and Tenant hereby leases from Landlord that portion of the real
property, described in Exhibit A attached hereto and by reference made a part
hereof (the "Demised Premises").
ARTICLE 2
TERM AND RENEWALS
Section 2.1 Demised Term. The "Demised Term" of this Lease shall
be for a period of 4 months beginning on May 1, 1998, and ending on August
31, 1998.
Section 2.2 Holding Over. In the event Tenant remains in
possession of the Demised Premises after the expiration of the Demised Term
and without the execution of a new lease, it shall be deemed to be occupying
the Demised Premises as a tenant from month to month, subject to all
conditions, provisions and obligations of this Lease insofar as the same are
applicable to a month-to-month tenancy.
ARTICLE 3
RENT
Section 3.1 Rental During Demised Term. Tenant shall pay to
Landlord throughout the Demised Term rental as follows: $1,860 for each
month of the Demised Term payable on the first day of each month in advance.
<PAGE>
Section 3.2 Payments. Rental checks are to be made payable to
Landlord and mailed to Landlord at the address shown in the caption of this
Lease, or otherwise as designated by Landlord from time to time in a written
instrument delivered to Tenant.
ARTICLE 4
TAXES
Section 4.1 Real Estate Taxes.
(A) As additional rental hereunder Tenant shall
pay and discharge as they become due, all taxes and assessments on the
Demised Premises.
(B) Tenant shall have the right at its own
expense to challenge any tax or assessment; such challenge will not, however,
relieve Tenant's obligation to pay such taxes promptly when due. If such
challenge results in a reduction of taxes or assessments, Tenant shall be
entitled to a refund of such reduction within fourteen (14) days of the date
such refund amount is received by Landlord. If the challenge results in
reduction of a bill prior to payment by Landlord, Tenant shall not be
entitled to a refund, but shall have its bill appropriately reduced.
(C) If this Lease expires or terminates before a
tax or assessment bill is rendered for the year in which such expiration or
termination occurs, Tenant shall pay to Landlord the proportionate amount of
the anticipated tax for the entire calendar year. The said proportional
amount shall be computed as a fraction the numerator of which shall be the
number of months of the lease term within the last calendar year and
denominator of which shall be twelve (12).
ARTICLE 5
USE OF DEMISED PREMISES
Section 5.1 Use. Tenant shall not use or allow the Demised
Premises to be used for any unlawful, disreputable or immoral purpose or in
any way that will injure the reputation of the Demised Premises.
ARTICLE 6
UTILITY SERVICES
Section 6.1 Payment by Tenant. Payment for all utilities used
upon or in connection with the Demised Premises shall be made by Tenant.
Such utility services shall include, but not be limited to, water,
electricity, gas and trash collection.
2
<PAGE>
ARTICLE 7
MAINTENANCE
Section 7.1 Landlord's Maintenance. Tenant shall keep, maintain
and make replacements within the interior and exterior of the Demised
Premises in good condition and repair. Provided, however, should the
aggregate amount of expenses for the repair or replacement to equipment
(including but not limited to electrical systems, lights, plumbing, heating
and cooling systems, and all similar equipment) during the Demised Term
exceed $1,100, then Landlord and Tenant hereby agree to each pay one-half of
such additional expenses.
ARTICLE 8
ALTERATIONS
Section 8.1 Alterations. Tenant shall not alter or add to any
part of the Demised Premises except with Landlord's prior consent, such
consent not to be unreasonably withheld. Unless otherwise specifically
provided in writing, any such alteration or addition shall remain in the
Demised Premises upon the expiration or termination of this Lease, free of
any claim by Tenant. Tenant shall furnish evidence to Landlord that all
claims for labor and materials furnished for such remodeling, alteration or
addition have been paid or provided for. Should Tenant fail to pay for such
labor or materials, Landlord may pay such amount and add the cost thereof to
the rental provided for herein.
ARTICLE 9
TRADE FIXTURES
Section 9.1 Trade Fixtures. All fixtures, equipment and other
personal property placed in or upon the Demised Premises by Tenant shall
remain property of Tenant and Tenant shall have the right to remove such
property at any time, providing that any damage caused by such removal shall
be repaired at Tenant's expense.
ARTICLE 10
INSURANCE
Section 10.1 Liability Insurance. Tenant shall, during the
Demised Term, keep in force and effect a policy of public liability and
property damage insurance with respect to the Demised Premises operated by
Tenant. Tenant shall name Landlord as an additional insured.
3
<PAGE>
Section 10.2 Casualty and Other Insurance. Tenant shall carry
during the Demised Term fire and extended coverage insurance on the Demised
Premises. Tenant shall provide Landlord with certificates of insurance
showing that all insurance is effective, payable to Landlord and Tenant (as
their respective interests appear) and not cancelable without ten (10) days'
prior written notice to Landlord. Tenant shall name Landlord as an
additional insured.
Section 10.3 Subrogation. The fire and extended coverage
insurance policies kept and maintained by the parties shall be endorsed to
provide for or shall otherwise contain a waiver of subrogation by the
insurance company or companies except for intentional or grossly negligent
acts of the parties, it being the intent of the parties that in the event of
loss caused by ordinary negligence, the parties agree to look solely to the
proceeds of insurance policies.
ARTICLE 11
DEFAULT AND REMEDIES
Section 11.1 Default by Tenant. In event of any failure of Tenant
to pay any rent due hereunder within ten (10) days after the same shall be
due, or any failure to perform any other of the terms or conditions of this
Lease to be observed or performed by Tenant for more than thirty (30) days
after notice of such default shall have been given to Tenant, then Landlord,
may terminate this Lease.
Section 11.2 Default by Landlord. If Landlord shall fail to
promptly keep and perform any of its representations and warranties strictly
in accordance with the terms of this Lease and shall continue in default for
a period of thirty (30) days after written notice thereof to Landlord, then
Tenant may, at its sole option and discretion, exercise any or all of the
following remedies:
(A) declare this Lease ended and vacate the
Demised Premises without incurring additional rent or other costs associated
with the lease of the Demised Premises; or
(B) remain in the Demised Premises and withhold
rent and other costs due Landlord until such time as Landlord cures such
default; or
(C) perform any Landlord obligation, and all
expenses (including without limitation, reasonable attorney fees) incurred by
Tenant in performing such obligation shall be deemed an obligation of
Landlord to Tenant and shall be paid to Tenant on demand.
ARTICLE 12
DAMAGE
Section 12.1 Damage to the Demised Premises. In the event the
Demised Premises are damaged by fire, explosion or any other casualty, the
damage shall promptly be repaired by Landlord at Landlord's expense, provided
(i) no Event of Default shall exist at the time of such
4
<PAGE>
casualty, (ii) sufficient insurance proceeds shall be made available in a
timely manner to Landlord to pay for such reconstruction, and (iii) Tenant
shall have in writing agreed to occupy the Demised Premises after
reconstruction for the full remaining portion of the Demised Term. If any of
the requirements in (i)-(iii) of the preceding sentence shall not be
satisfied, Landlord may in its sole discretion, terminate the Lease and be
under no further obligation to Tenant. In no event shall Landlord be
required to repair or replace Tenant's stock in trade, fixtures, furniture,
furnishings, floor coverings and equipment. If the casualty, repairing, or
rebuilding shall render the Demised Premises untenantable, in whole or in
part, and the damage shall not have been due to the default or neglect of
Tenant, then a proportionate abatement of the rent shall be allowed from the
date when the damage occurred until the date Landlord completes its work,
said proportion to be computed on the basis of the relation which the gross
square foot area of the space rendered untenantable bears to the floor space
of the Demised Premises. Tenant shall have the option to terminate the Lease
if the Demised Premises cannot be fully restored within six (6) months of the
date of damage.
ARTICLE 13
CONDEMNATION
Section 13.1 Condemnation. If the Demised Premises or any part
thereof shall be acquired by any authority having power of eminent domain,
whether directly pursuant to such power or under threat of use of such power,
either Landlord or Tenant shall have the option to terminate this Lease as of
the date when possession is taken by the acquiring authority. Any award or
settlement for damages or sale proceeds shall be distributed to the parties
in proportion to the value of their respective interests in the Demised
Premises. In such taking, condemnation, change of grade, limitation of access
or like proceeding, the parties thereto shall represent their own interests
and shall present and prosecute their own claims for damages and neither
party shall be liable to the other for any recovery obtained.
Section 13.2 Tenant's Option. In the event neither party
exercises its option to terminate as aforesaid, Tenant shall be entitled to a
reduction of rental payments in proportion to the amount by which the gross
area of the Demised Premises is reduced by such taking or loss and such
reduction shall be retroactive to the date when Tenant was deprived of the
full and complete use of all the Demised Premises.
ARTICLE 14
INSPECTION AND ACCESS
Section 14.1 Inspection and Access. Landlord or its agents may,
during normal business hours and with 24 hours prior notice, inspect the
Demised Premises and make such repairs thereto as Landlord deems necessary
for its preservation. Any repairs made by Landlord because of Tenant's
breach of covenant to repair or maintain shall be at Tenant's expense. In
5
<PAGE>
case of an emergency, Landlord shall have access to the Demised Premises at
any time for the purpose of inspecting such facilities or of making such
repairs or changes thereto as Landlord deems necessary.
ARTICLE 15
ASSIGNMENT, SUBLEASE OR LICENSE
Section 15.1 Assignment, Sublease or License. Tenant shall not
assign or sublease the Demised Premises without first obtaining the written
consent of Landlord.
ARTICLE 16
NOTICE
Section 16.1 Notices and Payments. All notices, consents,
waivers, releases, certifications, statements, requests, payments, and other
communications of any kind hereunder shall be in writing and shall be
addressed and sent to the parties at their addresses shown in the caption of
this Lease, subject to thirty (30) days' notice of change. Such
communications shall be effective when deposited in United States Mail,
postage prepaid, unless otherwise agreed or provided herein.
ARTICLE 17
SIGNS
Section 17.1 Signs. Tenant may not erect, maintain, permit and
remove any signs on or about the Demised Premises without the consent of
Landlord, such consent not to be unreasonably withheld.
ARTICLE 18
TIME OF ESSENCE
Section 18.1 Time of Essence. Time shall be deemed of the essence
in all matters pertaining to this Lease.
6
<PAGE>
ARTICLE 19
INDEMNIFICATION
Section 19.1 Indemnification by Tenant. Except as otherwise
provided in Article 10, Tenant covenants at all times to save the Landlord
harmless from all loss, cost or damage which may occur or be claimed with
respect to any person or persons, corporation, property or chattels on or
about the Demised Premises, or to the property itself, resulting from the
intentional or grossly negligent acts of Tenant, its invitees, servants and
agents.
Section 19.2 Indemnification by Landlord. Except as otherwise
provided in Article 10, Landlord covenants at all times to save the Tenant
harmless from all loss, cost or damage which may occur or be claimed with
respect to any person or persons, corporation, property or chattels on or
about the Demised Premises, or to the property itself, resulting from the
intentional or grossly negligent acts of Landlord, its invitees, servants and
agents.
ARTICLE 20
SUBORDINATION
Section 20.1 Priority. It is understood that this Lease is
subject and subordinate to any first mortgage and advances thereon and to all
renewals, extensions, modifications, consolidations, participations,
replacements, and amendments of such mortgage.
Section 20.2 Nondisturbance. Provided, however, that so long as
Tenant shall not be in default under the terms of this Lease, said Lease
shall not be terminated nor shall any of Tenant's rights and obligations
under this Lease be disturbed by any steps or proceedings taken by any
mortgagee, lessor or other holder of a right of record effecting the real
property in the exercise of any of its rights under the instrument wherein
the right is authorized.
ARTICLE 21
MISCELLANEOUS
Section 21.1 Covenant of Title. Landlord covenants, represents
and warrants that it has full right and power to execute and perform its
obligations under this Lease and to grant the estate demised herein and that
Tenant, on payment of the rent herein reserved and performance of the
covenants and agreements herein contained, shall peaceably and quietly have,
hold and enjoy the Demised Premises during the Demised Term without
molestation or hindrance by any person, and, if at any time during the
Demised Term, the title of Landlord shall fail or it shall be discovered that
its title does not enable Landlord to grant the term hereby demised, or
action is taken by governmental authority which prevents Tenant from using
the Demised Premises for
7
<PAGE>
the use contemplated by it, Tenant shall have the option at Landlord's
expense to correct or contest such defect or action, or to annul and void
this Lease with full reservation of its rights to damages, if any, against
Landlord.
Section 21.2 Waiver. No waiver of any covenant or condition or
the breach of any covenant or condition of this Lease shall be deemed to
constitute a waiver of subsequent breach of such covenant or condition, nor
to justify or authorize the nonobservance on any other occasion of the same
or of any other covenant or condition hereof, nor shall the acceptance of
rent by Landlord at any time when Tenant is in default under any covenant or
condition hereof be construed as a waiver of such default, nor shall any
waiver or indulgence granted by Landlord to Tenant be taken as an estoppel
against Landlord during the continuance of such default.
Section 21.3 Remedies Cumulative. The remedies of Landlord and
Tenant shall be cumulative, and no one of them shall be construed as
exclusive of any other or of any remedy provided by law.
Section 21.4 Relationship of Parties. Nothing herein contained
shall be deemed or construed by the parties hereto, nor by any third party,
as creating the relationship of principal and agent, or of partnership, or of
joint venture, between the parties hereto, it being agreed that neither the
method of computation of rents nor any other provisions named herein, nor any
acts of the parties herein, shall be deemed to create any relationship
between the parties hereto other than the relationship of Landlord and Tenant.
Section 21.5 Governmental Regulation. Landlord and Tenant shall
each comply with all of the requirements of all county, municipal, state,
federal and other applicable governmental authorities, pertaining to the
Demised Premises.
Section 21.6 Construction. Whenever a word appears herein in its
singular form, such word shall include the plural; and the neuter gender
shall include the masculine and feminine genders. This Lease shall be
construed without reference to titles of Articles, Sections or Clauses, which
are inserted for reference only.
Section 21.7 Enjoyment and Relocation. Landlord covenants that it
has full right and power to execute and perform this Lease and to grant the
estate hereby conveyed and, if Tenant fully performs its duties under this
Lease, that Tenant shall throughout the term hereof have the peaceable and
quiet enjoyment and possession of the Demised Premises without interference
from Landlord or from anyone lawfully claiming through Landlord.
Section 21.8 Successors. This Lease shall inure to the benefit of
and be binding upon the parties hereto, their respective heirs, personal
representatives, successors and assigns.
Section 21.9 Attornment. Tenant shall, in the event of any sale,
assignment, or foreclosure of Landlord's rights in the Demised Premises,
attorn to and recognize such assignee or purchaser thereof as the Landlord
under this Lease.
8
<PAGE>
Section 21.10 Entirety, Severability and Law. This Lease shall
constitute the entire agreement between the parties and shall not be modified
in any manner except by written instrument executed by the parties. The
invalidity or unperformability of any provision hereof shall not affect or
impair any other provision hereof. Each term and provision hereof shall be
performed and enforced to the fullest extent permitted by and in accordance
with Kansas law.
Section 21.11 Consent. Whenever it is necessary under the terms of
the Lease for either party to obtain the consent or approval of the other
party, such consent or approval shall not be unreasonably withheld.
Section 21.12 Law of Kansas. This Lease shall be governed by the
laws of the State of Kansas.
To indicate their understanding of and consent to the foregoing
terms, the parties have executed this Lease on the date first above written.
LANDLORD:
L & D PARTNERSHIP
By: /s/ Robert L. Cox
- ----------------------------------
Robert L. Cox, Partner
TENANT:
ROLOX, INC., f/k/a Thermoview Merger Corp.
By: /s/ Stephen A. Hoffmann
-------------------------------------------
Stephen A. Hoffmann, President
9
<PAGE>
EXHIBIT A
Property located at 7107 Pueblo, Wichita, Kansas and legally described
as follows:
Part of Lot 1, Block B, Airport Industrial Addition, Sedgwick
County, Kansas, described as beginning of the Northeast corner thereof;
thence South along the East line of said lot, 160 feet; thence West at right
angles 125 feet; thence North parallel with the East line of said lot; 146.22
feet to the Northerly line of said lot; thence Northeasterly 125.76 feet to
the place of the beginning.
10
<PAGE>
LEASE
THIS LEASE is entered into on April 29, 1998, by and between LBD,
L.L.C., 4002 Main Street, Grandview, Missouri 64030 ("Landlord") and ROLOX,
INC., f/k/a ThermoView Merger Corp., c/o ThermoView Industries, Inc., 1101
Herr Lane, Louisville, Kentucky 40222, Attention: Stephen A. Hoffmann
("Tenant").
In consideration of the mutual covenants hereinafter contained, and
each act performed hereunder by either of the parties, Landlord and Tenant
agree as follows:
ARTICLE 1
DEMISED PREMISES
Section 1.1 Demised Premises. Landlord hereby lets and demises
to Tenant, and Tenant hereby leases from Landlord that portion of the real
property, described in Exhibit A attached hereto and by reference made a part
hereof (the "Demised Premises").
ARTICLE 2
TERM AND RENEWALS
Section 2.1 Demised Term. The "Demised Term" of this Lease shall
be for a period of 3 years beginning on May 1, 1998, and ending on April 30,
2001.
Section 2.2 Holding Over. In the event Tenant remains in
possession of the Demised Premises after the expiration of the Demised Term
and without the execution of a new lease, it shall be deemed to be occupying
the Demised Premises as a tenant from month to month, subject to all
conditions, provisions and obligations of this Lease insofar as the same are
applicable to a month-to-month tenancy.
ARTICLE 3
RENT
Section 3.1 Rental During Demised Term. Tenant shall pay to
Landlord throughout the Demised Term rental as follows: $61,200 for each
year of the Demised Term payable on the first day of each month in advance in
equal monthly installments of $5,100 beginning on September 1, 1998 through
the end of the Demised Term, assuming that Tenant takes possession on
September 1, 1998. From the beginning of the Demised Term through August 31,
1998, Tenant shall pay rent in the amount of $2,400 per month. It is
acknowledged that possession of the Demised Premises can not be granted to
tenant at the time of execution of this instrument.
<PAGE>
Notwithstanding the foregoing, if Tenant is able to take possession of the
Demised Premises prior to September 1, 1998, the rent shall be adjusted to
$5,100 per month at that time.
Section 3.2 Payments. Rental checks are to be made payable to
Landlord and mailed to Landlord at the address shown in the caption of this
Lease, or otherwise as designated by Landlord from time to time in a written
instrument delivered to Tenant.
ARTICLE 4
TAXES
Section 4.1 Real Estate Taxes.
(A) As additional rental hereunder Tenant shall
pay and discharge as they become due, all taxes and assessments on the
Demised Premises.
(B) Tenant shall have the right at its own
expense to challenge any tax or assessment; such challenge will not, however,
relieve Tenant's obligation to pay such taxes promptly when due. If such
challenge results in a reduction of taxes or assessments, Tenant shall be
entitled to a refund of such reduction within fourteen (14) days of the date
such refund amount is received by Landlord. If the challenge results in
reduction of a bill prior to payment by Landlord, Tenant shall not be
entitled to a refund, but shall have its bill appropriately reduced.
(C) If this Lease expires or terminates before a
tax or assessment bill is rendered for the year in which such expiration or
termination occurs, Tenant shall pay to Landlord on January 1 of such year of
expiration or termination the proportionate amount of the anticipated tax for
the entire calendar year. The said proportional amount shall be computed as
a fraction the numerator of which shall be the number of months of the lease
term within the last calendar year and denominator of which shall be twelve
(12).
ARTICLE 5
USE OF DEMISED PREMISES
Section 5.1 Use. Tenant shall not use or allow the Demised
Premises to be used for any unlawful, disreputable or immoral purpose or in
any way that will injure the reputation of the Demised Premises.
2
<PAGE>
ARTICLE 6
UTILITY SERVICES
Section 6.1 Payment by Tenant. Payment for all utilities used
upon or in connection with the Demised Premises shall be made by Tenant.
Such utility services shall include, but not be limited to, water,
electricity, gas and trash collection.
ARTICLE 7
MAINTENANCE
Section 7.1 Landlord's Maintenance. Tenant shall keep, maintain and
make replacements within the interior and exterior of the Demised Premises in
good condition and repair. Provided, however, should the aggregate amount of
expenses for the repair or replacement to equipment (including but not limited
to electrical systems, lights, plumbing, heating and cooling systems, and all
similar equipment) during the Demised Term exceed $10,000, then Landlord and
Tenant hereby agree to each pay one-half of such additional expenses.
ARTICLE 8
ALTERATIONS
Section 8.1 Alterations. Tenant shall not alter or add to any part
of the Demised Premises except with Landlord's prior consent, such consent not
to be unreasonably withheld. Unless otherwise specifically provided in writing,
any such alteration or addition shall remain in the Demised Premises upon the
expiration or termination of this Lease, free of any claim by Tenant. Tenant
shall furnish evidence to Landlord that all claims for labor and materials
furnished for such remodeling, alteration or addition have been paid or provided
for. Should Tenant fail to pay for such labor or materials, Landlord may pay
such amount and add the cost thereof to the rental provided for herein.
ARTICLE 9
TRADE FIXTURES
Section 9.1 Trade Fixtures. All fixtures, equipment and other
personal property placed in or upon the Demised Premises by Tenant shall remain
property of Tenant and Tenant shall have the right to remove such property at
any time, providing that any damage caused by such removal shall be repaired at
Tenant's expense.
3
<PAGE>
ARTICLE 10
INSURANCE
Section 10.1 Liability Insurance. Tenant shall, during the Demised
Term, keep in force and effect a policy of public liability and property damage
insurance with respect to the Demised Premises operated by Tenant. Tenant shall
name Landlord as an additional insured.
Section 10.2 Casualty and Other Insurance. Tenant shall carry during
the Demised Term fire and extended coverage insurance on the Demised Premises.
Tenant shall provide Landlord with certificates of insurance showing that all
insurance is effective, payable to Landlord and Tenant (as their respective
interests appear) and not cancelable without ten (10) days' prior written notice
to Landlord. Tenant shall name Landlord as an additional insured.
Section 10.3 Subrogation. The fire and extended coverage insurance
policies kept and maintained by the parties shall be endorsed to provide for or
shall otherwise contain a waiver of subrogation by the insurance company or
companies except for intentional or grossly negligent acts of the parties, it
being the intent of the parties that in the event of loss caused by ordinary
negligence, the parties agree to look solely to the proceeds of insurance
policies.
ARTICLE 11
DEFAULT AND REMEDIES
Section 11.1 Default by Tenant. In event of any failure of Tenant to
pay any rent due hereunder within ten (10) days after the same shall be due, or
any failure to perform any other of the terms or conditions of this Lease to be
observed or performed by Tenant for more than thirty (30) days after notice of
such default shall have been given to Tenant, then Landlord, may terminate this
Lease.
Section 11.2 Default by Landlord. If Landlord shall fail to promptly
keep and perform any of its representations and warranties strictly in
accordance with the terms of this Lease and shall continue in default for a
period of thirty (30) days after written notice thereof to Landlord, then Tenant
may, at its sole option and discretion, exercise any or all of the following
remedies:
(A) declare this Lease ended and vacate the Demised
Premises without incurring additional rent or other costs associated with the
lease of the Demised Premises; or
(B) remain in the Demised Premises and withhold rent
and other costs due Landlord until such time as Landlord cures such default; or
(C) perform any Landlord obligation, and all
expenses (including without limitation, reasonable attorney fees) incurred by
Tenant in performing such obligation shall be deemed an obligation of Landlord
to Tenant and shall be paid to Tenant on demand.
4
<PAGE>
ARTICLE 12
DAMAGE
Section 12.1 Damage to the Demised Premises. In the event the
Demised Premises are damaged by fire, explosion or any other casualty, the
damage shall promptly be repaired by Landlord at Landlord's expense, provided
(i) no Event of Default shall exist at the time of such casualty, (ii)
sufficient insurance proceeds shall be made available in a timely manner to
Landlord to pay for such reconstruction, and (iii) Tenant shall have in writing
agreed to occupy the Demised Premises after reconstruction for the full
remaining portion of the Demised Term. If any of the requirements in (i) -
(iii) of the preceding sentence shall not be satisfied, Landlord may in its sole
discretion, terminate the Lease and be under no further obligation to Tenant.
In no event shall Landlord be required to repair or replace Tenant's stock in
trade, fixtures, furniture, furnishings, floor coverings and equipment. If the
casualty, repairing, or rebuilding shall render the Demised Premises
untenantable, in whole or in part, and the damage shall not have been due to the
default or neglect of Tenant, then a proportionate abatement of the rent shall
be allowed from the date when the damage occurred until the date Landlord
completes its work, said proportion to be computed on the basis of the relation
which the gross square foot area of the space rendered untenantable bears to the
floor space of the Demised Premises. Tenant shall have the option to terminate
the Lease if the Demised Premises cannot be fully restored within six (6) months
of the date of damage.
ARTICLE 13
CONDEMNATION
Section 13.1 Condemnation. If the Demised Premises or any part
thereof shall be acquired by any authority having power of eminent domain,
whether directly pursuant to such power or under threat of use of such power,
either Landlord or Tenant shall have the option to terminate this Lease as of
the date when possession is taken by the acquiring authority. Any award or
settlement for damages or sale proceeds shall be distributed to the parties in
proportion to the value of their respective interests in the Demised Premises.
In such taking, condemnation, change of grade, limitation of access or like
proceeding, the parties thereto shall represent their own interests and shall
present and prosecute their own claims for damages and neither party shall be
liable to the other for any recovery obtained.
Section 13.2 Tenant's Option. In the event neither party exercises
its option to terminate as aforesaid, Tenant shall be entitled to a reduction of
rental payments in proportion to the amount by which the gross area of the
Demised Premises is reduced by such taking or loss and such reduction shall be
retroactive to the date when Tenant was deprived of the full and complete use of
all the Demised Premises.
5
<PAGE>
ARTICLE 14
INSPECTION AND ACCESS
Section 14.1 Inspection and Access. Landlord or its agents may,
during normal business hours and with 24 hours prior notice, inspect the Demised
Premises and make such repairs thereto as Landlord deems necessary for its
preservation. Any repairs made by Landlord because of Tenant's breach of
covenant to repair or maintain shall be at Tenant's expense. In case of an
emergency, Landlord shall have access to the Demised Premises at any time for
the purpose of inspecting such facilities or of making such repairs or changes
thereto as Landlord deems necessary.
ARTICLE 15
ASSIGNMENT, SUBLEASE OR LICENSE
Section 15.1 Assignment, Sublease or License. Tenant shall not
assign or sublease the Demised Premises without first obtaining the written
consent of Landlord.
ARTICLE 16
NOTICE
Section 16.1 Notices and Payments. All notices, consents, waivers,
releases, certifications, statements, requests, payments, and other
communications of any kind hereunder shall be in writing and shall be addressed
and sent to the parties at their addresses shown in the caption of this Lease,
subject to thirty (30) days' notice of change. Such communications shall be
effective when deposited in United States Mail, postage prepaid, unless
otherwise agreed or provided herein.
ARTICLE 17
SIGNS
Section 17.1 Signs. Tenant may not erect, maintain, permit and
remove any signs on or about the Demised Premises without the consent of
Landlord, such consent not to be unreasonably withheld.
6
<PAGE>
ARTICLE 18
TIME OF ESSENCE
Section 18.1 Time of Essence. Time shall be deemed of the essence in
all matters pertaining to this Lease.
ARTICLE 19
INDEMNIFICATION
Section 19.1 Indemnification by Tenant. Except as otherwise
provided in Article 10, Tenant covenants at all times to save the Landlord
harmless from all loss, cost or damage which may occur or be claimed with
respect to any person or persons, corporation, property or chattels on or
about the Demised Premises, or to the property itself, resulting from the
intentional or grossly negligent acts of Tenant, its invitees, servants and
agents.
Section 19.2 Indemnification by Landlord. Except as otherwise
provided in Article 10, Landlord covenants at all times to save the Tenant
harmless from all loss, cost or damage which may occur or be claimed with
respect to any person or persons, corporation, property or chattels on or
about the Demised Premises, or to the property itself, resulting from the
intentional or grossly negligent acts of Landlord, its invitees, servants and
agents.
ARTICLE 20
SUBORDINATION
Section 20.1 Priority. It is understood that this Lease is
subject and subordinate to any first mortgage and advances thereon and to all
renewals, extensions, modifications, consolidations, participations,
replacements, and amendments of such mortgage.
Section 20.2 Nondisturbance. Provided, however, that so long as
Tenant shall not be in default under the terms of this Lease, said Lease
shall not be terminated nor shall any of Tenant's rights and obligations
under this Lease be disturbed by any steps or proceedings taken by any
mortgagee, lessor or other holder of a right of record effecting the real
property in the exercise of any of its rights under the instrument wherein
the right is authorized.
ARTICLE 21
MISCELLANEOUS
7
<PAGE>
Section 21.1 Covenant of Title. Landlord covenants, represents
and warrants that it has full right and power to execute and perform its
obligations under this Lease and to grant the estate demised herein and that
Tenant, on payment of the rent herein reserved and performance of the
covenants and agreements herein contained, shall peaceably and quietly have,
hold and enjoy the Demised Premises during the Demised Term without
molestation or hindrance by any person, and, if at any time during the
Demised Term, the title of Landlord shall fail or it shall be discovered that
its title does not enable Landlord to grant the term hereby demised, or
action is taken by governmental authority which prevents Tenant from using
the Demised Premises for the use contemplated by it, Tenant shall have the
option at Landlord's expense to correct or contest such defect or action, or
to annul and void this Lease with full reservation of its rights to damages,
if any, against Landlord.
Section 21.2 Waiver. No waiver of any covenant or condition or
the breach of any covenant or condition of this Lease shall be deemed to
constitute a waiver of subsequent breach of such covenant or condition, nor
to justify or authorize the nonobservance on any other occasion of the same
or of any other covenant or condition hereof, nor shall the acceptance of
rent by Landlord at any time when Tenant is in default under any covenant or
condition hereof be construed as a waiver of such default, nor shall any
waiver or indulgence granted by Landlord to Tenant be taken as an estoppel
against Landlord during the continuance of such default.
Section 21.3 Remedies Cumulative. The remedies of Landlord and
Tenant shall be cumulative, and no one of them shall be construed as
exclusive of any other or of any remedy provided by law.
Section 21.4 Relationship of Parties. Nothing herein contained
shall be deemed or construed by the parties hereto, nor by any third party,
as creating the relationship of principal and agent, or of partnership, or of
joint venture, between the parties hereto, it being agreed that neither the
method of computation of rents nor any other provisions named herein, nor any
acts of the parties herein, shall be deemed to create any relationship
between the parties hereto other than the relationship of Landlord and Tenant.
Section 21.5 Governmental Regulation. Landlord and Tenant shall
each comply with all of the requirements of all county, municipal, state,
federal and other applicable governmental authorities, pertaining to the
Demised Premises.
Section 21.6 Construction. Whenever a word appears herein in its
singular form, such word shall include the plural; and the neuter gender
shall include the masculine and feminine genders. This Lease shall be
construed without reference to titles of Articles, Sections or Clauses, which
are inserted for reference only.
Section 21.7 Enjoyment and Relocation. Landlord covenants that it
has full right and power to execute and perform this Lease and to grant the
estate hereby conveyed and, if Tenant fully performs its duties under this
Lease, that Tenant shall throughout the term hereof have the peaceable and
quiet enjoyment and possession of the Demised Premises without interference
from Landlord or from anyone lawfully claiming through Landlord.
8
<PAGE>
Section 21.8 Successors. This Lease shall inure to the benefit of
and be binding upon the parties hereto, their respective heirs, personal
representatives, successors and assigns.
Section 21.9 Attornment. Tenant shall, in the event of any sale,
assignment, or foreclosure of Landlord's rights in the Demised Premises,
attorn to and recognize such assignee or purchaser thereof as the Landlord
under this Lease.
Section 21.10 Entirety, Severability and Law. This Lease shall
constitute the entire agreement between the parties and shall not be modified
in any manner except by written instrument executed by the parties. The
invalidity or unperformability of any provision hereof shall not affect or
impair any other provision hereof. Each term and provision hereof shall be
performed and enforced to the fullest extent permitted by and in accordance
with Kansas law.
Section 21.11 Consent. Whenever it is necessary under the terms of
the Lease for either party to obtain the consent or approval of the other
party, such consent or approval shall not be unreasonably withheld.
Section 21.12 Law of Kansas. This Lease shall be governed by the
laws of the State of Kansas.
To indicate their understanding of and consent to the foregoing
terms, the parties have executed this Lease on the date first above written.
LANDLORD:
LBD, L.L.C.
By: /s/ Robert L. Cox
----------------------------------
Robert L. Cox, Member
TENANT:
ROLOX, INC., f/k/a Thermoview Merger Corp.
By: /s/ Stephen A. Hoffman
----------------------------------
Stephen A. Hoffmann, President
9
<PAGE>
EXHIBIT A
Property located at 1440 S. Ridge Road, Wichita, Kansas.
10
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is entered into this 27th
day of May, 1998 by and between TD WINDOWS, INC. (the "Buyer"), a Kentucky
corporation, and ALLHOM EAGLE WINDOWS & DOORS, INC. (the "Seller"), a Kentucky
corporation.
PRELIMINARY STATEMENTS:
The Seller is engaged in the business of designing, manufacturing,
selling and installing vinyl replacement windows for existing homes;
The Seller desires to sell or otherwise transfer certain of its assets;
and
The Buyer desires to purchase the assets.
In consideration of these preliminary statements and the mutual
covenants, representations, warranties and agreements hereinafter set forth,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
SECTION 1.1 Transfer of Assets.
(a) Upon the terms and subject to the conditions set
forth in this Agreement, at the Effective Time (as hereinafter defined) the
Seller shall transfer to the Buyer, free and clear of all claims, charges,
liens, contracts, rights, options, security interests, mortgages,
encumbrances and restrictions whatsoever (collectively, "Claims"), all of the
assets, properties and rights owned by the Seller or in which the Seller has
any right or interest of every type and description, real, personal and
mixed, tangible and intangible, confirmed or contingent (other than the
Excluded Assets as hereinafter defined), including, without limitation,
business agreements, property, Inventory (as defined in Section 2.28), the
Accounts Receivable (as defined in Section 2.29), supplier lists, customer
lists, prepaid insurance, licenses and permits, processes, service marks,
know-how, show-how, trade secrets, software (including, without limitation,
documentation and related source and object codes), licenses thereto,
computers and computer equipment, files and other records, systems and
processes, security deposits, contracts, arrangements and understandings,
oral and written, formal and informal, for work to be performed and/or
services to be provided, real estate and interests therein, leasehold and
other improvements, machines, machinery, equipment, furniture, fixtures,
supplies, all rights and claims under insurance policies and other contracts
of whatever nature, all causes of action,
<PAGE>
claims and demands of every nature relating to the Assumed Liabilities,
Contracts and Leases (as hereinafter defined), and all other assets,
properties and rights of every kind and nature owned by the Seller, whether
or not specifically referred to in this Agreement (collectively, the
"Transferred Assets").
(b) Notwithstanding any provision of this Agreement to
the contrary, there shall be excluded from the Transferred Assets and
retained by the Seller the following assets (the "Excluded Assets"): (i) all
cash on hand and in banks (including all uncollected items); (ii) all other
claims for services provided to customers prior to the Effective Time; (iii)
trademark, patent rights and assets relating to GREATTRIM; and (iv) all
contracts, arrangements and understandings which are not capable of being
transferred or assigned without the approval or consent of any party thereto
other than the Seller if such approval or consent has not been obtained,
subject, however, to Sections 1.3 and 5.1 herein.
(c) The Seller shall transfer the Transferred Assets to
the Buyer pursuant to a Bill of Sale, Assignment and Assumption Agreement in
substantially the form of Exhibit A, a Lease Assignment and Assumption
Agreement in substantially the form of Exhibit B, and such other documents
and instruments as the Buyer or its counsel may reasonably request.
(d) At any time and from time to time after the Closing
Date, at the request of the Buyer and without further consideration, the
Seller shall execute and deliver such other instruments of sale, transfer,
conveyance, assignment and confirmation as may be reasonably requested in
order to more effectively transfer, convey and assign to the Buyer and to
confirm the Buyer's title to the Transferred Assets.
SECTION 1.2 Consideration for the Transferred Assets. In consideration
for the transfer of the Transferred Assets, upon the terms and subject to the
conditions set forth in this Agreement, the Buyer shall assume the Assumed
Liabilities pursuant to Section 1.3 hereof and shall make payments as follows:
(a) Closing Payment. An initial payment of the sum of
$276,600.85 less the total amount set forth on Schedule 2.30 (the "Hold-back
Amount" in cash on the Closing Date (defined below) by certified check. Any
portion of the Hold-back Amount against which no right to reclaim has been
asserted against the Buyer nor notice of any right to reclaim has been
received by the Buyer, as provided in Section 355.2-702(2) of the Kentucky
Revised Statutes ("KRS"), shall be paid to the Seller eleven (11) days after
the Closing Date.
(b) Post Closing Payment. A second payment of Twenty
Thousand Dollars ($20,000), plus interest, payable at the earlier of (i) when
all Accounts Receivable as set forth on Schedule 2.29 are collected in full
or (ii) one year after the Closing Date. This amount shall be represented by
a promissory note of the Buyer's parent payable to the Seller and bearing
interest at the minimum applicable federal rate, as prescribed by the
Internal Revenue Code of 1986, as amended (the "Code") necessary to avoid
interest being imputed at a higher rate, the form of which is attached hereto
as Exhibit C.
2
<PAGE>
SECTION 1.3 Assumption of Liabilities. The only obligations and
liabilities to be assumed by the Buyer in connection with its acquisition of
the Transferred Assets (the "Assumed Liabilities") are the obligations and
liabilities specifically listed on Schedule 1.3 and obligations and
liabilities arising from the operation of the Seller's business after the
Effective Date, including obligations under executory contracts listed on
Schedule 1.3 arising from the operation of the Seller's business after the
Effective Date (provided such contracts are not in default and are assigned
in writing by the Seller with the written consent of the other party or
parties thereto, if necessary, and are delivered to the Buyer on or prior to
the Effective Date).
The Buyer shall assume such obligations and liabilities pursuant to the
Bill of Sale, Assignment and Assumption Agreement substantially in the form
of Exhibit A and the Lease Assignment and Assumption Agreement substantially
in the form of Exhibit B. The Seller shall remain liable for the payment of
all other liabilities and obligations which accrue prior or subsequent to the
Effective Date. Except for the Assumed Liabilities in the amount and to the
extent provided in this Section 1.3, the Buyer shall not assume or be
responsible for any other liabilities or obligations which relate in any
manner to the operation of the Seller's business prior to the Effective Date,
and the Seller shall indemnify, defend, and hold the Buyer harmless from all
of such obligations and liabilities as set forth in Section 9.2 below.
Operating expenses, including without limitation rent payable under real
estate and equipment leases, staff commissions and holiday pay and rebates to
customers for which bills are received or payment became due after the
Effective Date with respect to periods both prior to and after the Effective
Date will be allocated to each of the Seller and the Buyer on a pro-rata
basis according to the ratio of pre-Effective Time days to post-Effective
Time days; promptly upon receipt of notice from the Buyer of amounts so
allocated to the Seller, the Seller shall remit full payment therefor to the
Buyer.
SECTION 1.4 Allocation of Purchase Price. The considerations
paid and the liabilities assumed by the Buyer pursuant to Sections 1.2 and
1.3 above shall be allocated among the Transferred Assets purchased hereunder
as set forth on Schedule 1.4 attached hereto. The Seller and the Buyer each
hereby covenant and agree that neither of them will take a position on any
income tax return, before any governmental agency, or in any judicial
proceeding that is in any way inconsistent with the allocation set forth on
Schedule 1.4. Each party shall duly and timely file Form 8594 with its
appropriate tax returns.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE SELLER
As an inducement to the Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, the Seller represents and
warrants to the Buyer as follows:
SECTION 2.1 Organization and Qualification. The Seller is a
corporation duly organized, validly existing and in good standing under the
laws of the Commonwealth of Kentucky. The nature of the Seller's business or
the Transferred Assets does not require the
3
<PAGE>
Seller to be licensed or qualified in any other jurisdiction. The Seller has
made available to the Buyer complete and correct copies of the Articles of
Incorporation and By-laws of the Seller as currently in effect.
SECTION 2.2 Corporate Power and Authority. The Seller has the
corporate power and authority to own and hold its properties and to carry on
its business as now conducted. The Seller (a) has the corporate power and
authority to execute, deliver and perform this Agreement and the Exhibits and
to deliver the Schedules hereto and the other documents and instruments
contemplated hereby (collectively this Agreement, the Exhibits and Schedules
hereto, and the other documents and instruments contemplated hereby shall
constitute the "Documents") and to consummate the transactions contemplated
hereby and thereby and (b) has taken all necessary corporate and shareholder
action to authorize and approve the execution, delivery and performance of
this Agreement and the other Documents and the consummation of the
transactions contemplated hereby and thereby. This Agreement and the other
Documents have been duly and validly executed and delivered by the Seller and
constitute valid and binding obligations of the Seller, enforceable against
the Seller in accordance with their terms.
SECTION 2.3 Validity, Etc. Except as set forth on Schedule 2.3,
neither the execution and delivery of this Agreement or the other Documents,
the consummation of the transactions contemplated hereby or thereby, nor the
performance of this Agreement or the other Documents and such other
agreements in compliance with the terms and conditions hereof and thereof by
the Seller will (i) violate, conflict with or result in any breach of any
trust agreement, Articles of Incorporation, bylaw, judgment, decree, order,
statute or regulation applicable to the Seller, (ii) violate, conflict with
or result in a breach, default or termination or give rise to any right of
termination, cancellation or acceleration of the maturity of any payment date
of any of the obligations of the Seller or increase or otherwise affect the
obligations of the Seller under any law, rule, regulation or any judgment,
decree, order, governmental permit, license or order or any of the terms,
conditions or provisions of any mortgage, indenture, note, license, agreement
or other instrument or obligation related to the Seller or to the Seller's
ability to consummate the transactions contemplated hereby or thereby, except
for such defaults (or rights of termination, cancellation or acceleration) as
to which requisite waivers or consents have been obtained in writing and
provided to the Buyer, (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Seller or (iv) result in the
creation of any Claim upon the Transferred Assets.
SECTION 2.4 Subsidiaries and Investments. The Seller has no
subsidiaries and does not own, directly or indirectly, any capital stock or
other equity or ownership or proprietary interest in any other corporation,
partnership, association, trust, joint venture or other entity.
SECTION 2.5 Books and Records. The minute books of the Seller, which
have been and will be made available to the Buyer and its representatives,
contain accurate records of all meetings of and corporate actions or written
consents by the shareholders and Board of Directors of the Seller set forth
in such minute books.
4
<PAGE>
SECTION 2.6 Financial Statements. The Seller has previously
furnished to the Buyer, and attached hereto as Schedule 2.6 are, the
unaudited balance sheet of the Seller as at December 31, 1997, the related
statement of income for the fiscal year then ended, the compiled balance
sheet of the Seller as at December 31, 1996 and 1995, the related statements
of income and retained earnings and cash flows for the fiscal years then
ended (the "1996 Financial Statements"), and the unaudited balance sheet of
the Seller (the "Balance Sheet") as at May 15, 1998 (the "Balance Sheet
Date") and the related statements of income for the 41/2 months then ended.
The 1996 Financial Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied and all of the
financial statements were prepared from the books and records of the Seller.
Such books and records are complete and correct in all material respects,
accurately reflect all transactions of the Seller's business, and have been
made available to the Buyer for examination. The 1996 Financial Statements
fairly present the financial position of the Seller as of the dates thereof
and the results of its operations and cash flows for the periods ended on the
dates thereof. The 1996 Financial Statements reflect reserves appropriate
and adequate for all known material liabilities and reasonably anticipated
losses as required by GAAP. Since the Balance Sheet Date (i) there has been
no change in the assets, liabilities or financial condition of the assets of
the Seller from that reflected in the Balance Sheet except for changes in the
ordinary course of business consistent with past practice and which have not
been materially adverse, and (ii) none of the business, prospects, financial
condition, operations, property or affairs of the Seller has been materially
adversely affected by any occurrence or development, individually or in the
aggregate, whether or not insured against. The Seller has disclosed to the
Buyer all material facts relating to the preparation of all of the financial
statements.
SECTION 2.7 Absence of Undisclosed Liabilities.
(a) Except as and to the extent of the amounts
specifically reflected or reserved against in the Balance Sheet, or except as
set forth on Schedule 2.7, the Seller has no liabilities or obligations of
any nature whatsoever due or to become due, accrued, absolute, contingent or
otherwise, except for liabilities and obligations incurred since the date
thereof in the ordinary course of business and consistent with past practice.
The Seller does not know of, and has no reason to know of, any basis for the
assertion against the Seller of any liability or obligation not fully
reflected or reserved against in the Balance Sheet.
(b) The Seller is not bound by any agreement, or subject
to any charter or other corporate restriction or any legal requirement, which
has, or in the future can reasonably be expected to have, a material adverse
effect on the business or prospects of the Seller.
SECTION 2.8 Employment and Labor Matters.
(a) Schedule 2.8 lists all employees and officers of the
Seller on the date hereof, along with the amount of the current annual
salaries and total compensation paid or due for services to each employee or
officer for the most recent fiscal year end and the year to date, and a full
and complete description of any commitments to such employees and officers
5
<PAGE>
with respect to compensation payable thereafter. To the best knowledge of
the Seller, no key employee or group of employees has any plans to terminate
employment with the Seller.
(b) The Seller is not a party to or bound by any
collective bargaining agreement with any labor organization, group or
association covering any of its employees, and the Seller has no knowledge of
any attempt to organize the Seller's employees by any Person, unit or group
seeking to act as their bargaining agent. There are no pending or, to the
best knowledge of the Seller, threatened charges (by employees, their
representatives or governmental authorities) of unfair labor practices or of
employment discrimination or of any other wrongful action with respect to any
aspect of employment of any person employed or formerly employed by the
Seller. No union representation election relating to employees of the Seller
has been scheduled by any governmental agency or authority, no organizational
effort is being made with respect to any of such employees, and there is no
investigation of the Seller's employment policies or practices by any
governmental agency or authority pending or threatened. The Seller is not
currently, nor has it been, involved in labor negotiations with any unit or
group seeking to become the bargaining unit for any employees of the Seller.
The Seller has not experienced any material work stoppages, and to the best
knowledge of the Seller, no work stoppage is planned.
SECTION 2.9 Real Property. The Seller owns no real property.
SECTION 2.10 Powers of Attorney; Absence of Limitations on
Competition; Guarantees.
Except as set forth in Schedule 2.10, (i) no power of attorney or
similar authorization given by the Seller presently is in effect or
outstanding; (ii) no contract or agreement to which the Seller is a party or
is bound or to which the Seller's properties or assets are subject limits the
freedom of the Seller to compete in any line of business or with any Person;
and (iii) the Seller is not a party to or bound by any guarantee of any debt
or obligation of any other Person.
SECTION 2.11 Significant Suppliers. Set forth on Schedule 2.11 is a
true and correct list of the Seller's ten largest suppliers for the most
recent twelve (12) month period ending December 31, 1997, and for the four
(4) month period ending April 30, 1998, together with the amount of services
attributable to such suppliers expressed in dollars and as a percentage of
total sales and services. None of the suppliers identified on Schedule 2.11
has terminated, materially reduced or threatened to terminate or materially
reduce its supplies to the Seller during the period covered by such schedule.
SECTION 2.12 Governmental Approvals. No registration or filing with,
or consent or approval of or other action by, any Federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Seller of this Agreement.
SECTION 2.13 Absence of Adverse Change; Conduct of Business.
6
<PAGE>
During the period from the Balance Sheet Date to and including the date
of this Agreement, except as set forth on Schedule 2.13, the Seller has not
(i) borrowed or agreed to borrow any material amount of funds or incurred any
liability or obligation of any nature (whether accrued, absolute, contingent
or otherwise), or guaranteed or agreed to guarantee any obligations of
others, (ii) canceled any indebtedness owing to it or any claims that it
might have possessed, waived any material rights of substantial value or
sold, leased, encumbered, transferred or otherwise disposed of, or agreed to
sell, lease, encumber, or otherwise dispose of its assets or permitted any of
its assets to be subjected to any mortgage, pledge, lien, security interest,
encumbrance, restriction or charge of any kind, (iii) made any capital
expenditure or commitment therefor, (iv) increased its indebtedness for
borrowed money or made any loan to any Person, (v) written off as
uncollectible any notes or accounts receivable, except write-offs in the
ordinary course of business charged to applicable reserves, (vi) made any
material change in any method of accounting or auditing practice, (vii)
otherwise conducted its business or entered into any transaction, except in
the usual and ordinary manner, or (viii) agreed, whether or not in writing,
to do any of the foregoing.
SECTION 2.14 Certain Practices. None of the Seller, the Seller's
directors or officers, or to the best knowledge of the Seller, the Seller's
employees have, directly or indirectly, used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful expenses relating to
political activity; made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties
or campaigns from corporate funds; violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended; established or maintained any
unlawful or unrecorded fund of corporate monies or other assets; made any
false or fictitious entry on the books or records of the Seller or any
subsidiary; made any bribe, rebate, payoff, influence payment, kickback, or
other unlawful payment; given any favor or gift which is not deductible for
federal income tax purposes; or made any bribe, kickback, or other payment of
a similar or comparable nature, whether lawful or not, to any person or
entity, private or public, regardless of form, whether in money, business or
to obtain special concessions, or to pay for favorable treatment for business
secured or for special concessions already obtained.
SECTION 2.15 Compliance with Law; Licenses and Permits.
Except as set forth on Schedule 2.15, the Seller has complied in all
material respects with all laws, ordinances, legal requirements, rules,
regulations and orders applicable to it, its operations, properties, assets,
products and services. Except as set forth on Schedule 2.15, there is no
existing law, rule, regulation or order, and the Seller is not aware of any
proposed law, rule, regulation or order, whether Federal, state or local,
which would prohibit or materially restrict the Buyer from, or otherwise
materially adversely affect the Buyer in, conducting the Seller's business in
the manner heretofore conducted by the Seller in any jurisdiction in which
the business is now conducted. The Seller possesses all franchises, permits,
licenses, certificates and consents required from any governmental or
regulatory authority in order for the Seller to carry on its business as
currently conducted and to own and operate its properties and assets as now
owned and operated and all of such licenses and permits are set forth on
Schedule 2.15.
7
<PAGE>
SECTION 2.16 Employee Benefits.
(a) Set forth on Schedule 2.16 is a list of all pension,
profit sharing, retirement, deferred compensation, multiemployer (as defined
under ERISA), stock purchase, stock option, incentive, bonus, vacation,
severance, disability, hospitalization, medical insurance, life insurance,
fringe benefit, welfare and other employee benefit plans, programs or
arrangements pursuant to which the Seller or its ERISA Affiliates provides
(directly or indirectly, individually or jointly through others) benefits or
compensation to or on behalf of employees or independent contractors or
former employees or former independent contractors of the Seller or its ERISA
Affiliates, whether formal or informal, whether or not written ("Employee
Plan"). On request by the Buyer, the Seller shall furnish a copy of each
Employee Plan and a copy of any related materials. The Seller will maintain
the benefits listed on Schedule 2.16 in full force and effect through the
Effective Date. The Buyer shall have no obligation or liability of any kind
or nature for any compensation or benefits of any kind or nature to the
employees or consultants of the Seller for services rendered prior to the
Effective Date.
(b) Neither the Seller nor any of its ERISA Affiliates
is or has been a participant in, or is or has been obligated to maintain or
to make contributions to, a multi-employer plan (within the meaning of ERISA
Section 3(37) and ERISA Section 4001(a)(3)) or an Employee Plan which is
subject to Title IV of ERISA. Neither the Seller nor any ERISA Affiliate has
sponsored, contributed to or been obligated under Title I or IV of ERISA to
contribute to a "defined benefit plan" (as defined in ERISA Section 3(35)).
(c) Neither the Seller nor its ERISA Affiliates have
entered into any contract, agreement or arrangement (whether oral or written)
under which the Seller or its ERISA Affiliates have assumed any liability
relating to their clients' retirement plans, nor have the Seller and/or its
ERISA Affiliates made any verbal representations that the use of any
employees of the Seller or its ERISA Affiliates would have no adverse
consequence on such client retirement plans.
(d) Termination of or withdrawal from any Employee Plan
immediately after the Closing Date would not subject the Buyer to any
liability, tax or penalty whatsoever.
(e) For purposes of this Section 2.16, the term "ERISA"
shall mean the Employee Retirement Income Security Act of 1974, as amended,
and the term "ERISA Affiliate" shall mean each trade or business (whether or
not incorporated) which together with the Seller is treated as a single
employer under Section 414(b), (c), (m), (o) or (t) of the Code.
SECTION 2.17 Fixed Assets. Schedule 2.17 contains a true and complete
list of all of the Transferred Assets which are fixed assets as of May 15,
1998. Except as shown on Schedule 2.17, the Seller has good and marketable
title to all of its fixed assets, free and clear of all claims, liens,
mortgages, charges and encumbrances except as disclosed in the Balance Sheet.
All of the Seller's fixed assets, whether owned or leased, are adequate and
usable for the purposes for
8
<PAGE>
which they are currently used, are in good operating condition and repair and
have been properly maintained.
SECTION 2.18 Insurance. The Seller is, and will be through the
Effective Date, insured with insurers in respect of its properties, assets
and businesses as set forth on the attached Schedule 2.18. Schedule 2.18
lists the insurance coverage carried by the Seller, which insurance will
remain in full force and effect with respect to all events occurring prior to
the Effective Date. Except as set forth on Schedule 2.18, the Seller (i) has
not failed to give any notice or present any claim under any such policy or
binder in due and timely fashion, (ii) has not received notice of
cancellation or non-renewal of any such policy or binder, (iii) is not aware
of any threatened or proposed cancellation or non-renewal of any such policy
or binder, (iv) has not received notice of any insurance premium which will
be materially increased in the future, and (v) is not aware of any insurance
premium which will be materially increased in the future. There are no
outstanding claims under any such policy which have gone unpaid for more than
45 days, or as to which the insurer has disclaimed liability.
SECTION 2.19 Outstanding Contracts. Schedule 2.19 sets forth a
description of all existing contracts, agreements, leases, commitments,
licenses and franchises, which involve obligations or commitments by the
Seller of $5,000 or more and are not cancelable by the Seller without penalty
within 30 days (collectively "Contracts"), whether written or oral, relating
to the Seller. The Seller has delivered or made available to the Buyer true,
correct and complete copies of all of the Contracts specified on Schedule
2.19 which are in writing, and such schedule sets forth a complete
description of all Contracts which are not in writing. All of the Contracts
are in full force and effect and enforceable in accordance with their terms,
except to the extent that the enforceability thereof may be subject to or
affected by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, or other laws relating to or affecting the rights
of creditors generally. Except as set forth on Schedule 2.19, the Seller
and, to the best knowledge of the Seller, each other party thereto has
materially performed all the obligations required to be performed by it, has
received no notice of default and is not in default (with due notice or lapse
of time or both) under any of the Contracts. The Seller has no present
expectation or intention of not fully performing all its obligations under
each of the Contracts, and the Seller has no knowledge of any breach or
anticipated breach by the other party to any of the Contracts to which the
Seller is a party. Except as set forth on Schedule 2.19, none of the
Contracts has been terminated; no notice has been given by any party thereto
of any alleged default by any party thereunder; and the Seller is not aware
of any intention or right of any party to declare another party to any of the
Contracts to be in default. Except as set forth on Schedule 2.19, there
exists no actual or, to the best knowledge of the Seller, threatened
termination, cancellation or limitation of the business relationship of the
Seller by any party to any of the Contracts.
SECTION 2.20 Outstanding Leases. Schedule 2.20 sets forth a
description of each agreement by which the Seller leases each parcel of real
property (the "Leased Parcels") used in connection with the Seller's business
(collectively, the "Leases"). The Seller has delivered or made available to
the Buyer true, correct and complete copies of all of the Leases specified on
Schedule 2.20. All rents due under the Leases have been paid. All of the
Leases are in full force and effect and enforceable in accordance with their
terms, except to the extent that the
9
<PAGE>
enforceability thereof may be subject to or affected by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, or
other laws relating to or affecting the rights of creditors generally.
Except as set forth on Schedule 2.20, the Seller and to the best knowledge of
the Seller, each other party thereto has performed all the obligations
required to be performed by it, has received no notice of default and is not
in default (with due notice or lapse of time or both) under any of the
Leases. The Seller has no present expectation or intention of not fully
performing all its obligations under each of the Leases, and the Seller has
no knowledge of any breach or anticipated breach by the other party to any of
the Leases. Except as set forth on Schedule 2.20, none of the Leases has
been terminated; no notice has been given by any party thereto of any alleged
default by any party thereunder; and the Seller is not aware of any intention
or right of any party to declare another party to any of the Leases to be in
default. There exists no actual or, to the best knowledge of the Seller,
threatened termination, cancellation or limitation of the business
relationship of the Seller with any party to any of the Leases.
SECTION 2.21 Intellectual Properties. Schedule 2.21 contains an
accurate and complete list of all domestic and foreign letters patent,
patents, patent applications, patent licenses, software licenses and know-how
licenses, trade names, trademarks, copyrights, unpatented inventions, service
marks, trademark registrations and applications, service mark registrations
and applications and copyright registrations and applications, trade secrets
or other confidential proprietary information owned or used by the Seller in
the operation of the Seller's business (collectively the "Intellectual
Property"). Except as set forth on Schedule 2.21 and except for commercial
software licensed for use on personal computers, the Seller owns the entire
right, title and interest in and to the Intellectual Property, trade secrets
and technology used in the operation of its business and each item
constituting part of the Intellectual Property and trade secrets and
technology which is owned by the Seller has been, to the extent indicated in
Schedule 2.21, duly registered with, filed in or issued by, as the case may
be, the United States Patent and Trademark office or such other government
entities, domestic or foreign, as are indicated in Schedule 2.21 and such
registrations, filings and issuances remain in full force and effect. There
have been and are no pending or, to the best knowledge of the Seller,
threatened proceedings or litigation or other adverse claims affecting or
with respect to the Intellectual Property. There is, to the best knowledge
of the Seller, no reasonable basis upon which a claim may be asserted against
the Seller for infringement of any domestic or foreign letters patent,
patents, patent applications, patent licenses and know-how licenses, trade
names, trademark registrations and applications, common law trademarks,
service marks, service mark registrations or applications, copyrights,
copyright registrations or applications, trade secrets or other confidential
proprietary information. To the best knowledge of the Seller, no Person is
infringing the Intellectual Property.
SECTION 2.22 Proprietary Information of Third Parties.
Except as disclosed on Schedule 2.22, no third party has claimed or, to
the best knowledge of the Seller, has reason to claim that any Person
employed by or consulting with the Seller ("Related Person") has (i) violated
or may be violating any of the terms or conditions of such person's
employment, non-competition or non-disclosure agreement with such third
party,
10
<PAGE>
(ii) disclosed or may be disclosing or utilized or may be utilizing any trade
secret or proprietary information or documentation of such third party, or
(iii) interfered or may be interfering in the employment relationship between
such third party and any of its present or former employees. No third party
has requested information from the Seller which suggests that such a claim
might be contemplated. Except as disclosed on Schedule 2.22, to the best
knowledge of the Seller, no Related Person has employed or proposes to employ
any trade secret or any information or documentation proprietary to any
former employer and no Related Person has violated any confidential
relationship which such person may have had with any third party, in
connection with the development or sale of any service of the Seller, and the
Seller has no reason to believe there will be any such employment or
violation.
SECTION 2.23 Transactions With Affiliates. No director, officer or
shareholder of the Seller, or member of the family of any such person, or any
corporation, partnership, trust or other entity in which any such person, or
any member of the family of any such person, has a beneficial interest
greater than 5% or is an officer, director, trustee, partner or holder of any
equity interest greater than 5%, is a party to any transaction with the
Seller, including any contract, agreement or other arrangement providing for
the employment of, furnishing of services by, rental of real or personal
property from or otherwise requiring payments or involving other obligations
to any such person or firm.
SECTION 2.24 Taxes. The Seller has timely filed a valid election to
be treated as an S corporation in accordance with the provisions of Section
1361 of the Code, effective for its tax year ended December 31, 1993 and has
qualified and continues to qualify as an S corporation for all years and
periods thereafter through and including the close of business on the Closing
Date. The Seller is not and has not been subject to the built-in gains tax
under Section 1374 of the Code or to the tax on passive income under Section
1375 of the Code. Schedule 2.24 lists all the states and localities with
respect to which the Seller is required to file any corporate, income and/or
franchise tax returns and sets forth whether the Seller is treated as the
equivalent of an S corporation by or with respect to each such state and/or
locality. Except as set forth on Schedule 2.24, all federal, state, local
and foreign tax returns and tax reports required to be filed by the Seller on
or before the date hereof have been timely filed with the appropriate
governmental agencies in all jurisdictions in which such returns and reports
are required to be filed and all amounts shown as owing thereon have been
paid. All taxes (including, without limitation, income, accumulated
earnings, property, sales, use, franchise, excise, license, value added,
fuel, employees' income withholding and social security taxes) which have
become due or payable or are required to be collected by the Seller or are
otherwise attributable to any periods ending on or before the Closing Date
and all interest and penalties thereon, whether disputed or not, have been
paid or will be paid in full or adequately reflected on the Balance Sheet or
the Seller's books and records in accordance with generally accepted
accounting principles on or prior to the Closing Date. Except as set forth
on Schedule 2.24, all deposits required by law to be made by the Seller with
respect to employees' withholding taxes have been duly made, and as of the
Closing Date all such deposits due will have been made. The Seller has
delivered to the Buyer true and complete copies of all of the Seller's
federal and state income tax returns for the fiscal periods ended December
31, 1997 and 1996 and all reports and results of income tax audits, if any,
related thereto. Except as set forth on Schedule 2.24, no examination of any
tax return of the
11
<PAGE>
Seller is currently in progress. There are no outstanding agreements or
waives extending the statutory period of limitations applicable to any such
tax return.
SECTION 2.25 Litigation. Except as set forth on Schedule 2.25, there
is no (i) action, suit, claim, proceeding or investigation pending or, to the
best knowledge of the Seller, threatened against or affecting the Seller
(whether or not such Seller is a party or prospective party thereto), at law
or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceeding pending
relating to the Seller or (iii) governmental inquiry pending or threatened
against or involving the Seller, and there is no basis for any of the
foregoing. The Seller has not received any opinion or memorandum or legal
advice from legal counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage which may be material to the
business, prospects, financial condition, operations, property or affairs of
the Seller. There are no outstanding orders, writs, judgments, injunctions
or decrees served upon the Seller by any court, governmental agency or
arbitration tribunal against the Seller. There are no facts or circumstances
which may result in institution of any action, suit, claim or legal,
administrative or arbitration proceeding or investigation against, involving
or affecting the Seller or the transactions contemplated hereby. The Seller
is not in default with respect to any order, writ, injunction or decree known
to or served upon it from any court or of any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. Except as disclosed on Schedule 2.25,
there is no action or suit by the Seller pending or threatened against others.
SECTION 2.26 Environmental Matters.
(a) Compliance. The Seller and all Leased Parcels are
in compliance with all applicable laws, rules, regulations, orders,
ordinances, judgments and decrees of all governmental authorities with
respect to all environmental statutes, rules and regulations. Except as set
forth on Schedule 2.26, the Seller has not received notice of, nor does the
Seller have knowledge of, any past, present or future events, conditions,
circumstances, activities, practices, incidents, actions or plans of the
Seller or the Seller's predecessors, either collectively, individually or
severally, which may interfere with or prevent continued compliance with, or
which may give rise to any common law or legal liability or otherwise form
the basis of any claim, action, suit, proceeding, hearing, or investigation,
based on or related to the disposal, storage, handling, manufacture,
processing, distribution, use, treatment or transport, or the emission,
discharge, release or threatened release into the environment, of any
Substance. As used in this Section 2.26, the term "Substance" or
"Substances" shall mean any pollutant, contaminant, hazardous substance,
hazardous material, hazardous waste or toxic waste, as defined in any
presently enacted federal, state or local statute or any regulation that has
been promulgated pursuant thereto. No part of any of the Leased Parcels has
been listed or proposed for listing on the National Priorities List
established by the United States Environmental Protection Agency, or any
corresponding list by any state or local authorities.
12
<PAGE>
(b) Environmental Substance Liability. No event has
occurred or condition exists or operating practice is being employed that
could give rise to liability on the part of the Seller, either at the present
time or in the future, for any losses, liabilities, damages (whether
consequential or otherwise), settlements, penalties, interest, expenses and
costs of responses, including any such liability on account of the right of
any governmental or private entity or person, and including closure expenses,
costs of assessment, containment, removal, or response (other than monitoring
or transportation or disposal of materials required to be transported or
disposed of in the ordinary course of business consistent with past practice)
arising under any rule or federal, state, or local statute, or any regulation
that has been promulgated pursuant thereto, or common law, as a result of or
in connection with, or alleged to be as a result of or in connection with,
the following (collectively the "Hazardous Activities"):
(1) the handling, storage, use, transportation or
disposal of any Substances in or near or from the Leased Parcels;
(2) the handling, storage, use, transportation or
disposal of any Substances by the Seller or its predecessors which Substances
were a product, by-product or otherwise resulted from the operations
conducted by or on behalf of the Seller or its predecessors;
(3) any intentional or unintentional emission,
discharge or release of any Substances in or near or from facilities into or
upon the air, surface water, ground water or land or any disposal, handling,
manufacturing, processing, distribution, use, treatment, or transport of such
Substances in or near or from facilities by or on behalf of the Seller or its
predecessors; or
(4) the presence of any toxic or hazardous building
materials (including but not limited to friable asbestos or similar
substances) in any facilities of the Seller, including but not limited to the
inclusion of such materials in the exterior and interior walls, floors,
ceilings, tile, insulation or any other portion of building structures.
(c) Environmental Permits. The Seller has obtained and
holds all registrations, permits, licenses, and approvals issued by or on
behalf of any federal, state or local governmental body or agency if any
("Environmental Permits") that are required in connection with the operation
by the Seller of the Leased Parcels, the discharge or emission of Substances
by the Seller from the Leased Parcels or the generation, treatment, storage,
transportation, or disposal of any such Substances by the Seller. Such
Environmental Permits, which are described on Schedule 2.26, are currently
effective and sufficient for the operation of the Leased Parcels and the
business of the Seller as currently conducted and intended to be conducted.
The Seller is in compliance with all terms and conditions of the
Environmental Permits, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables contained in those laws or provisions or contained
in any regulation, code, plan, order, decree, judgment, notice or demand
letter issued, entered, promulgated or approved thereunder and applicable to
the Seller.
13
<PAGE>
(d) Deliveries. The Seller has delivered to the Buyer
true and complete copies and results of any reports, studies, analyses,
tests, or monitoring possessed or initiated by the Seller pertaining to
Substances or Hazardous Activities in, on, or under the Leases Parcels or
concerning compliance by the Seller or any other Person for whose conduct
they are or may be held responsible, with environmental statutes, rules and
regulations.
SECTION 2.27 Broker's or Finder's Fees. Except as set forth on
Schedule 2.27, no agent, broker, person or firm acting on behalf of the
Seller is, or will be, entitled to any commission or broker's or finder's
fees from of the Seller or from any person controlling, controlled by or
under common control with the Seller in connection with any of the
transactions contemplated herein.
SECTION 2.28 Inventory. All inventory of the Seller, whether or not
reflected in the financial statements or Balance Sheet, consists of a quality
and quantity usable and salable in the ordinary course of business, except
for obsolete items and items of below-standard quality, all of which have
been written off or written down to net realizable value in the financial
statements or the Balance Sheet, as the case may be (the "Inventory"). A
list of Inventory of the Seller as of Effective Time is set forth on Schedule
2.28. As of the Effective Time, the value of the Inventory was $113,044.65.
All Inventories not written off have been priced at the lower of cost or
market on a first in, first out basis. The quantities of each item of
Inventory (whether raw materials, work-in-process, or finished goods) are not
excessive, but are reasonable in the present circumstances of the Company.
SECTION 2.29 Accounts Receivable. The accounts receivable and other
debts due or recorded in the respective records and books of account of the
Seller as being due to the Seller as of the Effective Time, all of which are
set forth on Schedule 2.29 (the "Accounts Receivable"), arose in the ordinary
course of business of the Seller, are not subject to any counterclaim or
set-off and are fully collectible within one (1) year after the Effective
Date without resort to litigation and without offset or counterclaim.
SECTION 2.30 Receipt of Goods on Credit. Set forth on Schedule 2.30
is a list of goods received by the Seller on credit after May 5, 1998
(specifying the creditor, amount and date received). The Seller has not
misrepresented its solvency in writing to any of its creditors within three
(3) months before the delivery of goods received on credit.
SECTION 2.31 Disclosure. All Documents delivered or to be delivered
by or on behalf of the Seller in connection with this Agreement and the
transactions contemplated hereby are true, complete and correct. Neither
this Agreement, nor any of the other Documents contains any untrue statement
of a material fact or omits a material fact necessary to make the statements
made by the Seller herein or therein, in light of the circumstances in which
made, not misleading. There is no fact known to the Seller which materially
and adversely affects the business, prospects or financial condition of the
Seller or its properties or assets, which has not been set forth in the
Documents.
14
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE BUYER
As an inducement to the Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, the Buyer represents and
warrants to the Seller as follows:
SECTION 3.1 Organization. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Kentucky and is duly qualified to transact business as a foreign corporation
in each jurisdiction in which the failure to so qualify would have a material
adverse impact on the Buyer's ability to purchase the Transferred Assets
pursuant to this Agreement and perform its obligations under this Agreement.
SECTION 3.2 Corporate Power and Authority. The Buyer has the
corporate power and authority to execute, deliver and perform this Agreement
and the other Documents. The execution, delivery and performance of the
Documents contemplated hereby and the consummation of the transactions
contemplated hereby and thereby have been duly authorized and approved by all
necessary corporate action of the Buyer. The Documents to be executed and
delivered by the Buyer have been duly executed and delivered by, and
constitute the legal, valid and binding obligation of the Buyer enforceable
against the Buyer in accordance with their terms.
SECTION 3.3 Validity, Etc. Neither the execution and delivery by the
Buyer of this Agreement and the other Documents, the consummation by the
Buyer of the transactions contemplated hereby or thereby, nor the performance
by the Buyer of this Agreement and such other agreements in compliance with
the terms and conditions hereof and thereof will (i) violate, conflict with
or result in any breach of any trust agreement, articles of incorporation,
bylaw, judgment, decree, order, statute or regulation applicable to the
Buyer, (ii) violate, conflict with or result in a breach of or default (or
give rise to any right of termination, cancellation or acceleration) under
any law, rule or regulation or any judgment, decree, order, governmental
permit, license or order or any of the terms, conditions or provisions of any
mortgage, indenture, note, license, agreement or other instrument to which
the Buyer is a party, or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Buyer.
SECTION 3.4 Broker's or Finder's Fees. No agent, broker, person or
firm acting on behalf of the Buyer is, or will be, entitled to any commission
or broker's or finder's fees from the Buyer, or from any person controlling,
controlled by or under common control with the Buyer, in connection with any
of the transactions contemplated herein.
SECTION 3.5 Disclosure. All Documents delivered or to be delivered
by or on behalf of the Buyer in connection with this Agreement and the
transactions contemplated hereby are true, complete and correct. Neither
this Agreement, nor any of the other Documents contains any untrue statement
of a material fact or omits a material fact necessary to make the statements
15
<PAGE>
made by the Buyer herein or therein, in light of the circumstances in which
made, not misleading. There is no fact known to the Buyer which may have a
material adverse effect on the Buyer's ability to pay its obligations under
this Agreement, which has not been set forth in the Documents.
ARTICLE 4
COVENANTS AND AGREEMENTS
SECTION 4.1 Best Efforts. The Seller and the Buyer shall each use
its best efforts to procure upon reasonable terms and conditions all consents
and approvals, completion of all filings, all registrations and certificates,
and satisfaction of all other requirements prescribed by law which are
necessary for the consummation of the transactions contemplated by this
Agreement and the Buyer's ownership and operation of the Seller's business
after the Closing Date. Prior to the Closing Date, the Seller will use its
best efforts to preserve its relationships with its employees, customers and
others having business relationships with the Seller.
SECTION 4.2 Tax Returns. The Seller shall prepare and timely file,
at its sole expense, all of its required tax returns for all periods ending
on or prior to the Effective Date. The Seller shall be responsible for the
payment of, and will indemnify, defend and hold the Buyer harmless against
all taxes due or assessed which relate to the operations of the Seller's
business for all periods ending on or prior to the Effective Date.
SECTION 4.3 Investigations. The Seller shall give the Buyer and its
employees, accountants, attorneys and other authorized representatives full
access during all reasonable times to all the premises, properties, books and
records, and furnish the Buyer with such financial and operating data,
analyses and other information of any kind respecting the Seller's business
and properties as the Buyer shall from time to time request. Any
investigation shall be conducted in a manner which does not unreasonably
interfere with business operations.
SECTION 4.4 Payment of Liabilities. Except for the Assumed
Liabilities, the Seller shall remain liable for the payment and satisfaction
in full all of its other obligations and liabilities, of any nature
whatsoever, which accrue prior or subsequent to the Effective Date. In
addition, the Seller shall remain liable for any and all liabilities arising
from any of its creditors' right to reclaim under KRS Section 355.2-702.
SECTION 4.5 Special Provisions Regarding Employees of the Seller.
(a) New Employees of the Buyer. It is the intention of
the Buyer, and the Seller hereby acknowledges and agrees with such position,
that any employees of the Seller that the Buyer hires will be new employees
of the Buyer as of the Effective Date or the date of hire, whichever is
later. Such new employees shall be entitled only to such compensation and
16
<PAGE>
employee benefits as are agreed to by such employees and the Buyer or as are
otherwise provided by the Buyer, in its sole discretion.
(b) Hiring of Employees. The Buyer will use its
reasonable efforts to hire the existing manufacturing-related employees of
the Seller in connection with its purchase of the Transferred Assets;
provided, however, that the Buyer shall be entitled to review employee
records, conduct employee interviews and employee screening procedures used
by the Buyer in its business, and may refuse to offer employment to any such
employee of the Seller if such employee fails to meet the hiring criteria of
the Buyer. The Buyer will not hire the existing sales and marketing
employees of the Seller.
(c) No Contributions. After the Closing, the Seller
shall make no contributions to any Employee Plan on behalf of any former
employee or independent contractor of the Seller who is employed by the Buyer
after the Closing.
(d) COBRA Issues. The Buyer shall be a successor
employer of Seller solely for the purposes of providing continuation coverage
to the extent required under Code Section 4980B and ERISA Section 601 to
individuals receiving such continuation coverage on the Effective Date and
individuals qualifying (or who would otherwise qualify but for this Section
4.5) for such coverage commencing on or after the Effective Date. The Seller
shall be liable for any and all liabilities, costs, expenses and fees
whatsoever arising under Code Section 4980B and ERISA Section 601 before
the Effective Date.
SECTION 4.6 Consents of Landlords. The Seller shall have obtained
consents (when required by the terms of the lease) from all lessors of real
property leased by the Seller to the assignment of such leases to the Buyer
without any amendment, modification or change in the terms of such leases, in
substantially the form attached as Exhibit B hereto.
ARTICLE 5
CONDITIONS TO THE BUYER'S OBLIGATIONS
The obligation of the Buyer to make deliveries to the Seller pursuant to
Section 1.2 and 1.3 hereof and to consummate the other transactions
contemplated hereby is subject to the satisfaction, on or before the Closing
Date, of the following conditions each of which may be waived by the Buyer in
its sole discretion:
SECTION 5.1 Consents. Except for the consents of landlords provided
for in Section 4.6 above and except as set forth on Schedule 5.1, all
requisite governmental approvals identified on and consents of third parties
identified on such schedule or otherwise identified by the Seller as required
to be received to prevent any material license, permit or agreement relating
to the Seller's business from terminating prior to its scheduled termination,
as a result of the consummation of the transactions contemplated hereby,
shall have been obtained and all permits listed in Schedule 2.15 shall have
been transferred or reissued to the Buyer.
17
<PAGE>
SECTION 5.2 Employment Agreement.
Larry Parrella shall have executed and delivered to the Buyer, an
Employment Agreement, in substantially the form attached hereto as Exhibit D.
SECTION 5.3 Noncompetition Agreement.
Each of the shareholders of the Seller shall have executed and delivered
to the Buyer, a Noncompetition Agreement, in substantially the form attached
hereto as Exhibit E.
ARTICLE 6
CONDITIONS TO THE SELLER'S OBLIGATIONS
The obligation of the Seller to transfer the Transferred Assets to the
Buyer and to consummate the other transactions contemplated hereby is subject
to the satisfaction, on or before the Closing Date, of the following
conditions, each of which may be waived by the Seller in its sole discretion:
SECTION 6.1 Employment Agreement. The Buyer shall have executed and
delivered an Employment Agreement, in substantially the form attached hereto
as Exhibit D.
ARTICLE 7
THE CLOSING AND CERTAIN CLOSING DELIVERIES
SECTION 7.1 Time and Place of Closing. Upon the terms and subject to
the satisfaction or waiver of the conditions contained in this Agreement, the
closing of the transactions contemplated by this Agreement (the "Closing")
shall take place at the offices of Stites & Harbison, 400 West Market Street,
Suite 1800, Louisville, Kentucky 40202 on May 27, 1998 or on such other date
and time as may be mutually agreed upon by the parties (the "Closing Date").
The transactions contemplated by this Agreement shall be effective as of the
close of business (the "Effective Time") on May 15, 1998 (the "Effective
Date").
SECTION 7.2 Deliveries by the Seller. At the Closing, the Seller
will deliver or cause to be delivered to the Buyer the following:
(a) All required consents of third parties to the sale
conveyance, transfer, assignment and delivery of the Transferred Assets of
the Seller hereunder;
(b) A certificate of the Secretary of the Seller
certifying as of the Closing Date, (i) a true, correct, and complete copy of
the Articles of Incorporation of the Seller
18
<PAGE>
and all amendments thereto as in effect on the Closing Date; (ii) a true,
correct, and complete copy of the by-laws of the Seller and all amendments
thereto as in effect on the Closing Date; (iii) a true, correct, and complete
copy of the resolutions approved and adopted by the Seller's Board of
Directors and Shareholders authorizing and approving the execution,
performance and delivery of this Agreement and the transactions contemplated
by this Agreement; (iv) Certificate of Existence from the Kentucky Secretary
of State and all other jurisdictions where the Seller is qualified to do
business; and (v) the incumbency of the duly authorized officers of the
Seller.
(c) The affidavit of the Seller certifying as to its
non-foreign status in accordance with Section 1445(b)(2) of the Code;
(d) The Bill of Sale, Assignment and Assumption
Agreement required by Section 1.1(c);
(e) The Lease Assignment and Assumption Agreement
required by Section 1.1(c);
(f) The Employment Agreement required by Section 5.2
above;
(g) The Noncompetition Agreement required by Section 5.3
above; and
(h) All other documents, instruments and writings
required to be delivered by the Seller at or prior to the Closing Date
pursuant to this Agreement or otherwise required in connection herewith.
SECTION 7.3 Deliveries by the Buyer. At the Closing, the Buyer will
deliver the following to or for the account of the Seller or certain of its
employees, as the case may be:
(a) The payment required by Section 1.2(a) above;
(b) The Promissory Note of the Buyer required by Section
1.2(b) above;
(c) The Bill of Sale, Assignment and Assumption
Agreement required by Section 1.3;
(d) The Lease Assignment and Assumption Agreement
required by Section 1.3;
(e) The Employment Agreement required by Section 6.1
above;
(f) A certificate of an officer of the Buyer certifying
as of the Closing Date (i) a true, correct, and complete copy of the Articles
of Incorporation of the Buyer and all amendments thereto as in effect on the
Closing Date; (ii) a true, correct, and complete copy of
19
<PAGE>
the bylaws of the Buyer and all amendments thereto as in effect on the
Closing Date; (iii) a true, correct, and complete copy of the resolutions
approved and adopted by the Board of Directors of the Buyer authorizing the
transactions contemplated herein; and (iv) Certificate of Existence from the
Kentucky Secretary of State; and
(g) All other documents, instruments and writings
required to be delivered by the Buyer at or prior to the Closing Date
pursuant to this Agreement or otherwise required in connection herewith.
ARTICLE 8
TERMINATION
[INTENTIONALLY OMITTED]
ARTICLE 9
INDEMNIFICATION
SECTION 9.1 Survival. All representations and warranties in this
Agreement and the other Documents shall survive the Closing of the purchase
of the Transferred Assets contemplated hereby and any investigation at any
time made by or on behalf of any party for a period of three years and all
such representations and warranties shall expire on the third anniversary of
the Closing Date, except that (a) claims, if any, asserted in writing prior
to such third anniversary identified as a claim for indemnification pursuant
to this Article IX shall survive until finally resolved and satisfied in
full; and (b) tax or environmental claims arising from a breach of Section
2.24 or Section 2.26, respectively, shall survive for the full period of the
applicable statute of limitations, and until finally resolved and satisfied
in full if asserted on or prior to the expiration of any such period. The
representations and warranties shall not be affected or otherwise diminished
by any investigation at any time by or on behalf of the party for whose
benefit such representations and warranties were made.
SECTION 9.2 Indemnification by the Seller. Subject to the terms
herein, the Seller shall indemnify, defend, and hold the Buyer and the
respective officers, directors, and employees of the Buyer, and their
successors and assigns (the "Seller's Indemnitees") harmless from, against
and with respect to any claim, liability, obligation, loss, damage,
assessment, judgment, cost or expense of any kind or character, including
reasonable attorneys' fees (the "Damages"), arising out of or in any manner
incident, relating or attributable to:
(a) Any inaccuracy in any representation or breach of
any warranty of the Seller contained in this Agreement;
20
<PAGE>
(b) Any failure by the Seller to perform or observe, or
to have performed or observed, in full, any covenant, agreement or condition
to be performed or observed by it under this Agreement;
(c) Reliance by the Buyer on any books or records of the
Seller or written information furnished to the Buyer pursuant to this
Agreement by or on behalf of the Seller in the event that such books and
records or written information are false or materially inaccurate; or
(d) Liabilities or obligations of, or claims against,
the Buyer (whether absolute, accrued, contingent or otherwise) relating to,
or arising out of, the operation of the Seller's business prior to the
Closing Date or facts and circumstances relating specifically to the Seller's
business, the Leased Parcels, or the Seller existing at or prior to the
Closing Date, including but not limited to matters set forth on Schedule
2.25, whether or not such liabilities, obligations or claims were known on
such date, excluding only the Assumed Liabilities.
SECTION 9.3 Notice to the Seller, Etc. If any of the matters as to
which the Seller's Indemnitees are entitled to receive indemnification under
Section 9.2 should entail litigation with or claims asserted by parties other
than the Seller, the Seller shall be given prompt notice thereof and shall
have the right, at his expense, to control such claim or litigation upon
prompt notice to the Buyer of his election to do so. To the extent requested
by the Seller, the Buyer, at its expense, shall cooperate with and assist the
Seller, in connection with such claim or litigation. The Buyer shall have
the right to appoint, at its expense, single counsel to consult with and
remain advised by the Seller in connection with such claim or litigation.
The Seller shall have final authority to determine all matters in connection
with such claim or litigation; provided, however, that the Seller shall not
settle any third party claim without the consent of the Buyer, which shall
not be unreasonably denied or delayed.
SECTION 9.4 Indemnification by the Buyer. The Buyer shall indemnify,
defend, and hold the Seller and its successors and assigns (the "Buyer's
Indemnitees") harmless from, against and with respect to any claim,
liability, obligation, loss, damage, assessment, judgment, cost or expense of
any kind or character, including reasonable attorneys' fees (the "Damages"),
arising out of or in any manner incident, relating or attributable to:
(a) Any inaccuracy in any representation or breach of
warranty of the Buyer contained in this Agreement;
(b) Any failure by the Buyer to perform or observe, or
to have performed or observed, in full, any covenant, agreement or condition
to be performed or observed by it under any of the Documents;
(c) Reliance by the Seller on any books or records of
the Buyer or reliance by the Seller on any written information furnished to
the Seller pursuant to this Agreement by or on behalf of the Buyer in the
event that such books and records or written information are false or
inaccurate;
21
<PAGE>
(d) The failure of the Buyer to pay or perform the
Assumed Liabilities, Contracts and Leases subsequent to the Closing Date; or
(e) Liabilities or obligations of, or claims against,
the Seller (whether absolute, accrued, contingent or otherwise) relating to,
or arising out of, the operation of the Seller's business subsequent to the
Closing Date.
SECTION 9.5 Notice to the Buyer, Etc. If any of the matters as to
which the Buyer's Indemnitees are entitled to receive indemnification under
Section 9.4 should entail litigation with or claims asserted by parties other
than the Buyer, the Buyer shall be given prompt notice thereof and shall have
the right, at its expense, to control such claim or litigation upon prompt
notice to the Seller of its election to do so. To the extent requested by
the Buyer, the Seller, at his expense, shall cooperate with and assist the
Buyer, in connection with such claim or litigation. The Seller shall have
the right to appoint, at its expense, single counsel to consult with and
remain advised by the Buyer in connection with such claim or litigation. The
Buyer shall have final authority to determine all matters in connection with
such claim or litigation; provided, however, that the Buyer shall not settle
any third party claim without the consent of the Seller, which shall not be
unreasonably denied or delayed.
SECTION 9.6 Survival of Indemnification. The obligations to
indemnify and hold harmless pursuant to this Article IX shall survive the
Closing of the purchase of the Transferred Assets contemplated hereby for a
period of three years, notwithstanding any investigation at any time made by
or on behalf of any party, except that (a) claims, if any, asserted in
writing prior to such third anniversary identified as a claim for
indemnification pursuant to this Article IX shall survive until finally
resolved and satisfied in full; and (b) tax or environmental claims arising
from a breach of Section 2.24 or Section 2.26, respectively, shall survive
for the full period of the applicable statute of limitations, and until
finally resolved and satisfied in full if asserted on or prior to the
expiration of any such period.
SECTION 9.7 Offset. The Seller acknowledges and agrees that the
Buyer shall be entitled to offset any indemnity claim under Section 9.2
against any payment due to the Seller under Section 1.2(b) hereof at the
Buyer's sole option.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1 Knowledge of the Seller. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to
the best knowledge of the Seller, the Seller confirms that it has made due
and diligent inquiry of its President and other key employees as to the
matters that are the subject of such representation and warranty.
SECTION 10.2 Knowledge of the Buyer. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to
the best of knowledge of the
22
<PAGE>
Buyer, the Buyer confirms that it has made due and diligent inquiry of its
President or Senior Vice President as to the matters that are the subject of
such representations and warranties.
SECTION 10.3 "Person" Defined. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or other department or agency
thereof.
SECTION 10.4 Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) sent by recognized overnight courier, (iii) made by telecopy or
facsimile transmission, or (iv) sent by registered or certified mail, return
receipt requested, postage prepaid.
23
<PAGE>
If to the Buyer:
TD Windows, Inc.
c/o ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
Attn: Stephen A. Hoffmann, President
Fax No: (502) 425-5603
With a copy to:
Stites & Harbison
400 W. Market Street, Suite 1800
Louisville, Kentucky 40202
Attn: Cynthia L. Coffee, Esq.
Fax No: (502) 587-6391
If to the Seller:
Allhom Eagle Windows & Doors, Inc.
c/o Lewis B. Carlisle
13909 Factory Lane
Louisville, Kentucky 40245
Fax No: ___________________
With a copy to:
Schwager, Phillips & Cunningham
455 S. Fourth Street, Suite 688
Louisville, Kentucky 40202
Attn: Stephen A. Schwager, Esq.
Fax No: (502) 582-2587
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof
to the receiving party at the address of such party set forth above, (ii) if
sent by overnight courier, on the next business day following the day such
notice is delivered to the courier service, (iii) if made by telecopy or
facsimile transmission, at the time that receipt thereof has been
acknowledged by electronic confirmation or otherwise, or (iv) if sent by
registered or certified mail, on the fifth business day following the day
such mailing is sent. The address of any party herein may be changed at any
time by written notice to the parties.
SECTION 10.5 Entire Agreement. This Agreement and the other Documents
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior oral or written
agreements and understandings relating to
24
<PAGE>
the subject matter hereof. No statement, representation, warranty, covenant
or agreement of any kind not expressly set forth in the other Documents shall
affect, or be used to interpret, change or restrict, the express terms and
provisions of this Agreement.
SECTION 10.6 Modifications and Amendments. The terms and provisions
of this Agreement may be modified or amended only by written agreement
executed by all parties hereto.
SECTION 10.7 Assignment/Binding Effect. Neither this Agreement, nor
any right hereunder, may be assigned by any of the parties hereto without the
prior written consent of the other parties. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
heirs, personal representatives, successors and permitted assigns.
SECTION 10.8 Parties in Interest. Nothing in this Agreement, express
or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Nothing in this Agreement shall be construed to create any rights or
obligations except among the parties hereto, and no person or entity shall be
regarded as a third-party beneficiary of this Agreement.
SECTION 10.9 Governing Law. This Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with
and governed by the internal laws of the Commonwealth of Kentucky without
giving effect to the conflict of law principles thereof.
SECTION 10.10 Arbitration. Any dispute or difference between the
parties hereto arising out of or relating to this Agreement shall be finally
settled by arbitration in accordance with the Commercial Rules of the
American Arbitration Association by a panel of three qualified arbitrators.
The Seller and the Buyer shall each choose an arbitrator and the third shall
be chosen by the two so chosen. If either the Seller or the Buyer fails to
choose an arbitrator within 30 days after notice of commencement of
arbitration or if the two arbitrators fail to choose a third arbitrator
within 30 days after their appointment, the American Arbitration Association
shall, upon the request of any party to the dispute or difference, appoint
the arbitrator or arbitrators to constitute or complete the panel as the case
may be. Arbitration proceedings hereunder may be initiated by either the
Seller or the Buyer making a written request to the American Arbitration
Association, together with any appropriate filing fee, at the office of the
American Arbitration Association in Louisville, Kentucky. All arbitration
proceedings shall be held in Louisville, Kentucky. Any order or
determination of the arbitral tribunal shall be final and binding upon the
parties to the arbitration and may be entered in any court having
jurisdiction.
SECTION 10.11 Severability. In the event that any arbitral tribunal of
competent jurisdiction shall finally determine that any provision, or any
portion thereof, contained in this Agreement shall be void or unenforceable
in any respect, then such provision shall be deemed limited to the extent
that such arbitral tribunal determines it enforceable, and as so limited
shall remain in full force and effect. In the event that such arbitral
tribunal shall determine any such provision, or portion thereof, wholly
unenforceable, the remaining provisions of this Agreement shall nevertheless
remain in full force and effect.
25
<PAGE>
SECTION 10.12 Interpretation. The parties hereto acknowledge and agree
that: (i) the rule of construction to the effect that any ambiguities are
resolved against the drafting party shall not be employed in the
interpretation of this Agreement, and (ii) the terms and provisions of this
Agreement shall be construed fairly as to all parties hereto and not in favor
of or against any party, regardless of which party was generally responsible
for the preparation of this Agreement.
SECTION 10.13 Headings and Captions. The headings and captions of the
various subdivisions of this Agreement are for convenience of reference only
and shall in no way modify, or affect, or be considered in construing or
interpreting the meaning or construction of any of the terms or provisions
hereof.
SECTION 10.14 Reliance. The parties hereto agree that, notwithstanding
any right of any party to this Agreement to investigate the affairs of any
other party to this Agreement, the party having such right to investigate
shall have the right to rely fully upon the representations and warranties of
the other party expressly contained herein.
SECTION 10.15 Expenses. Each party shall pay its own fees and expenses
(including the fees of any attorneys, accountants, appraisers or others
engaged by such party) incurred in connection with this Agreement and the
transactions contemplated hereby whether or not the transactions contemplated
hereby are consummated.
SECTION 10.16 Gender. All pronouns and any variation thereof shall be
deemed to refer to the masculine, feminine, neuter, singular, or plural as
the identity of the person or entity or the context may require.
SECTION 10.17 Publicity. Except by the mutual agreement between the
Seller and the Buyer, no party shall issue any press release or otherwise
make any public statement with respect to the execution of, or the
transactions contemplated by, this Agreement except as may be required by law.
SECTION 10.18 Counterparts. This Agreement may be executed in one or
more counterparts, and by different parties hereto on separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
26
<PAGE>
IN WITNESS WHEREOF, the Buyer and the Seller have each caused this
Agreement to be executed by its duly authorized officer all as of the day and
year first above written.
Buyer: TD WINDOWS, INC.
By: /s/ Richard E. Bowlds
--------------------------------
Richard E. Bowlds, Secretary
Seller: ALLHOM EAGLE WINDOWS & DOORS, INC.
By: /s/ Lewis B. Carlisle
--------------------------------
Lewis B. Carlisle, President
27
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of July 9, 1998, by and among THERMOVIEW INDUSTRIES, INC.
("Parent"), a Delaware corporation having its principal office located in
Louisville, Kentucky; THERMOVIEW/AHR MERGER CORP. ("Sub"), a California
corporation having its principal office located in Louisville, Kentucky;
AMERICAN HOME REMODELING ("AHR"), a California corporation, and PACIFIC
EXTERIORS, INCORPORATED ("PEI"), a California corporation (AHR and PEI are
sometimes hereinafter referred to collectively as "Companies" and
individually as "Company"), each having its principal office located in Van
Nuys, California; and the shareholders of Companies identified on SCHEDULE
6.1 hereto (each a "Shareholder" and collectively the "Shareholders").
PREAMBLE
The Boards of Directors of each Company, Sub and Parent are of the
opinion that the transactions described herein are in the best interests of
the parties to this Agreement and their respective shareholders. This
Agreement provides for the acquisition of Companies by Parent pursuant to the
merger of Companies with and into Sub. At the Effective Time of the Merger,
the outstanding shares of the capital stock of Companies shall be converted
into the right to receive shares of the common stock of Parent (except as
provided herein). As a result, shareholders of Companies shall become
shareholders of Parent. Also at the Effective Time of the Merger, Companies
shall cease to exist by operation of law and the business formerly conducted
by Companies shall thereafter be conducted by and in the name of Sub. The
transactions described in this Agreement are subject to receipt of required
regulatory consents and approvals and the satisfaction of certain other
conditions described in this Agreement. It is the intention of the parties
to this Agreement that the Merger shall qualify as a "reorganization" within
the meaning of Section 368(a), including Section 368(a)(1)(A) and (a)(2)(D),
of the Internal Revenue Code of 1986, as amended (the "Code") for federal
income tax purposes.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants, and agreements set forth herein, the
parties agree as follows:
<PAGE>
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 MERGER. Subject to the terms and conditions of this Agreement
and the provisions of the Agreement of Merger attached as EXHIBIT A (the
"Agreement of Merger"), at the Effective Time, Companies shall be merged with
and into Sub in accordance with the applicable provisions of the California
General Corporation Law ("CGCL") and with the effect provided in the CGCL
(the "Merger"). Sub shall be the surviving corporation resulting from the
Merger and shall be a wholly-owned subsidiary of Parent and shall continue to
be governed by the laws of the State of California. The Merger shall be
consummated pursuant to the terms of this Agreement and the Agreement of
Merger, which have been approved and adopted by the respective Boards of
Directors of Companies, Sub and Parent, by the Shareholders as the only
shareholders of Companies, and by Parent, as the sole shareholder of Sub.
1.2 TIME AND PLACE OF CLOSING. The closing of the transactions
contemplated hereby (the "Closing") will take place at 9:00 A.M. on the date
hereof. The Closing shall be held at the offices of Gordon Benson, Esq.,
16830 Ventura Boulevard, Suite 500, Encino, California 91436.
1.3 EFFECTIVE TIME. The Merger and other transactions contemplated
by this Agreement shall become effective at 11:59 P.M. P.D.T. (the "Effective
Time") on the date of filing of the Agreement of Merger (the "Effective
Date").
ARTICLE 2
TERMS OF MERGER
2.1 CHARTER.
The Articles of Incorporation of Sub in effect immediately
prior to the Effective Time shall be the Articles of Incorporation of the
surviving corporation resulting from the Merger until otherwise amended or
repealed.
2.2 BYLAWS.
The Bylaws of Sub in effect immediately prior to the Effective
Time shall be the Bylaws of the surviving corporation resulting from the
Merger until otherwise amended or repealed.
2.3 DIRECTORS AND OFFICERS.
The directors of Sub in office immediately prior to the
Effective Time, together with such additional persons as may thereafter be
elected, shall serve as the directors of the
2
<PAGE>
surviving corporation resulting from the Merger from and after the Effective
Time in accordance with the Bylaws of such corporation. The officers of Sub
in office immediately prior to the Effective Time, together with such
additional persons as may thereafter be elected, shall serve as the officers
of the surviving corporation resulting from the Merger from and after the
Effective Time in accordance with the Bylaws of such corporation.
2.4 CERTAIN CLOSING DELIVERIES. In connection with the Closing,
each of Parent, Companies and the Shareholders agrees to execute and deliver
to each other party the following:
(a) Sub and each of Harinder S. Ahuja and Alan B.
Fishman shall have executed and delivered to the other an Employment
Agreement, which shall be in the form of EXHIBIT B.
(b) Parent and each of the Shareholders shall have
executed and delivered to the other a Noncompetition Agreement, which shall
be in the form of EXHIBIT C.
(c) Parent and each of the Shareholders shall have
executed and delivered to the other a Registration Rights Agreement, which
shall be in the form of EXHIBIT D.
(d) Parent and each of the Shareholders shall have
executed and delivered to the other an Escrow Agreement, which shall be in
the form of EXHIBIT E.
(e) Parent shall have executed and delivered to
Shareholders' Agent a Promissory Note, which shall be in the form of EXHIBIT
F.
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 CONVERSION OF SHARES. Subject to the provisions of this
Article 3, at the Effective Time, by virtue of the Merger and without any
action on the part of Parent, Companies, Sub or the shareholders of any of
the foregoing, the shares of the constituent corporations shall be converted
as follows:
(a) Each share of $.001 par value common stock of
Parent ("Parent Common Stock") and any other class or series of capital stock
of Parent (collectively, "Parent Capital Stock") issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
from and after the Effective Time.
(b) Each share of the no par value common stock of
Sub ("Sub Common Stock") issued and outstanding immediately prior to the
Effective Time shall remain issued and outstanding from and after the
Effective Time.
3
<PAGE>
(c) Each share of AHR Common Stock, defined in
Section 5.4 below, (excluding shares held by either Company or Parent or any
of its subsidiaries) issued and outstanding immediately prior to the
Effective Time shall cease to be outstanding and shall be converted into and
exchanged for (i) the right to receive 4.03362 shares of Parent Common Stock
(the "AHR Firm Exchange Ratio"), (ii) the right (subject to the provisions of
Section 4.3) to receive 3.666915 shares of Parent Common Stock (the "AHR
Escrow Exchange Ratio"), (iii) the right to receive $37.125 and (iv) the
right to receive up to $33.75, represented by the Promissory Note.
(d) Each share of PEI Common Stock, defined in
Section 5.4 below, (excluding shares held by either Company or Parent or any
of its subsidiaries) issued and outstanding immediately prior to the
Effective Time shall cease to be outstanding and shall be converted into and
exchanged for (i) the right to receive .39838 shares of Parent Common Stock
(the "PEI Firm Exchange Ratio"), (ii) the right (subject to the provisions of
Section 4.3) to receive .3622 shares of Parent Common Stock (the "PEI Escrow
Exchange Ratio"), (iii) the right to receive $3.66 and (iv) the right to
receive up to $3.33, represented by the Promissory Note.
3.2 ANTI-DILUTION PROVISIONS. In the event Parent changes the
number of shares of Parent Common Stock issued and outstanding prior to the
Effective Time as a result of a stock split, stock dividend, or similar
recapitalization with respect to such stock and the record date therefor (in
the case of a stock dividend) or the effective date thereof (in the case of a
stock split or similar recapitalization for which a record date is not
established) shall be prior to the Effective Time, the AHR and PEI Firm and
Escrow Exchange Ratios shall be proportionately adjusted.
3.3 SHARES HELD BY COMPANIES OR PARENT. Each of the shares of
Company Common Stock held by either Company or Parent or any of its
subsidiaries shall be canceled and retired at the Effective Time and no
consideration shall be issued in exchange therefor.
3.4 DISSENTING SHAREHOLDERS.
Each of the Shareholders agrees that he will not seek to assert
dissenters' rights to which such Shareholder otherwise would be entitled
under the applicable provisions of the CGCL.
3.5 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, each holder of shares of Company Common Stock exchanged pursuant
to the Merger who would otherwise have been entitled to receive a fraction of
a share of Parent Common Stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of Parent
Common Stock multiplied by the market value of one share of Parent Common
Stock at the Effective Time. The market value of one share of Parent Common
Stock at the Effective Time shall be the highest bid price of such common
stock as quoted by the National Association of Securities Dealers (as
reported by The Wall Street Journal or, if not reported thereby, any other
authoritative source selected by Parent) on the last trading day preceding
the Effective Time. No such holder will be
4
<PAGE>
entitled to dividends, voting rights, or any other rights as a shareholder in
respect of any fractional shares.
3.6 POST-CLOSING EARN-OUT. The Shareholders shall be entitled to
receive post-closing earn-outs as set forth on SCHEDULE 3.6.
ARTICLE 4
EXCHANGE OF SHARES
4.1 EXCHANGE PROCEDURES. At the Closing (or as soon as reasonably
practicable thereafter), each holder of shares of Company Common Stock (other
than shares to be canceled pursuant to Section 3.3) issued and outstanding at
the Effective Time shall surrender the certificate or certificates
representing such shares to Parent and shall promptly upon surrender thereof
receive in exchange therefor the consideration provided in Section 3.1,
together with all undelivered dividends or distributions in respect of such
shares (without interest thereon) pursuant to Section 4.2. To the extent
required by Section 3.5, each holder of shares of Company Common Stock issued
and outstanding at the Effective Time also shall receive, upon surrender of
the certificate or certificates representing such shares, cash in lieu of any
fractional share of Parent Common Stock to which such holder may be otherwise
entitled (without interest). Parent shall not be obligated to deliver the
consideration to which any former holder of Company Common Stock is entitled
as a result of the Merger until such holder surrenders such holder's
certificate or certificates representing the shares of Company Common Stock
for exchange as provided in this Section 4.1. The certificate or
certificates of Company Common Stock so surrendered shall be duly endorsed as
Parent may require.
4.2 RIGHTS OF FORMER SHAREHOLDERS. At the Effective Time, the
stock transfer books of each Company shall be closed as to holders of Company
Common Stock immediately prior to the Effective Time and no transfer of
Company Common Stock by any such holder shall thereafter be made or
recognized. Until surrendered for exchange in accordance with the provisions
of Section 4.1, each certificate theretofore representing shares of Company
Common Stock (other than shares to be canceled pursuant to Section 3.3) shall
from and after the Effective Time represent for all purposes only the right
to receive the consideration provided in Sections 3.1 and 3.5 in exchange
therefor, subject, however, to each Company's obligation to pay any dividends
or make any other distributions with a record date prior to the Effective
Time which have been declared or made by either Company in respect of such
shares of Company Common Stock in accordance with the terms of this Agreement
and which remain unpaid at the Effective Time. Whenever a dividend or other
distribution is declared by Parent on the Parent Common Stock, the record
date for which is at or after the Effective Time, the declaration shall
include dividends or other distributions on all shares of Parent Common Stock
issuable pursuant to this Agreement, but no dividend or other distribution
payable to the holders of record of Parent Common Stock as of any time
subsequent to the Effective Time shall be delivered to the holder of any
certificate representing shares of Company Common Stock issued and
outstanding at the Effective Time until such holder surrenders such
certificate for exchange as provided in Section
5
<PAGE>
4.1. However, upon surrender of such Company Common Stock certificate, both
the Parent Common Stock certificate (together with all such undelivered
dividends or other distributions without interest) and any undelivered
dividends and cash payments payable hereunder (without interest) shall be
delivered and paid with respect to each share represented by such certificate.
4.3 ESCROW SHARES. At the Closing, an aggregate of 162,974 shares
of Parent Common Stock shall be issued by Parent in the names of the
Shareholders and held by the Escrow Agent pursuant to the terms of the Escrow
Agreement (the "Escrow Shares").
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF COMPANIES
Companies hereby represent and warrant to Parent as follows:
5.1 ORGANIZATION AND QUALIFICATION. Each Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California. Each Company is qualified to do business as a foreign
corporation and is in good standing in the states set forth on SCHEDULE 5.1.
The nature of the business of Companies does not require Companies to be
licensed or qualified in any other jurisdiction. Each Company has made
available to Parent complete and correct copies of the Articles of
Incorporation and By-laws of such Company as currently in effect.
5.2 CORPORATE POWER AND AUTHORITY. Each Company has the corporate
power and authority to own and hold its properties and to carry on its
business as now conducted. Each Company (a) has the corporate power and
authority to execute, deliver and perform this Agreement and the Exhibits and
to deliver the Schedules hereto and the other documents and instruments
contemplated hereby (collectively this Agreement, the Exhibits and Schedules
hereto, and the other documents and instruments contemplated hereby shall
constitute the "Documents") and to consummate the transactions contemplated
hereby and thereby and (b) has taken all necessary corporate and shareholder
action to authorize and approve the execution, delivery and performance of
this Agreement and the other Documents and the consummation of the
transactions contemplated hereby and thereby. This Agreement and the other
Documents have been duly and validly executed and delivered by each Company
and constitute valid and binding obligations of such Company, enforceable
against such Company in accordance with their terms.
5.3 FOREIGN PERSON. Neither Company is a foreign person as that
term is defined in Section 1445(f)(3) of the Code and applicable regulations.
5.4 CAPITALIZATION. Authorized capital of the Companies is as
follows: (a) AHR has authorized capital consisting of 100,000 shares of
common stock, with no par value per share, of which 40,000 shares are issued
and outstanding and no shares are held as treasury stock (the "AHR Common
Stock"); and (b) PEI has authorized capital consisting of 100,000 shares of
common stock, with no par value per share, of which 45,000 shares are issued
and outstanding
6
<PAGE>
and no shares are held as treasury stock (the "PEI Common Stock"), and (the
AHR Common Stock and the PEI Common Stock are sometimes hereinafter referred
to collectively as the "Company Common Stock"). All of the outstanding
shares of each Company have been duly authorized and validly issued and are
fully paid and nonassessable. None of the outstanding shares of either
Company has been issued in violation of any preemptive right. There are no
outstanding options, warrants, rights, calls, commitments, conversion rights,
rights of exchange, plans or other agreements of any character providing for
the purchase, issuance or sale of any shares of capital stock of either
Company, other than as contemplated by this Agreement.
5.5 SUBSIDIARIES AND INVESTMENTS. Neither Company has any
subsidiaries nor owns, directly or indirectly, any capital stock or other
equity or ownership or proprietary interest in any other corporation,
partnership, association, trust, joint venture or other entity.
5.6 BOOKS AND RECORDS. The minute books of each Company, which
have been and will be made available to Parent and its representatives,
contain accurate records of all meetings of and corporate actions or written
consents by the shareholders and Board of Directors of each Company set forth
in such minute books. Neither Company has any of its records, systems,
controls, data or information recorded, stored, maintained, operated or
otherwise wholly or partly dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
which (including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of either Company.
5.7 FINANCIAL STATEMENTS. AHR has previously furnished to Parent,
and attached hereto as SCHEDULE 5.7 are, the balance sheets of AHR as at
December 31, 1997 and 1996, the related statement of profits and losses for
the fiscal year ended December 31, 1997 and 1996 and the balance sheet (the
"AHR Balance Sheet") of AHR as at June 15, 1998 (the "Balance Sheet Date")
and the related statement of profits and losses for the five and one-half
(5 1/2) months then ended. PEI has previously furnished to Parent, and
attached hereto as SCHEDULE 5.7 are, the balance sheet of PEI (the "PEI
Balance Sheet") as at the Balance Sheet Date and the related statement of
profits and losses for the five and one-half (5 1/2) months then ended. All
such financial statements (the "Financial Statements") are true, complete and
correct and were prepared from the books and records of each Company. Such
books and records are true, complete and correct in all material respects,
accurately reflect all transactions of the business of each Company, and have
been made available to Parent for examination. The Financial Statements
fairly present the financial position of each Company as of the dates
thereof. Since the Balance Sheet Date, (i) there has been no change in the
assets, liabilities or financial condition of either Company from that
reflected in the Balance Sheet except for changes in the ordinary course of
business consistent with past practice and which have not been materially
adverse, and (ii) none of the business, prospects, financial condition,
operations, property or affairs of either Company has been materially
adversely affected by any occurrence or development, individually or in the
aggregate, whether or not insured against. Each Company has disclosed to
Parent all material facts relating to the preparation of the Financial
Statements.
5.8 Employment and Labor Matters.
7
<PAGE>
(a) SCHEDULE 5.8 lists all employees and officers of
each Company on the date hereof, along with the amount of the current annual
salaries and total compensation paid or due for services to each employee or
officer for the most recent fiscal year end and the year to date, and a full
and complete description of any commitments to such employees and officers
with respect to compensation payable thereafter. To the best knowledge of
each Company, no key employee or group of employees has any plans to
terminate employment with either Company.
(b) Neither Company is a party to or bound by any
collective bargaining agreement with any labor organization, group or
association covering any of its employees, and neither Company has any
knowledge of any attempt to organize either Company's employees by any
Person, unit or group seeking to act as their bargaining agent. There are no
pending or threatened charges (by employees, their representatives or
governmental authorities) of unfair labor practices or of employment
discrimination or of any other wrongful action with respect to any aspect of
employment of any person employed or formerly employed by either Company. No
union representation election relating to employees of either Company has
been scheduled by any governmental agency or authority, no organizational
effort is being made with respect to any of such employees, and there is no
investigation of either Company's employment policies or practices by any
governmental agency or authority pending or threatened. Neither Company is
currently, or has it been, involved in labor negotiations with any unit or
group seeking to become the bargaining unit for any employees of either
Company. Neither Company has experienced any material work stoppages, and to
the best knowledge of each Company, no work stoppage is planned.
5.9 REAL PROPERTY. Neither Company owns any real property.
5.10 POWERS OF ATTORNEY; ABSENCE OF LIMITATIONS ON COMPETITION;
GUARANTEES.
Except as set forth in SCHEDULE 5.10, (i) no power of attorney or
similar authorization given by either Company presently is in effect or
outstanding; (ii) no contract or agreement to which either Company is a party
or is bound or to which either Company's properties or assets are subject
limits the freedom of such Company to compete in any line of business or with
any Person; and (iii) neither Company is a party to or bound by any guarantee
of any debt or obligation of any other Person.
5.11 SIGNIFICANT SUPPLIERS. Set forth on SCHEDULE 5.11 is a true
and correct list of each Company's largest suppliers for the most recent
twelve (12) month period ending December 31, 1997 and for the five and
one-half (5 1/2) month period ending June 15, 1998, together with the amount
attributable to such suppliers expressed in dollars and as a percentage of
total supplies purchased. None of the suppliers identified on SCHEDULE 5.11
has terminated, materially reduced or threatened to terminate or materially
reduce its supplies to each Company during the period covered by such
schedule.
8
<PAGE>
5.12 GOVERNMENTAL APPROVALS. Except as set forth on SCHEDULE 5.12,
no registration or filing with, or consent or approval of or other action by,
any Federal, state or other governmental agency or instrumentality is or will
be necessary for the valid execution, delivery and performance by each
Company of this Agreement.
5.13 VALIDITY, ETC. Except as set forth on SCHEDULE 5.13, neither
the execution and delivery of this Agreement or the other Documents, the
consummation of the transactions contemplated hereby or thereby, nor the
performance of this Agreement or the other Documents in compliance with the
terms and conditions hereof and thereof by either Company will (i) violate,
conflict with or result in any breach of any trust agreement, Articles of
Incorporation, bylaw, judgment, decree, order, statute or regulation
applicable to either Company, (ii) violate, conflict with or result in a
breach, default or termination or give rise to any right of termination,
cancellation or acceleration of the maturity of any payment date of any of
the obligations of either Company or increase or otherwise affect the
obligations of either Company under any law, rule, regulation or any
judgment, decree, order, governmental permit, license or order or any of the
terms, conditions or provisions of any mortgage, indenture, note, license,
agreement or other instrument or obligation related to either Company or to
such Company's ability to consummate the transactions contemplated hereby or
thereby, except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained in
writing and provided to Parent, or (iii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to either Company.
5.14 ABSENCE OF ADVERSE CHANGE; CONDUCT OF BUSINESS.
During the period from the Balance Sheet Date to and including the
date of this Agreement, except as set forth on SCHEDULE 5.14, neither Company
has (i) borrowed or agreed to borrow any material amount of funds or incurred
any liability or obligation of any nature (whether accrued, absolute,
contingent or otherwise), or guaranteed or agreed to guarantee any
obligations of others, (ii) canceled any indebtedness owing to it or any
claims that it might have possessed, waived any material rights of
substantial value or sold, leased, encumbered, transferred or otherwise
disposed of, or agreed to sell, lease, encumber, or otherwise dispose of its
assets or permitted any of its assets to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction or charge of any
kind, (iii) made any capital expenditure or commitment therefor, (iv)
declared or paid any dividend or made any distribution on any shares of its
capital stock, or redeemed, purchased or otherwise acquired any shares of its
capital stock or any option, warrant or other right to purchase or acquire
any such shares, (v) increased its indebtedness for borrowed money, or made
any loan to any Person, (vi) written off as uncollectible any notes or
accounts receivable, except write-offs in the ordinary course of business
charged to applicable reserves, (vii) made any material change in any method
of accounting or auditing practice, (viii) otherwise conducted its business
or entered into any transaction, except in the usual and ordinary manner, or
(ix) agreed, whether or not in writing, to do any of the foregoing.
5.15 CERTAIN PRACTICES. Neither Company, none of its respective
directors or officers, or to the best knowledge of either Company, any of such
Company's employees has, directly or
9
<PAGE>
indirectly, used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity;
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
corporate funds; violated any provision of the Foreign Corrupt Practices Act
of 1977, as amended; established or maintained any unlawful or unrecorded
fund of corporate monies or other assets; made any false or fictitious entry
on the books or records of either Company or any subsidiary; made any bribe,
rebate, payoff, influence payment, kickback, or other unlawful payment; given
any favor or gift which is not deductible for federal income tax purposes; or
made any bribe, kickback, or other payment of a similar or comparable nature,
whether lawful or not, to any person or entity, private or public, regardless
of form, whether in money, business or to obtain special concessions, or to
pay for favorable treatment for business secured or for special concessions
already obtained.
5.16 COMPLIANCE WITH LAW; LICENSES AND PERMITS.
Except as set forth on SCHEDULE 5.16, each Company has complied in all
material respects with all laws, ordinances, legal requirements, rules,
regulations and orders applicable to it, its operations, properties, assets,
products and services. Except as set forth on SCHEDULE 5.16, there is no
existing law, rule, regulation or order, and neither Company is aware of any
proposed law, rule, regulation or order, whether Federal, state or local,
which would prohibit or materially restrict Sub from, or otherwise materially
adversely affect Sub in, conducting the business of both Companies in the
manner heretofore conducted by such Company in any jurisdiction in which such
business is now conducted. Each Company possesses all franchises, permits,
licenses, certificates and consents required from any governmental or
regulatory authority in order for each Company to carry on its business as
currently conducted and to own and operate its properties and assets as now
owned and operated and all of such licenses and permits are set forth on
SCHEDULE 5.16.
5.17 EMPLOYEE BENEFITS.
(a) Set forth on SCHEDULE 5.17 is a list of all
pension, profit sharing, retirement, deferred compensation, stock purchase,
stock option, incentive, bonus, vacation, severance, disability,
hospitalization, medical insurance, life insurance, fringe benefit, welfare
and other employee benefit plans, programs or arrangements pursuant to which
each Company or its ERISA Affiliates provides (directly or indirectly,
individually or jointly through others) benefits or compensation to or on
behalf of employees or independent contractors or former employees or former
independent contractors of each Company or its ERISA Affiliates, whether
formal or informal, whether or not written ("Employee Plan"). On request by
Parent, each Company shall furnish a copy of each Employee Plan and a copy of
any related materials. Companies will maintain the benefits listed on
SCHEDULE 5.17 in full force and effect through the Effective Date. Except as
set forth on SCHEDULE 5.17, Parent shall not have any obligation or liability
of any kind or nature for any compensation or benefits of any kind or nature
to the employees or consultants of either Company for services rendered prior
to the Effective Date.
10
<PAGE>
(b) Each Employee Plan covering any present or former
employee of either Company which is subject to the continuation health
coverage requirements of Section 4980B of the Code or Section 601 of ERISA or
any applicable state law has complied with all such requirements for
continuation coverage.
(c) There are no actions, suits or claims pending
(other than routine claims for benefits) or threatened against or with
respect to any Employee Plan or the assets of any Employee Plan.
(d) Each Employee Plan (and the related trust or
funding vehicle, if any) has been administered and maintained in accordance
with its terms and with applicable law. Except as set forth on SCHEDULE
5.17(d), each Employee Plan which is intended to be qualified under Section
401 of the Code and each amendment to such plan is subject to a favorable
determination letter from the Internal Revenue Service ("IRS") and each such
plan has at all times been maintained, by its terms and in operation, in
accordance with Section 401 of the Code. The assets of each Employee Plan
which is not funded through the general assets of either Company are at least
equal to the liabilities under such Employee Plan, and all assets of each
Employee Plan are shown on the books and records of such Employee Plan at
fair market value. No Employee Plan has unfunded liabilities that as of the
Effective Time are not accurately and fully reflected on either Company's
Balance Sheet.
(e) Neither Company nor any of its respective ERISA
Affiliates is or has been a participant in, or is or has been obligated to
maintain or to make contributions to, a multi-employer plan (within the
meaning of ERISA Section 3(37) and ERISA Section 4001(a)(3)) or an Employee
Plan which is subject to Title IV of ERISA. Neither Company nor any of its
respective ERISA Affiliates has sponsored, contributed to or been obligated
under Title I or IV of ERISA to contribute to a "defined benefit plan" (as
defined in ERISA Section 3(35)). Neither Company is obligated to provide
post-retirement medical benefits or any other unfunded post-retirement
welfare benefits to or on behalf of any persons whatsoever (except the
benefits pursuant to the continuation health coverage requirements under
Section 4980B of the Code, ERISA Section 601, or applicable state law).
(f) Neither Company nor any of its respective ERISA
Affiliates is subject to and, to the best knowledge of each Company, no facts
exist which could subject either Company or any of its respective ERISA
Affiliates to, any liability whatsoever which is directly or indirectly
related to any Employee Plan, including, but not limited to, liability for
benefit payments or related claims, any liability for any tax or related
penalty under the Code, or liability for any damages or penalties arising
under Title I or Title IV of ERISA. No reportable event under Section 4043
of ERISA has occurred or, to the best knowledge of each Company, will occur
with respect to such Employee Plan.
(g) Termination of or withdrawal from any Employee
Plan immediately after the Effective Time would not subject Parent to any
liability, tax or penalty whatsoever.
11
<PAGE>
(h) The execution or performance of the transactions
contemplated by this Agreement will not create, accelerate or increase any
obligations under the Employee Plan, including any obligation to make any
payment which would not be deductible as an excess golden parachute payment
under Section 280G of the Code.
(i) All contributions to or under each Employee Plan
and all expenses of each Employee Plan are fully deductible for income tax
purposes for the taxable year for which such contributions are made or such
expenses are paid. All contributions to or under each Employee Plan have
been made when due under the terms of such Employee Plan in accordance with
applicable law.
(j) For purposes of this Section 5.17, the term
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the term "ERISA Affiliate" shall mean each trade or business
(whether or not incorporated) which together with either Company is treated
as a single employer under Section 414(b), (c), (m), (o) or (t) of the Code.
5.18 FIXED ASSETS. SCHEDULE 5.18 contains a true and complete list
of all of each Company's fixed assets with a net book value of greater than
$1,000.00, whether owned or leased. Except as shown on SCHEDULE 5.18, each
Company has good and marketable title to all of its fixed assets, free and
clear of all claims, liens, mortgages, charges and encumbrances except as
disclosed in the Balance Sheet. All of each Company's fixed assets, whether
owned or leased, are adequate and usable for the purposes for which they are
currently used, are in good operating condition and repair and have been
properly maintained.
5.19 INSURANCE. Each Company is, and will be through the Closing,
insured with insurers in respect of its properties, assets and businesses as
set forth on the attached SCHEDULE 5.19. SCHEDULE 5.19 lists the insurance
coverage carried by each Company, which insurance will remain in full force
and effect with respect to all events occurring prior to the Effective Date.
Except as set forth on SCHEDULE 5.19, neither Company (i) has failed to give
any notice or present any claim under any such policy or binder in due and
timely fashion, (ii) has received notice of cancellation or non-renewal of
any such policy or binder, (iii) is aware of any threatened or proposed
cancellation or non-renewal of any such policy or binder, (iv) has received
notice of any insurance premium which will be materially increased in the
future, and (v) is aware of any insurance premium which will be materially
increased in the future. There are no outstanding claims under any such
policy which have gone unpaid for more than 45 days, or as to which the
insurer has disclaimed liability.
5.20 ACCOUNTS RECEIVABLE; SHAREHOLDER NOTES. The accounts
receivable and other debts due or recorded in the respective records and
books of account of each Company as being due to each Company as of the
Effective Date, all of which are set forth on SCHEDULE 5.20, arose in the
ordinary course of business of each Company, are not subject to any
counterclaim or set-off and are fully collectible within 120 days after the
Effective Date without resort to litigation and without offset or
counterclaim. As of the Closing Date, all notes payable to Shareholders by
either Company have been paid in full.
12
<PAGE>
5.21 OUTSTANDING CONTRACTS. SCHEDULE 5.21 sets forth a description
of all existing contracts, agreements, leases, commitments, licenses and
franchises, which involve obligations or commitments by each Company of
$10,000 or more and are not cancelable by such Company without penalty within
30 days (collectively "Contracts"), whether written or oral, relating to such
Company. Each Company has delivered or made available to Parent true, correct
and complete copies of all of the Contracts specified on SCHEDULE 5.21 which
are in writing, and such schedule sets forth a complete description of all
Contracts which are not in writing. All of the Contracts are in full force
and effect and enforceable in accordance with their terms, except to the
extent that the enforceability thereof may be subject to or affected by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, or other laws relating to or affecting the rights of creditors
generally. Except as set forth on SCHEDULE 5.21, each Company and, to the
best knowledge of each Company, each other party thereto has materially
performed all the obligations required to be performed by it, has received no
notice of default and is not in default (with due notice or lapse of time or
both) under any of the Contracts. Neither Company has any present
expectation or intention of not fully performing all its obligations under
each of the Contracts, and neither Company has any knowledge of any breach or
anticipated breach by the other party to any of the Contracts to which such
Company is a party. Except as set forth on SCHEDULE 5.21, none of the
Contracts has been terminated; no notice has been given by any party thereto
of any alleged default by any party thereunder; and neither Company is aware
of any intention or right of any party to declare another party to any of the
Contracts to be in default. Except as set forth on SCHEDULE 5.21, there
exists no actual or, to the best knowledge of either Company, threatened
termination, cancellation or limitation of the business relationship of such
Company by any party to any of the Contracts.
5.22 OUTSTANDING LEASES. SCHEDULE 5.22 sets forth a description of
each agreement by which each Company leases each parcel of real property (the
"Leased Parcels") used in connection with the business (collectively, the
"Leases"). Each Company has delivered or made available to Parent true,
correct and complete copies of all of the Leases specified on SCHEDULE 5.22.
All rents due under the Leases have been paid. All of the Leases are in full
force and effect and enforceable in accordance with their terms, except to
the extent that the enforceability thereof may be subject to or affected by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, or other laws relating to or affecting the rights of creditors
generally. Except as set forth on SCHEDULE 5.22, each Company and, to the
best knowledge of each Company, each other party thereto has performed all
the obligations required to be performed by it, has received no notice of
default and is not in default (with due notice or lapse of time or both)
under any of the Leases. Neither Company has any present expectation or
intention of not fully performing all its obligations under each of the
Leases, and neither Company has any knowledge of any breach or anticipated
breach by the other party to any of the Leases. Except as set forth on
SCHEDULE 5.22, none of the Leases has been terminated; no notice has been
given by any party thereto of any alleged default by any party thereunder;
and neither Company is aware of any intention or right of any party to
declare another party to any of the Leases to be in default. There exists no
actual or, to the best knowledge of each Company, threatened termination,
cancellation or limitation of the business relationship of such Company with
any party to any of the Leases.
13
<PAGE>
5.23 INTELLECTUAL PROPERTIES. SCHEDULE 5.23 contains an accurate
and complete list of all domestic and foreign letters patent, patents, patent
applications, patent licenses, software licenses and know-how licenses, trade
names, trademarks, copyrights, unpatented inventions, service marks,
trademark registrations and applications, service mark registrations and
applications and copyright registrations and applications, trade secrets or
other confidential proprietary information owned or used by each Company in
the operation of the business (collectively the "Intellectual Property").
Except as set forth on SCHEDULE 5.23 and except for commercial software
licensed for use on personal computers, each Company owns the entire right,
title and interest in and to the Intellectual Property, trade secrets and
technology used in the operation of its business and each item constituting
part of the Intellectual Property and trade secrets and technology which is
owned by each Company has been, to the extent indicated in SCHEDULE 5.23,
duly registered with, filed in or issued by, as the case may be, the United
States Patent and Trademark office or such other government entities,
domestic or foreign, as are indicated in SCHEDULE 5.23 and such
registrations, filings and issuances remain in full force and effect. There
have been and are no pending or, to the best knowledge of each Company,
threatened proceedings or litigation or other adverse claims affecting or
with respect to the Intellectual Property. There is, to the best knowledge
of each Company, no reasonable basis upon which a claim may be asserted
against either Company for infringement of any domestic or foreign letters
patent, patents, patent applications, patent licenses and know-how licenses,
trade names, trademark registrations and applications, common law trademarks,
service marks, service mark registrations or applications, copyrights,
copyright registrations or applications, trade secrets or other confidential
proprietary information. To the best knowledge of each Company, no Person is
infringing the Intellectual Property.
5.24 PROPRIETARY INFORMATION OF THIRD PARTIES.
Except as disclosed on SCHEDULE 5.24, no third party has claimed or,
to the best knowledge of either Company, has reason to claim that any Person
employed by or consulting with either Company ("Related Person") has (i)
violated or may be violating any of the terms or conditions of such person's
employment, non-competition or non-disclosure agreement with such third
party, (ii) disclosed or may be disclosing or utilized or may be utilizing
any trade secret or proprietary information or documentation of such third
party, or (iii) interfered or may be interfering in the employment
relationship between such third party and any of its present or former
employees. No third party has requested information from either Company
which suggests that such a claim might be contemplated. Except as disclosed
on SCHEDULE 5.24, to the best knowledge of each Company, no Related Person
has employed or proposes to employ any trade secret or any information or
documentation proprietary to any former employer and no Related Person has
violated any confidential relationship which such person may have had with
any third party, in connection with the development or sale of any service of
either Company, and neither Company has any reason to believe there will be
any such employment or violation.
5.25 TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE
5.25, to the best knowledge of each Company, no director, officer or
shareholder of either Company, or member of the family of any such person, or
any corporation, partnership, trust or other entity in which
14
<PAGE>
any such person, or any member of the family of any such person, has a
beneficial interest greater than 5% or is an officer, director, trustee,
partner or holder of any equity interest greater than 5% (an "Affiliate"), is
a party to any transaction with either Company, including any contract,
agreement or other arrangement providing for the employment of, furnishing of
services by, rental of real or personal property from or otherwise requiring
payments or involving other obligations to any such person or firm.
5.26 ABSENCE OF UNDISCLOSED LIABILITIES.
(a) Except as and to the extent of the amounts
specifically reflected or reserved against in the Balance Sheet, or except as
set forth on SCHEDULE 5.26, neither Company has any liabilities or
obligations of any nature whatsoever due or to become due, accrued, absolute,
contingent or otherwise, except for liabilities and obligations incurred
since the date thereof in the ordinary course of business and consistent with
past practice. Neither Company knows of, and has any reason to know of, any
basis for the assertion against such Company of any liability or obligation
not fully reflected or reserved against in the Balance Sheet.
(b) Neither Company is bound by any agreement, or
subject to any charter or other corporate restriction or any legal
requirement, which has, or in the future can reasonably be expected to have,
a material adverse effect on the business or prospects of such Company.
5.27 TAXES. AHR has timely filed a valid election to be treated as
an S corporation in accordance with the provisions of Section 1361 of the
Code, effective for its tax year ended December 31, 1992; PEI has timely
filed a valid election to be treated as an S corporation in accordance with
the provisions of Section 1361 of the Code, effective for its tax year ended
on the Effective Date; and each Company has qualified and shall continue to
qualify as an S corporation for all years and periods thereafter until the
Effective Time. SCHEDULE 5.27 lists all the states and localities with
respect to which each Company is required to file any corporate, income
and/or franchise tax returns and sets forth whether each Company is treated
as the equivalent of an S corporation by or with respect to each such state
and/or locality. Neither Company has engaged in any activity which would
disqualify its treatment as an S corporation for those tax purposes. Except
as set forth on SCHEDULE 5.27, all federal, state, local and foreign tax
returns and tax reports required to be filed by each Company on or before
the date hereof have been timely filed with the appropriate governmental
agencies in all jurisdictions in which such returns and reports are required
to be filed and all amounts shown as owing thereon have been paid. All taxes
(including, without limitation, income, accumulated earnings, property,
sales, use, franchise, excise, license, value added, fuel, employees' income
withholding and social security taxes) which have become due or payable or
are required to be collected by each Company or are otherwise attributable to
any periods ending on or before the Effective Date and all interest and
penalties thereon, whether disputed or not, have been paid or will be paid in
full or adequately reflected on the Balance Sheet or each Company's books and
records in accordance with generally accepted accounting principles on or
prior to the Effective Time. Except as set forth on SCHEDULE 5.27, all
deposits required by law to be made by each Company with respect to
employees' withholding taxes have been duly made, and as of the Effective
Time all such
15
<PAGE>
deposits due will have been made. Each Company has delivered to Parent true
and complete copies of all of such Company's federal and state income tax
returns for the fiscal periods ended December 31, 1997, 1996 and 1995 and all
reports and results of income tax audits, if any, related thereto. Except as
set forth on SCHEDULE 5.27, no examination of any tax return of either
Company is currently in progress. There are no outstanding agreements or
waivers extending the statutory period of limitations applicable to any such
tax return.
5.28 LITIGATION. Except as set forth on SCHEDULE 5.28, there is no
(i) action, suit, claim, proceeding or investigation pending or, to the best
knowledge of each Company, threatened against or affecting either Company
(whether or not such Company is a party or prospective party thereto), at law
or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceeding pending
relating to either Company or (iii) governmental inquiry pending or
threatened against or involving either Company, and there is no basis for any
of the foregoing. Neither Company has received any opinion or memorandum or
legal advice from legal counsel to the effect that such Company is exposed,
from a legal standpoint, to any liability or disadvantage which may be
material to the business, prospects, financial condition, operations,
property or affairs of such Company. There are no outstanding orders, writs,
judgments, injunctions or decrees served upon either Company by any court,
governmental agency or arbitration tribunal against such Company. There are
no facts or circumstances which may result in institution of any action,
suit, claim or legal, administrative or arbitration proceeding or
investigation against, involving or affecting either Company or the
transactions contemplated hereby. Neither Company is in default with respect
to any order, writ, injunction or decree known to or served upon it from any
court or of any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign.
Except as disclosed on SCHEDULE 5.28, there is no action or suit by either
Company pending or threatened against others.
5.29 ENVIRONMENTAL MATTERS.
(a) COMPLIANCE. Each Company and all Leased Parcels are
in compliance with all applicable laws, rules, regulations, orders, ordinances,
judgments and decrees of all governmental authorities with respect to all
environmental statutes, rules and regulations. Except as set forth on
SCHEDULE 5.29, neither Company has received notice of, nor does either Company
have knowledge of, any past, present or future events, conditions,
circumstances, activities, practices, incidents, actions or plans of such
Company or such Company's predecessors, either collectively, individually or
severally, which may interfere with or prevent continued compliance with, or
which may give rise to any common law or legal liability or otherwise form the
basis of any claim, action, suit, proceeding, hearing, or investigation, based
on or related to the disposal, storage, handling, manufacture, processing,
distribution, use, treatment or transport, or the emission, discharge, release
or threatened release into the environment, of any Substance. As used in this
Section 5.29, the term "Substance" or "Substances" shall mean any pollutant,
contaminant, hazardous substance, hazardous material, hazardous waste or toxic
waste, as defined in any presently enacted federal, state or local statute or
any regulation that has been promulgated pursuant thereto. No part of any of
the Leased
16
<PAGE>
Parcels has been listed or proposed for listing on the National Priorities
List established by the United States Environmental Protection Agency, or any
corresponding list by any state or local authorities.
(b) ENVIRONMENTAL SUBSTANCE LIABILITY. No event has
occurred or condition exists or operating practice is being employed that
could give rise to liability on the part of either Company, either at the
present time or in the future, for any losses, liabilities, damages (whether
consequential or otherwise), settlements, penalties, interest, expenses and
costs of responses, including any such liability on account of the right of
any governmental or private entity or person, and including closure expenses,
costs of assessment, containment, removal, or response (other than monitoring
or transportation or disposal of materials required to be transported or
disposed of in the ordinary course of business consistent with past practice)
arising under any rule or federal, state, or local statute, or any regulation
that has been promulgated pursuant thereto, or common law, as a result of or
in connection with, or alleged to be as a result of or in connection with,
the following (collectively the "Hazardous Activities"):
(i) the handling, storage, use, transportation
or disposal of any Substances in or near or from the Leased Parcels;
(ii) the handling, storage, use, transportation
or disposal of any Substances by either Company or their predecessors which
Substances were a product, by-product or otherwise resulted from the
operations conducted by or on behalf of either Company or their predecessors;
(iii) any intentional or unintentional emission,
discharge or release of any Substances in or near or from facilities into or
upon the air, surface water, ground water or land or any disposal, handling,
manufacturing, processing, distribution, use, treatment, or transport of such
Substances in or near or from facilities by or on behalf of either Company or
their predecessors; or
(iv) the presence of any toxic or hazardous
building materials (including but not limited to friable asbestos or similar
substances) in any facilities of either Company, including but not limited to
the inclusion of such materials in the exterior and interior walls, floors,
ceilings, tile, insulation or any other portion of building structures.
(c) ENVIRONMENTAL PERMITS. Each Company has obtained
and holds all registrations, permits, licenses, and approvals issued by or on
behalf of any federal, state or local governmental body or agency if any
("Environmental Permits") that are required in connection with the operation
by such Company of the Leased Parcels, the discharge or emission of
Substances by such Company from the Leased Parcels or the generation,
treatment, storage, transportation, or disposal of any such Substances by
such Company. Such Environmental Permits, which are described on SCHEDULE
5.29, are currently effective and sufficient for the operation of the Leased
Parcels and the business of each Company as currently conducted and intended
to be conducted. Each Company is in compliance with all terms and conditions
of the Environmental Permits, and is also in compliance with all other
limitations, restrictions,
17
<PAGE>
conditions, standards, prohibitions, requirements, obligations, schedules,
and timetables contained in those laws or provisions or contained in any
regulation, code, plan, order, decree, judgment, notice or demand letter
issued, entered, promulgated or approved thereunder and applicable to each
Company.
(d) DELIVERIES. Each Company has delivered to Parent
true and complete copies and results of any reports, studies, analyses,
tests, or monitoring possessed or initiated by either Company pertaining to
Substances or Hazardous Activities in, on, or under the Leased Parcels or
concerning compliance by either Company or any other Person for whose conduct
they are or may be held responsible, with environmental statutes, rules and
regulations.
5.30 INVENTORY. Neither Company has any inventory.
5.31 YEAR-2000 COMPLIANCE.
(a) SCHEDULE 5.31 contains a true and complete list
of all Systems (as hereinafter defined), and each System is Year-2000
Compliant (as hereinafter defined) to the extent indicated on SCHEDULE 5.31.
(b) As used throughout this Agreement, the following
definitions shall have the following meanings:
(1) "External Systems" shall mean all
services which are provided to either Company by third parties and which are
dependent on information technology, including, but not limited to, any
external payroll, accounting, or tax filing services or any checking,
savings, or other financial services.
(2) "Internal Systems" shall mean all
technology products and systems generally operated or controlled in-house by
either Company, or its employees, agents, or independent contractors
including, but not limited to, computers, computer networks, telephone
systems, voicemail systems, intercom systems, pager systems, and software
applications.
(3) "Licensed Systems" shall mean all
products and systems developed by or for either Company which are licensed,
sold, distributed, or otherwise transferred by either Company to third
parties.
(4) "System" or "Systems" shall mean
any, all, or any combination of any Internal System, External System, or
Licensed System.
(5) "Year-2000 Compliant" shall mean,
with respect to each System, that such System is designed to be used before,
during, and after the calendar year 2000 A.D. and will accurately accept date
input and process, store, and output date data and date-related data,
including, without limitation, calculating, comparing, sorting, and
sequencing such
18
<PAGE>
data and calculating leap years before, during, and after the calendar year
2000 A.D. without any manual intervention.
5.32 DISCLOSURE. All Documents delivered or to be delivered by or
on behalf of either Company in connection with this Agreement and the
transactions contemplated hereby are true, complete and correct. Neither
this Agreement, nor any of the other Documents contains any untrue statement
of a material fact or omits a material fact necessary to make the statements
made by either Company herein or therein, in light of the circumstances in
which made, not misleading. There is no fact known to either Company which
materially and adversely affects the business, prospects or financial
condition of such Company or its properties or assets, which has not been set
forth in the Documents.
5.33 TAX AND REGULATORY MATTERS. Neither Company nor any Affiliate
thereof has any knowledge of any fact or circumstance that is reasonably
likely to (i) prevent the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code, or (ii) materially impede or delay
receipt of any consents of any federal, state, county, local or other
governmental or regulatory agencies having jurisdiction over the parties or
result in the imposition of a condition or restriction of the type referred
to in the last sentence of Section 9.1(a).
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each of the Shareholders represents and warrants to Parent as follows:
6.1 OWNERSHIP OF SHARES. Each Shareholder individually represents
and warrants as to himself (a) that such Shareholder owns the shares of
Company Common Stock listed opposite such Shareholder's name on SCHEDULE 6.1
hereto, free and clear of all pledges, security interests, liens, charges,
encumbrances, equities, claims, options or limitations of every kind
("Claims"), and (b) that the delivery to Parent of the Common Stock pursuant
to the provisions of this Agreement will transfer to Parent valid title
thereto, free and clear of all Claims.
6.2 AUTHORITY AND APPROVAL; NO BREACH BY AGREEMENT. Each
Shareholder individually represents and warrants as to himself (a) that such
Shareholder has full legal power, capacity and authority to execute, deliver
and perform this Agreement and the other Documents and to consummate the
transactions contemplated hereby and thereby. This Agreement and the other
Documents have been duly and validly executed and delivered by such
Shareholder and constitute valid and binding obligations of such Shareholder,
enforceable against such Shareholder in accordance with their terms. No
notice to, filing with, or consent of, any public body or authority or other
Person is necessary for the consummation by such Shareholder of the
transactions contemplated in this Agreement. Execution of this Agreement by
such Shareholder shall constitute such Shareholder's written consent to
approval of this Agreement and Plan of
19
<PAGE>
Merger in such Shareholder's capacity as a holder of shares of Company Common
Stock, and such Shareholder hereby waives receipt of any further notice of
the Merger, including notice of the availability of dissenters' rights.
6.3 PURCHASE FOR INVESTMENT; RESTRICTED SECURITIES. Each
Shareholder individually represents and warrants as to himself (a) that such
Shareholder is acquiring shares of Parent Common Stock for investment and not
with a present view toward, or for sale in connection with, any distribution
thereof, nor with any present intention of distributing or selling the shares
of Parent Common Stock so acquired; (b) that such Shareholder has no present
plan or intention to sell, exchange or otherwise dispose of any of the shares
of Parent Common Stock received in the Merger; and (c) such Shareholder
acknowledges that (i) the shares of Parent Common Stock are not and will not
be registered under the Securities Act of 1933, as amended (the "1933 Act"),
and (ii) that Parent does not file periodic reports with the Securities and
Exchange Commission pursuant to the requirements of Section 12 or 15(d) of
the Securities Exchange Act of 1934, as amended.
6.4 BROKER'S OR FINDER'S FEES. Except as set forth on SCHEDULE
6.4, no agent, broker, person or firm acting on behalf of the Shareholders or
either Company is, or will be, entitled to any commission or broker's or
finder's fees from the Shareholders or either Company, or from any person
controlling, controlled by or under common control with the Shareholders or
either Company, in connection with any of the transactions contemplated
herein.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to Companies and the
Shareholders as follows:
7.1 ORGANIZATION. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, duly
qualified to transact business as a foreign corporation in each jurisdiction
in which the failure to so qualify would have a material adverse impact on
Parent's ability to perform its obligations under this Agreement.
7.2 CORPORATE POWER AND AUTHORITY. Parent has the corporate power
and authority to execute, deliver and perform this Agreement and the other
Documents. The execution, delivery and performance of the Documents
contemplated hereby and the consummation of the transactions contemplated
hereby and thereby have been duly authorized and approved by all necessary
corporate action of Parent. The Documents to be executed and delivered by
Parent have been duly executed and delivered by, and constitute the legal,
valid and binding obligations of Parent enforceable against Parent in
accordance with their terms.
7.3 VALIDITY, ETC. Neither the execution and delivery by Parent of
this Agreement and the other Documents, the consummation by Parent of the
transactions contemplated hereby or thereby, nor the performance by Parent of
this Agreement and such other agreements in compliance with the terms and
conditions hereof and thereof will (i) violate, conflict with or
20
<PAGE>
result in any breach of any trust agreement, articles of incorporation,
bylaw, judgment, decree, order, statute or regulation applicable to Parent,
(ii) violate, conflict with or result in a breach of or default (or give rise
to any right of termination, cancellation or acceleration) under any law,
rule or regulation or any judgment, decree, order, governmental permit,
license or order or any of the terms, conditions or provisions of any
mortgage, indenture, note, license, agreement or other instrument to which
Parent is a party, or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Parent.
7.4 CAPITAL STOCK. The authorized capital stock of Parent consists
of (a) 100,000,000 shares of Parent Common Stock, of which 12,762,957 shares
were issued and outstanding as of May 30, 1998 and (b) 50,000,000 shares of
$.001 par value preferred stock, of which no shares were issued and
outstanding as of May 30, 1998. All of the issued and outstanding shares of
Parent Capital Stock are, and all of the shares of Parent Common Stock to be
issued in exchange for shares of Company Common Stock upon consummation of
the Merger, when issued in accordance with the terms of this Agreement, will
be, duly and validly issued and outstanding and fully paid and nonassessable.
None of the outstanding shares of Parent Capital Stock has been, and none of
the shares of Parent Common Stock to be issued in exchange for shares of
Company Common Stock upon consummation of the Merger will be, issued in
violation of any preemptive rights of the current or past shareholders of
Parent.
7.5 AUTHORITY OF SUB. Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of California as a
wholly owned subsidiary of Parent. The authorized capital stock of Sub
consists of 1,000 shares of Sub Common Stock, all of which is validly issued
and outstanding, fully paid and nonassessable and is owned by Parent free and
clear of any Claims. Sub (a) has the corporate power and authority to
execute, deliver and perform this Agreement and the other Documents and to
consummate the transactions contemplated hereby and thereby and (b) has taken
all necessary corporate and shareholder action to authorize and approve the
execution, delivery and performance of this Agreement and the other Documents
and the consummation of the transactions contemplated hereby and thereby.
This Agreement and the other Documents have been duly and validly executed
and delivered by Sub and constitute valid and binding obligations of Sub,
enforceable against Sub in accordance with their terms.
7.6 TAX AND REGULATORY MATTERS. Neither Parent nor any Affiliate
thereof has any knowledge of any fact or circumstance that is reasonably
likely to (i) prevent the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code, or (ii) materially impede or delay
receipt of any consents of any federal, state, county, local or other
governmental or regulatory agencies having jurisdiction over the parties or
result in the imposition of a condition or restriction of the type referred
to in the last sentence of Section 9.1(a).
7.7 DISCLOSURE STATEMENT. Parent's Disclosure Statement, dated
June 25, 1998, which has been previously delivered to the Shareholders is
true, complete and correct in all material respects.
21
<PAGE>
7.8 DISCLOSURE. All Documents delivered or to be delivered by or
on behalf of Parent in connection with this Agreement and the transactions
contemplated hereby are true, complete and correct. Neither this Agreement,
nor any of the other Documents contains any untrue statement of a material
fact or omits a material fact necessary to make the statements made by Parent
herein or therein, in light of the circumstances in which made, not
misleading. There is no fact known to Parent which may have a material
adverse effect on Parent's ability to pay its obligations under this
Agreement, which has not been set forth in the Documents.
7.9 BROKER'S OR FINDER'S FEES. Except as set forth on SCHEDULE
7.9, no agent, broker, person or firm acting on behalf of Parent is, or will
be, entitled to any commission or broker's or finder's fees from Parent, or
from any person controlling, controlled by or under common control with
Parent, in connection with any of the transactions contemplated herein.
22
<PAGE>
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 FILINGS WITH STATE OFFICES. Upon the terms and subject to the
conditions of this Agreement, each Company shall and Parent shall cause Sub
to execute and file the Agreement of Merger with the California Secretary of
State in connection with the Closing.
8.2 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms
and conditions of this Agreement, each party hereto agrees to use its
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things reasonably necessary, proper, or advisable under
applicable laws to consummate and make effective, as soon as reasonably
practicable after the date of this Agreement, the transactions contemplated
by this Agreement, including using its reasonable efforts to lift or rescind
any order adversely affecting its ability to consummate the transactions
contemplated herein and to cause to be satisfied the conditions referred to
in Article 9; provided, that nothing herein shall preclude either party
hereto from exercising its rights under this Agreement. Each party hereto
shall use its reasonable efforts to obtain all consents necessary or
desirable for the consummation of the transactions contemplated by this
Agreement.
8.3 INVESTIGATION AND CONFIDENTIALITY.
(a) Prior to the Effective Time, each party hereto
shall keep the other party advised of all material developments relevant to
its business and to consummation of the Merger and shall permit the other
party to make or cause to be made such investigation of the business and
properties of it and of its financial and legal conditions as the other party
reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations. No investigation by a party shall
affect the representations and warranties of the other party.
(b) Each party hereto shall, and shall cause its
advisers and agents to, maintain the confidentiality of all confidential
information furnished to it by the other party concerning its and its
subsidiaries' businesses, operations, and financial positions and shall not
use such information for any purpose except in furtherance of the
transactions contemplated by this Agreement. For purposes hereof, the term
"confidential information" does not include any information which at the time
of disclosure to the receiving party was or thereafter became publicly
available or a matter of public knowledge, without a breach of this Agreement
by the receiving party, or was disclosed by the receiving party pursuant to a
requirement of law, or in response to a court order, subpoena or governmental
authority.
8.4 PRESS RELEASES. Prior to the Effective Time, each Company and
Parent shall consult with each other as to the form and substance of any
press release or other public disclosure materially related to this Agreement
or any other transaction contemplated hereby; provided, that nothing in this
Section 8.4 shall be deemed to prohibit any party from making any
23
<PAGE>
disclosure which its counsel deems necessary or advisable in order to satisfy
such party's disclosure obligations imposed by law.
8.5 NO SOLICITATION. Except with respect to this Agreement and the
transactions contemplated hereby, neither Company, nor any Shareholder, shall
solicit or enter into discussions with any third party (a) to purchase any
shares of capital stock of either Company or an option or warrant to purchase
shares of such capital stock or any securities convertible into such capital
stock, (b) to make an offer of any kind for any shares of such capital stock,
(c) purchase all or a substantial portion of the assets of either Company or
(d) to merge, consolidate, engage in a share exchange or otherwise combine
with either Company.
8.6 SHAREHOLDER RELEASES. Each Shareholder hereby releases and
forever discharges each Company and its officers, directors, employees and
insurers, and their respective successors and assigns, and each of them
(hereinafter individually and collectively, the "Releasees") of and from any
and all claims, demands, debts, accounts, covenants, agreements, obligations,
costs, expenses, actions or causes of action of every nature, character or
description, now accrued or which may hereafter accrue, without limitation of
law, equity or otherwise, based in whole or in part on any facts, conduct,
activities, transactions, events or occurrences known or unknown, which have
or allegedly have existed, occurred, happened, arisen or transpired from the
beginning of time to the Effective Time; excluding, however, (i) claims
arising under this Agreement and the transactions contemplated hereby, and
(ii) compensation and other employee benefits accrued but not yet payable as
reflected on the books and records of each Company (the "Released Claims").
Each Shareholder represents and warrants that no Released Claim released
herein has been assigned, expressly, impliedly, or by operation of law, and
that all Released Claims of such Shareholder released herein are owned by
such Shareholder, who has the sole authority to release them. Each
Shareholder agrees that such holder shall forever refrain and forebear from
commencing, instituting or prosecuting any lawsuit action or proceeding,
judicial, administrative, or otherwise, or otherwise attempting to collect or
enforce any Released Claims which are released and discharged herein.
8.7 ACCOUNTING AND TAX TREATMENT. Each party undertakes and agrees
to use its reasonable efforts to cause the Merger to qualify for treatment as
a "reorganization" within the meaning of Section 368(a), including Section
368(a)(1)(A) and (a)(2)(D), of the Code for federal income tax purposes, and
each party covenants and agrees that each representation made by such party
in the certificates executed by or on behalf of such party and attached to
the tax opinion of Stites & Harbison referred to in Section 9.1(c) is true
and correct. Notwithstanding the foregoing, no party shall have any liability
to any other party in the event the Merger ultimately is determined not to
qualify as a "reorganization" within the meaning of Section 368(a) of the
Code as a result of a breach of any covenant or representation in such
certificates by the Shareholders.
8.8 CHARTER PROVISIONS. Each Company shall take all necessary
action to ensure that the entering into of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby do
not and will not result in the grant of any rights to any Person under the
Articles of Incorporation, Bylaws or other governing instruments of each
24
<PAGE>
Company or restrict or impair the ability of Parent or any of its
subsidiaries to vote, or otherwise to exercise the rights of a shareholder
with respect to, shares of each Company that may be directly or indirectly
acquired or controlled by them.
8.9 CERTAIN TAX RETURNS OF EACH COMPANY. For income tax purposes,
(i) the status of each Company as an "S Corporation" shall continue until the
Effective Time of the Merger, (ii) each Company's final S corporation tax
year will end at the Effective Time. The Shareholders shall cause to be
prepared and filed all income tax returns of each Company (including IRS Form
1120S and Schedule K-1(1120S) and similar state tax returns) for the tax year
ending at the Effective Time, as well as for the tax year ended December 31,
1997 (if not filed before the Effective Time). Parent and each Company (and
not the Shareholders) shall be responsible for the preparation and filing of
all income tax returns and the payment of all income taxes of each Company
for its tax year beginning on the day on which the Effective Time occurs and
all subsequent periods.
8.10 WORKING CAPITAL. The Companies shall have net current assets
at the closing sufficient to provide working capital for their on-going
businesses. For purposes of this Agreement, "net current assets" shall mean
current assets in excess of current liabilities.
8.11 LANDLORD CONSENTS. The Shareholders shall, on or before the
expiration of thirty (30) days after the Effective Time, cause the Company to
obtain from its landlords (to the extent required under the pertinent
premises lease) written consent to the assignment of said leases to the
Parent which assignment is deemed to have resulted from the transactions
contemplated by this Agreement.
8.12 AUDITED FINANCIAL STATEMENTS. The Shareholders shall furnish
to Parent, as soon as practical and at Shareholders' expense (up to a maximum
amount of $29,333), audited financial statements of each Company for the
three (3) fiscal years ending December, 1997, 1996 and 1995, as prepared by
an accounting firm selected by Parent.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each party to perform this Agreement and consummate the Merger
and the other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by both parties:
(a) CONSENTS AND APPROVALS. Each party shall have
obtained any and all consents required for consummation of the Merger or for
the preventing of any default under any contract or permit of such party
which, if not obtained or made, is reasonably likely to have, individually or
in the aggregate, a material adverse effect on such party. No consent so
obtained which is necessary to consummate the transactions contemplated
hereby shall be conditioned or restricted in a manner which in the reasonable
judgment of the Board of Directors of Parent
25
<PAGE>
would so materially adversely impact the economic or business benefits of the
transactions contemplated by this Agreement that, had such condition or
requirement been known, such party would not, in its reasonable judgment,
have entered into this Agreement.
(b) LEGAL PROCEEDINGS. No court or governmental or
regulatory authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law or order (whether temporary,
preliminary or permanent) or taken any other action which prohibits,
restricts or makes illegal consummation of the transactions contemplated by
this Agreement.
(c) TAX MATTERS. Each party shall have received a
written opinion of counsel from Stites & Harbison, in form reasonably
satisfactory to such parties (the "Tax Opinion"), to the effect that (i) the
Merger will constitute a reorganization within the meaning of Section 368(a)
of the Code, (ii) the exchange in the Merger of Company Common Stock for
Parent Common Stock will not give rise to gain or loss to the shareholders of
either Company with respect to such exchange (except with respect to any cash
received), and (iii) none of Companies, Sub or Parent will recognize gain or
loss as a consequence of the Merger (except for amounts resulting from any
required change in accounting methods). In rendering such Tax Opinion, such
counsel shall be entitled to rely upon representations of officers of each
Company, the Shareholders and Parent reasonably satisfactory in form and
substance to such counsel.
9.2 CONDITIONS TO OBLIGATIONS OF PARENT. The obligations of Parent
to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by Parent:
(a) REPRESENTATIONS AND WARRANTIES. The
representations and warranties of each Company and the Shareholders herein
contained shall be true in all material respects as stated herein, both when
made and with the same effect as though made again as of the Effective Time
except to the extent of changes permitted by this Agreement. Each Company
and the Shareholders shall have performed all obligations and complied with
all covenants required by this Agreement to be performed or complied with by
each Company and the Shareholders prior to the Effective Time.
(b) CERTIFICATES. Each Company and the Shareholders
shall have delivered to Parent (i) a certificate, dated as of the Effective
Time and signed on each Company's behalf by its president and secretary and
signed by each Shareholder, to the effect that the conditions set forth in
Section 9.1 as relates to each Company and the Shareholders and in Section
9.2(a) have been satisfied, and (ii) certified copies of resolutions duly
adopted by each Company's Board of Directors and shareholders evidencing the
taking of all corporate action necessary to authorize the execution, delivery
and performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as Parent and its counsel
shall request.
(c) TAX CLEARANCE. Each Company shall have delivered to
Parent a certificate of satisfaction from the California Franchise Tax Board
stating that all taxes imposed
26
<PAGE>
by the California Bank and Corporation Tax Law have been paid or secured in a
form acceptable to Parent and the California Secretary of State in accordance
with Section 1103 of the CGCL.
9.3 CONDITIONS TO OBLIGATIONS OF EACH COMPANY AND SHAREHOLDERS.
The obligations of each Company and the Shareholders to perform this
Agreement and consummate the Merger and the other transactions contemplated
hereby are subject to the satisfaction of the following conditions, unless
waived by each Company:
(a) REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Parent herein contained shall be true in
all material respects as stated herein, both when made and with the same
effect as though made again as of the Effective Time except to the extent of
changes permitted by the terms of this Agreement. Parent shall have
performed all obligations and complied with all covenants required by this
Agreement to be performed or complied with by Parent prior to the Effective
Time.
(b) CERTIFICATES. Parent shall have delivered to
each Company and the Shareholders (i) a certificate, dated as of the
Effective Time and signed on its behalf by its president and secretary, to
the effect that the conditions set forth in Section 9.1 as relates to Parent
and in Section 9.3(a) have been satisfied, and (ii) certified copies of
resolutions duly adopted by Parent's Board of Directors and Sub's Board of
Directors and sole shareholder evidencing the taking of all corporate action
necessary to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, all
in such reasonable detail as each Company and its counsel shall request.
ARTICLE 10
INDEMNIFICATION
10.1 SURVIVAL. Except as set forth on SCHEDULE 3.6 hereto, all
representations and warranties in this Agreement and the other Documents
shall survive the Merger and any investigation at any time made by or on
behalf of any party for a period of two years and all such representations
and warranties shall expire on the second anniversary of the Effective Date,
except that (a) claims, if any, asserted in writing prior to such second
anniversary identified as a claim for indemnification pursuant to this
Article 10 shall survive until finally resolved and satisfied in full; (b)
any Year-2000 Indemnification Obligations (as hereinafter defined) shall
survive until February 1, 2003 and until finally resolved and satisfied in
full if asserted on or prior to February 1, 2003; and (c) tax or
environmental claims arising from a breach of Section 5.27 or Section 5.29,
respectively, shall survive for the full period of the applicable statute of
limitations, and until finally resolved and satisfied in full if asserted on
or prior to the expiration of any such period. The representations and
warranties shall not be affected or otherwise diminished by any investigation
at any time by or on behalf of the party for whose benefit such
representations and warranties were made.
10.2 INDEMNIFICATION BY EACH COMPANY AND SHAREHOLDERS. Subject to the
terms herein, each Company and the Shareholders shall jointly and severally
indemnify, defend, and hold Parent and the respective officers, directors, and
employees of Parent, and their successors
27
<PAGE>
and assigns (the "Shareholders' Indemnitees") harmless from, against and with
respect to any claim, liability, obligation, loss, damage, assessment,
judgment, cost or expense of any kind or character, including reasonable
attorneys' fees (the "Damages"), arising out of or in any manner incident,
relating or attributable to:
(a) Any inaccuracy in any representation or breach of
any warranty of either Company or the Shareholders contained in this
Agreement;
(b) Any failure by either Company or the Shareholders
to perform or observe, or to have performed or observed, in full, any
covenant, agreement or condition to be performed or observed by it under this
Agreement;
(c) Reliance by Parent on any books or records of
either Company or written information furnished to Parent pursuant to this
Agreement by or on behalf of such Company or the Shareholders in the event
that such books and records or written information are false or otherwise
materially inaccurate; or
(d) Liabilities or obligations of, or claims against,
either Company or Parent (whether absolute, accrued, contingent or otherwise)
relating to, or arising out of, the operation of the business prior to the
Effective Time or facts and circumstances relating specifically to the
business, the Leased Parcels, or either Company existing at or prior to the
Effective Time, including but not limited to matters set forth on SCHEDULE
5.28, whether or not such liabilities, obligations or claims were known on
such date, excluding only liabilities set forth in the Balance Sheet and
liabilities and obligations incurred since the date thereof in the ordinary
course of business and consistent with past practice.
Provided, however, the Shareholders' Indemnitees shall not be entitled
to indemnification or offset hereunder until Damages in total exceed $10,000
and then only to the extent of aggregate Damages in excess of $10,000;
PROVIDED FURTHER, HOWEVER, such deductible shall not apply to any Damages
arising from a breach of Sections 5.27, 5.28, 6.1, or 6.2, respectively.
10.3 NOTICE TO SHAREHOLDERS, ETC. If any of the matters as to which
the Shareholders' Indemnitees are entitled to receive indemnification under
Section 10.2 should entail litigation with or claims asserted by parties
other than either Company, Shareholders' Agent shall be given fifteen (15)
days notice thereof and shall have the right, at the Shareholders' expense,
to control such claim or litigation upon fifteen (15) days notice to Parent
of his election to do so. To the extent requested by Shareholders' Agent,
Parent, at its expense, shall cooperate with and assist Shareholders' Agent,
in connection with such claim or litigation. Parent shall have the right to
appoint, at its expense, single counsel to consult with and remain advised by
the Shareholders in connection with such claim or litigation. Shareholders'
Agent shall have final authority to determine all matters in connection with
such claim or litigation; PROVIDED, HOWEVER, that Shareholders' Agent shall
not settle any third party claim without the consent of Parent, which shall
not be unreasonably denied or delayed.
10.4 INDEMNIFICATION BY PARENT. Parent shall indemnify, defend, and
hold the Shareholders and their heirs, executors and legal representatives
("Parent's Indemnitees")
28
<PAGE>
harmless from, against and with respect to any Damages, arising out of or in
any manner incident, relating or attributable to:
(a) Any inaccuracy in any representation or breach of
warranty of Parent contained in this Agreement;
(b) Any failure by Parent to perform or observe, or
to have performed or observed, in full, any covenant, agreement or condition
to be performed or observed by it under any of the Documents;
(c) Reliance by the Shareholders on any books or
records of Parent or reliance by the Shareholders on any written information
furnished to the Shareholders or either Company pursuant to this Agreement by
or on behalf of Parent in the event that such books and records or written
information are false or otherwise materially inaccurate; and
(d) The operation of each Company subsequent to the
Effective Time.
Provided, however, Parent's Indemnitees shall not be entitled to
indemnification hereunder until Damages in total exceed $10,000 and then only
to the extent of aggregate damages in excess of $10,000.
10.5 NOTICE TO PARENT, ETC. If any of the matters as to which
Parent's Indemnitees are entitled to receive indemnification under Section
10.4 should entail litigation with or claims asserted by parties other than
Parent, Parent shall be given fifteen (15) days notice thereof and shall have
the right, at its expense, to control such claim or litigation upon fifteen
(15) days notice to the Shareholders' Agent of its election to do so. To the
extent requested by Parent, Shareholders' Agent, at the expense of the
Shareholders, shall cooperate with and assist Parent, in connection with such
claim or litigation. Shareholders' Agent shall have the right to appoint, at
their expense, single counsel to consult with and remain advised by Parent in
connection with such claim or litigation. Parent shall have final authority
to determine all matters in connection with such claim or litigation;
PROVIDED, HOWEVER, that Parent shall not settle any third party claim without
the consent of Shareholders' Agent, which shall not be unreasonably denied or
delayed.
10.6 SURVIVAL OF INDEMNIFICATION. Except as set forth on SCHEDULE
3.6 hereto, the obligations to indemnify and hold harmless pursuant to this
Article 10 shall survive the Effective Time of the Merger, for a period of
two years, notwithstanding any investigation at any time made by or on behalf
of any party, except that (a) claims, if any, asserted in writing prior to
such second anniversary identified as a claim for indemnification pursuant to
this Article 10 shall survive until finally resolved and satisfied in full;
(b) any Year-2000 Indemnification Obligations (as hereinafter defined) shall
survive until February 1, 2003 and until finally resolved and satisfied in
full if asserted on or prior to February 1, 2003; and (c) tax or
environmental claims arising from a breach of Section 5.27 or Section 5.29,
respectively, shall survive for the full period of the applicable statute of
limitations, and until finally resolved and satisfied in full if asserted on
or prior to the expiration of any such period. As used in this Article 10,
the term "Year-2000 Indemnification Obligations" shall mean each Company's
and Shareholders' obligation to indemnify, defend, and hold the Shareholders'
Indemnitees harmless from, against
29
<PAGE>
and with respect to any Damages arising out of or in any manner incident,
relating or attributable to (i) any claim or allegation that any Licensed
System is not Year-2000 Compliant and (ii) any claim arising from a breach of
Section 5.31.
10.7 OFFSET. The Shareholders acknowledge and agree that Parent
shall be entitled to offset any indemnity claim under Section 10.2 against
any payment due to the Shareholders under Section 3.6 hereunder. Parent
shall deliver to each Shareholder written notice not less than fifteen (15)
days prior to exercising its right of offset pursuant to this Section 10.7,
which notice shall set forth in reasonable detail Parent's basis for
exercising its right of offset and the amount of the proposed offset. If
within fifteen (15) days of receiving Parent's notice of its intent to
exercise its right of offset either Shareholder delivers to Parent written
notice setting forth such Shareholder's objection to Parent's exercise of its
right of offset, then Parent shall place into an interest-bearing escrow
account the amount of the proposed offset, which amount, along with all
accrued interest, shall be distributed to the Parent or the Shareholders or
both, as appropriate, upon resolution of such dispute or upon the written
consent of Parent and such Shareholder's. Neither the exercise of nor the
failure to give a notice of a Claim shall constitute an election of remedies
nor limit Indemnitee in any manner in the enforcement of any other remedies
that may be available to it.
ARTICLE 11
MISCELLANEOUS
11.1 KNOWLEDGE OF EACH COMPANY. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to
the best knowledge of each Company, each Company confirms that it has made
due and diligent inquiry of its President and other officers as to the
matters that are the subject of such representation and warranty.
11.2 KNOWLEDGE OF PARENT. Where any representation or warranty
contained in this Agreement is expressly qualified by reference to the best
of knowledge of Parent, Parent confirms that it has made due and diligent
inquiry of its President as to the matters that are the subject of such
representations and warranties.
11.3 "PERSON" DEFINED. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or other department or agency
thereof.
11.4 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) sent by recognized overnight courier, (iii) made by telecopy or
facsimile transmission, or (iv) sent by registered or certified mail, return
receipt requested, postage prepaid.
If to Parent:
30
<PAGE>
ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
Attn: Stephen A. Hoffmann, President
Fax No: (502) 425-5603
With a copy to:
Stites & Harbison
400 W. Market Street, Suite 1800
Louisville, Kentucky 40202
Attn: Cynthia L. Coffee, Esq.
Fax No: (502) 587-6391
If to Companies:
American Home Remodeling
16147 Valerio Street
Van Nuys, California 91406
Attn: Harinder S. ("Tony") Ahuja
Fax No: (818) 373-7575
31
<PAGE>
If to Shareholders:
Harinder S. Ahuja
17351 Sunset Blvd., Suite 401
Pacific Palisades, CA 90272
Fax No:
----------------------
and
Alan B. Fishman
19710 Superior St.
Chatsworth, CA 91311
Fax No:
----------------------
With a copy to:
Gordon Benson, Esq.
16830 Ventura Boulevard, Suite 500
Encino, California 91436
Fax No: (818) 788-6759
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof
to the receiving party at the address of such party set forth above, (ii) if
sent by overnight courier, on the next business day following the day such
notice is delivered to the courier service, (iii) if made by telecopy or
facsimile transmission, at the time that receipt thereof has been
acknowledged by electronic confirmation or otherwise, or (iv) if sent by
registered or certified mail, on the fifth business day following the day
such mailing is sent. The address of any party herein may be changed at any
time by written notice to the parties.
11.5 ENTIRE AGREEMENT. This Agreement and the other Documents
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in the other Documents shall affect, or be used to
interpret, change or restrict, the express terms and provisions of this
Agreement.
11.6 MODIFICATIONS AND AMENDMENTS. The terms and provisions of this
Agreement may be modified or amended only by written agreement executed by
all parties hereto.
11.7 ASSIGNMENT/BINDING EFFECT. Neither this Agreement, nor any
right hereunder, may be assigned by any of the parties hereto without the
prior written consent of the other parties. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
heirs, personal representatives, successors and permitted assigns.
32
<PAGE>
11.8 PARTIES IN INTEREST. Nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies
of any nature whatsoever under or by reason of this Agreement. Nothing in
this Agreement shall be construed to create any rights or obligations except
among the parties hereto, and no person or entity shall be regarded as a
third-party beneficiary of this Agreement.
11.9 GOVERNING LAW. This Agreement and the rights and obligations
of the parties hereunder shall be construed in accordance with and governed
by the internal laws of the State of California without giving effect to the
conflict of law principles thereof.
11.10 ARBITRATION. Any dispute or difference between the parties
hereto arising out of or relating to this Agreement shall be finally settled
by arbitration in accordance with the Commercial Rules of the American
Arbitration Association by a panel of three qualified arbitrators.
Shareholders' Agent, on the one hand, and Parent, on the other, shall each
choose an arbitrator and the third shall be chosen by the two so chosen. If
either Shareholders' Agent or Parent fails to choose an arbitrator within 30
days after notice of commencement of arbitration or if the two arbitrators
fail to choose a third arbitrator within 30 days after their appointment, the
American Arbitration Association shall, upon the request of any party to the
dispute or difference, appoint the arbitrator or arbitrators to constitute or
complete the panel as the case may be. Arbitration proceedings hereunder may
be initiated by either Shareholders' Agent, on the one hand, or Parent, on
the other, making a written request to the American Arbitration Association,
together with any appropriate filing fee, at the office of the American
Arbitration Association in Los Angeles, California. All arbitration
proceedings shall be held in Los Angeles, California. Any order or
determination of the arbitral tribunal shall be final and binding upon the
parties to the arbitration and may be entered in any court having
jurisdiction.
11.11 SEVERABILITY. In the event that any arbitral tribunal of
competent jurisdiction shall finally determine that any provision, or any
portion thereof, contained in this Agreement shall be void or unenforceable
in any respect, then such provision shall be deemed limited to the extent
that such arbitral tribunal determines it enforceable, and as so limited
shall remain in full force and effect. In the event that such arbitral
tribunal shall determine any such provision, or portion thereof, wholly
unenforceable, the remaining provisions of this Agreement shall nevertheless
remain in full force and effect.
11.12 INTERPRETATION. The parties hereto acknowledge and agree that:
(i) the rule of construction to the effect that any ambiguities are resolved
against the drafting party shall not be employed in the interpretation of
this Agreement, and (ii) the terms and provisions of this Agreement shall be
construed fairly as to all parties hereto and not in favor of or against any
party, regardless of which party was generally responsible for the
preparation of this Agreement.
11.13 HEADINGS AND CAPTIONS. The headings and captions of the
various subdivisions of this Agreement are for convenience of reference only
and shall in no way modify, or affect, or be considered in construing or
interpreting the meaning or construction of any of the terms or provisions
hereof.
33
<PAGE>
11.14 RELIANCE. The parties hereto agree that, notwithstanding any
right of any party to this Agreement to investigate the affairs of any other
party to this Agreement, the party having such right to investigate shall
have the right to rely fully upon the representations and warranties of the
other party expressly contained herein.
11.15 EXPENSES. Each party shall pay its own fees and expenses
(including the fees of any attorneys, accountants, appraisers or others
engaged by such party) incurred in connection with this Agreement and the
transactions contemplated hereby whether or not the transactions contemplated
hereby are consummated.
11.16 GENDER. All pronouns and any variation thereof shall be deemed
to refer to the masculine, feminine, neuter, singular, or plural as the
identity of the person or entity or the context may require.
11.17 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by different parties hereto on separate counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, Parent, Sub, AHR and PEI have each caused its duly
authorized officer to execute this Agreement and the Shareholders have
executed this Agreement as of the date first above written.
THERMOVIEW INDUSTRIES, INC.
By: /s/ Stephen A. Hoffmann
------------------------------
Stephen A. Hoffmann, President
THERMOVIEW/AHR MERGER CORP.
By: /s/ Stephen A. Hoffmann
------------------------------
Stephen A. Hoffmann, President
34
<PAGE>
AMERICAN HOME REMODELING
By: /s/ Harinder S. Ahuja
-----------------------------
Harinder S. Ahuja, President
PACIFIC EXTERIORS, INCORPORATED
By: /s/ Harinder S. Ahuja
---------------------------------
Harinder S. Ahuja, Vice President
SHAREHOLDERS:
/s/ Harinder S. Ahuja
---------------------------------
Harinder S. Ahuja
/s/ Alan S. Fishman
---------------------------------
Alan S. Fishman
35
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of July 9, 1998, by and among THERMOVIEW INDUSTRIES, INC. ("Parent"), a
Delaware corporation having its principal office located in Louisville,
Kentucky; THERMOVIEW/FSB MERGER CORP. ("Sub"), a California corporation having
its principal office located in Louisville, Kentucky; FIVE STAR BUILDERS, INC.
("Company"), a California corporation having its principal office located in San
Diego, California; and the shareholders of Company identified on SCHEDULE 6.1
hereto (each a "Shareholder" and collectively the "Shareholders").
PREAMBLE
The Boards of Directors of Company, Sub and Parent are of the opinion
that the transactions described herein are in the best interests of the parties
to this Agreement and their respective shareholders. This Agreement provides
for the acquisition of Company by Parent pursuant to the merger of Company with
and into Sub. At the effective time of the Merger, the outstanding shares of
the capital stock of Company shall be converted into the right to receive shares
of the common stock of Parent (except as provided herein). As a result,
shareholders of Company shall become shareholders of Parent. Also at the
Effective Time of the Merger, Company shall cease to exist by operation of law
and the business formerly conducted by Company shall thereafter be conducted by
and in the name of Sub. The transactions described in this Agreement are
subject to receipt of required regulatory consents and approvals and the
satisfaction of certain other conditions described in this Agreement. It is the
intention of the parties to this Agreement that the Merger shall qualify as a
"reorganization" within the meaning of Section 368(a), including Section
368(a)(1)(A) and (a)(2)(D), of the Internal Revenue Code of 1986, as amended
(the "Code") for federal income tax purposes.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants, and agreements set forth herein, the parties agree
as follows:
<PAGE>
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 MERGER. Subject to the terms and conditions of this Agreement and
the provisions of the Agreement of Merger attached as EXHIBIT A, at the
Effective Time, Company shall be merged with and into Sub in accordance with the
applicable provisions of the California General Corporation Law ("CGCL") and
with the effect provided in the CGCL (the "Merger"). Sub shall be the surviving
corporation resulting from the Merger and shall be a wholly-owned subsidiary of
Parent and shall continue to be governed by the laws of the State of California.
The Merger shall be consummated pursuant to the terms of this Agreement and the
Plan of Merger, which have been approved and adopted by the respective Boards of
Directors of Company, Sub and Parent, by the Shareholders as the only
shareholders of Company, and by Parent, as the sole shareholder of Sub.
1.2 TIME AND PLACE OF CLOSING. The closing of the transactions
contemplated hereby (the "Closing") will take place at 9:00 A.M. on the date
hereof. The Closing shall be held at such location as may be mutually agreed
upon by the parties.
1.3 EFFECTIVE TIME. The Merger and other transactions contemplated by
this Agreement shall become effective at 11:59 p.m., P.D.T. (the "Effective
Time") on the date the Agreement of Merger and the officers' certificates of the
Company and Sub are filed with the office of the Secretary of State of the State
of California pursuant to Section 1103 of the CGCL. (the "Effective Date").
ARTICLE 2
TERMS OF MERGER
2.1 CHARTER. The Articles of Incorporation of Sub in effect
immediately prior to the Effective Time shall be the Articles of Incorporation
of the surviving corporation resulting from the Merger until otherwise amended
or repealed.
2.2 BYLAWS. The Bylaws of Sub in effect immediately prior to the
Effective Time shall be the Bylaws of the surviving corporation resulting from
the Merger until otherwise amended or repealed.
2.3 DIRECTORS AND OFFICERS. The directors of Sub in office
immediately prior to the Effective Time, together with such additional persons
as may thereafter be elected, shall serve as the directors of the surviving
corporation resulting from the Merger from and after the Effective Time in
accordance with the Bylaws of such corporation. The officers of Sub in office
immediately prior to the Effective Time, together with such additional persons
as may thereafter
2
<PAGE>
be elected, shall serve as the officers of the surviving corporation
resulting from the Merger from and after the Effective Time in accordance
with the Bylaws of such corporation.
2.4 CERTAIN CLOSING DELIVERIES. In connection with the Closing, each
of Parent, Company and the Shareholders agrees to execute and deliver to each
other party the following:
(a) Company and each of Bradley A. Smith and Michael S. Haines
shall have executed and delivered to the other an Employment Agreement, which
shall be in the form of EXHIBIT B.
(b) Parent and each of the Shareholders shall have executed and
delivered to the other a Noncompetition Agreement, which shall be in the form of
EXHIBIT C.
(c) Parent and each of the Shareholders shall have executed and
delivered to the other a Registration Rights Agreement, which shall be in the
form of EXHIBIT D.
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 CONVERSION OF SHARES. Subject to the provisions of this Article
3, at the Effective Time, by virtue of the Merger and without any action on the
part of Parent, Company, Sub or the shareholders of any of the foregoing, the
shares of the constituent corporations shall be converted as follows:
(a) Each share of $.001 par value common stock of Parent
("Parent Common Stock"), and any other class or series of capital stock of
Parent (collectively, "Parent Capital Stock") issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and after
the Effective Time.
(b) Each share of the no par value common stock of Sub ("Sub
Common Stock") issued and outstanding immediately prior to the Effective Time
shall remain issued and outstanding from and after the Effective Time.
(c) Each share of Company Common Stock, defined in Section 5.4
below, (excluding shares held by Company or Parent or any of its subsidiaries)
issued and outstanding immediately prior to the Effective Time shall cease to be
outstanding and shall be converted into and exchanged for (i) 361.1111 shares of
Parent Common Stock (the "Stock Exchange Ratio"), and (ii) $1,666.66 (the "Cash
Exchange Ratio").
3.2 ANTI-DILUTION PROVISIONS. In the event Parent changes the number
of shares of Parent Common Stock issued and outstanding prior to the Effective
Time as a result of a stock split, stock dividend, or similar recapitalization
with respect to such stock and the record date therefor (in the case of a stock
dividend) or the effective date thereof (in the case of a stock split
3
<PAGE>
or similar recapitalization for which a record date is not established) shall
be prior to the Effective Time, the Stock Exchange Ratio shall be
proportionately adjusted.
3.3 SHARES HELD BY COMPANY OR PARENT. Each of the shares of Company
Common Stock held by Company or Parent or any of its subsidiaries shall be
canceled and retired at the Effective Time and no consideration shall be issued
in exchange therefor.
3.4 DISSENTING SHAREHOLDERS.
Each of the Shareholders agrees that he will not seek to assert
dissenters' rights to which such Shareholder otherwise would be entitled under
the applicable provisions of the CGCL.
3.5 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, each holder of shares of Company Common Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
share of Parent Common Stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of Parent Common
Stock multiplied by the market value of one share of Parent Common Stock at the
Effective Time. The market value of one share of Parent Common Stock at the
Effective Time shall be the highest bid price of such common stock as quoted by
the National Association of Securities Dealers (as reported by The Wall Street
Journal or, if not reported thereby, any other authoritative source selected by
Parent) on the last trading day preceding the Effective Time. No such holder
will be entitled to dividends, voting rights, or any other rights as a
shareholder in respect of any fractional shares.
3.6 POST-CLOSING EARN-OUT. The Shareholders shall be entitled to
receive post-closing earn-outs as set forth on SCHEDULE 3.6.
ARTICLE 4
EXCHANGE OF SHARES
4.1 EXCHANGE PROCEDURES. At the Closing (or as soon as reasonably
practicable thereafter), each holder of shares of Company Common Stock (other
than shares to be canceled pursuant to Section 3.3) issued and outstanding at
the Effective Time shall surrender the certificate or certificates representing
such shares to Parent and shall promptly upon surrender thereof receive in
exchange therefor the consideration provided in Section 3.1, together with all
undelivered dividends or distributions in respect of such shares (without
interest thereon) pursuant to Section 4.2. To the extent required by Section
3.5, each holder of shares of Company Common Stock issued and outstanding at the
Effective Time also shall receive, upon surrender of the certificate or
certificates representing such shares, cash in lieu of any fractional share of
Parent Common Stock to which such holder may be otherwise entitled (without
interest). Parent shall not be obligated to deliver the consideration to which
any former holder of Company Common Stock is entitled as a result of the Merger
until such holder surrenders such holder's certificate or certificates
representing the shares of Company Common Stock for exchange as
4
<PAGE>
provided in this Section 4.1. The certificate or certificates of Company
Common Stock so surrendered shall be duly endorsed as Parent may reasonably
require.
4.2 RIGHTS OF FORMER SHAREHOLDERS. At the Effective Time, the stock
transfer books of Company shall be closed as to holders of Company Common Stock
immediately prior to the Effective Time and no transfer of Company Common Stock
by any such holder shall thereafter be made or recognized. Until surrendered
for exchange in accordance with the provisions of Section 4.1, each certificate
theretofore representing shares of Company Common Stock (other than shares to be
canceled pursuant to Section 3.3) shall from and after the Effective Time
represent for all purposes only the right to receive the consideration provided
in Sections 3.1 and 3.5 in exchange therefor, subject, however, to Company's
obligation to pay any dividends or make any other distributions with a record
date prior to the Effective Time which have been declared or made by Company in
respect of such shares of Company Common Stock in accordance with the terms of
this Agreement and which remain unpaid at the Effective Time. Whenever a
dividend or other distribution is declared by Parent on the Parent Common Stock,
the record date for which is at or after the Effective Time, the declaration
shall include dividends or other distributions on all shares of Parent Common
Stock issuable pursuant to this Agreement, but no dividend or other distribution
payable to the holders of record of Parent Common Stock as of any time
subsequent to the Effective Time shall be delivered to the holder of any
certificate representing shares of Company Common Stock issued and outstanding
at the Effective Time until such holder surrenders such certificate for exchange
as provided in Section 4.1. However, upon surrender of such Company Common
Stock certificate, both the Parent Common Stock certificate (together with all
such undelivered dividends or other distributions without interest) and any
undelivered dividends and cash payments payable hereunder (without interest)
shall be delivered and paid with respect to each share represented by such
certificate.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby represents and warrants to Parent as follows:
5.1 ORGANIZATION AND QUALIFICATION. Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. The nature of the business of Company does not require Company to
be licensed or qualified in any other jurisdiction. Company has made
available to Parent complete and correct copies of the Articles of
Incorporation and By-laws of Company as currently in effect.
5.2 CORPORATE POWER AND AUTHORITY. Company has the corporate power
and authority to own and hold its properties and to carry on its business as now
conducted. Company (a) has the corporate power and authority to execute, deliver
and perform this Agreement and the Exhibits and to deliver the Schedules hereto
and the other documents and instruments contemplated hereby (collectively this
Agreement, the Exhibits and Schedules hereto, and the other documents and
instruments contemplated hereby shall constitute the "Documents") and to
consummate the transactions contemplated hereby and thereby and (b) has taken
all necessary
5
<PAGE>
corporate and shareholder action to authorize and approve the execution,
delivery and performance of this Agreement and the other Documents and the
consummation of the transactions contemplated hereby and thereby. This
Agreement has been duly and validly executed and delivered by Company and the
other Documents have been delivered by Company and constitute valid and
binding obligations of Company, enforceable against Company in accordance
with their terms.
5.3 FOREIGN PERSON. Neither Company nor any of the Shareholders are a
foreign person as that term is defined in Section 1445(f)(3) of the Code and
applicable regulations.
5.4 CAPITALIZATION. Company has authorized capital consisting of
1,000 shares of common stock, with no par value per share, of which 900 shares
are issued and outstanding and no shares are held as treasury stock (the
"Company Common Stock"). All of the outstanding shares of Company have been
duly authorized and validly issued and are fully paid and nonassessable. None
of the outstanding shares of Company has been issued in violation of any
preemptive right. There are no outstanding options, warrants, rights, calls,
commitments, conversion rights, rights of exchange, plans or other agreements of
any character providing for the purchase, issuance or sale of any shares of
capital stock of Company, other than as contemplated by this Agreement.
5.5 SUBSIDIARIES AND INVESTMENTS. Company has no subsidiaries and
does not own, directly or indirectly, any capital stock or other equity or
ownership or proprietary interest in any other corporation, partnership,
association, trust, joint venture or other entity.
5.6 BOOKS AND RECORDS. The minute books of Company, which have been
and will be made available to Parent and its representatives, contain accurate
records of all meetings of and corporate actions or written consents by the
shareholders and Board of Directors of Company set forth in such minute books.
Company does not have any of its records, systems, controls, data or information
recorded, stored, maintained, operated or otherwise wholly or partly dependent
upon or held by any means (including any electronic, mechanical or photographic
process, whether computerized or not) which (including all means of access
thereto and therefrom) are not under the exclusive ownership and direct control
of Company.
5.7 FINANCIAL STATEMENTS. Company has previously furnished to Parent,
and attached hereto as SCHEDULE 5.7 are, the unaudited Statement of Assets,
Liabilities, and Equity - Income Tax Basis (the "Balance Sheet") of the Company
as of December 31, 1997 (the "Balance Sheet Date") and the related unaudited
Statement of Revenue and Expense - Income Tax Basis for year then ended. All
such financial statements (the "Financial Statements") have been prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied and were prepared from the books and records of Company. Such books and
records are complete and correct in all material respects, accurately reflect
all cash transactions of the business of Company, and have been made available
to Parent for examination. The Financial Statements present the financial
position of Company as of the dates thereof and the results of its operations
and cash flows for the periods ended on the dates thereof. The Financial
Statements reflect reserves appropriate and adequate for all known material
liabilities and reasonably
6
<PAGE>
anticipated losses as required by GAAP. Since the Balance Sheet Date and
except as set forth on Schedule 5.7, (i) there has been no change in the
assets, liabilities or financial condition of Company from that reflected in
the Balance Sheet except for changes in the ordinary course of business and
which have not been materially adverse, and (ii) none of the business,
prospects, financial condition, operations, property or affairs of Company
has been materially adversely affected by any occurrence or development,
individually or in the aggregate, whether or not insured against. Company
has disclosed to Parent all material facts relating to the preparation of the
Financial Statements.
5.8 EMPLOYMENT AND LABOR MATTERS.
(a) SCHEDULE 5.8 lists and designates all employees,
independent contractors and officers of Company on the date hereof, along with
the amount of the current annual salaries and total compensation paid or due for
services to each employee, independent contractor or officer for the most recent
fiscal year end and the year to date, and a full and complete description of any
commitments to such employees, independent contractors and officers with respect
to compensation payable thereafter. To the best knowledge of Company, no key
employee or independent contractor or group of employees or independent
contractors has any plans to terminate employment or service with Company.
(b) Company is not a party to or bound by any collective
bargaining agreement with any labor organization, group or association covering
any of its employees, and Company has no knowledge of any attempt to organize
Company's employees by any Person, unit or group seeking to act as their
bargaining agent. There are no pending or threatened charges (by employees,
their representatives or governmental authorities) of unfair labor practices or
of employment discrimination or of any other wrongful action with respect to any
aspect of employment of any person employed or formerly employed by Company. No
union representation election relating to employees of Company has been
scheduled by any governmental agency or authority, no organizational effort is
being made with respect to any of such employees, and there is no investigation
of Company's employment policies or practices by any governmental agency or
authority pending or threatened. Company is not currently, nor has it been,
involved in labor negotiations with any unit or group seeking to become the
bargaining unit for any employees of Company. Company has not experienced any
material work stoppages, and to the best knowledge of Company, no work stoppage
is planned.
5.9 REAL PROPERTY. Company owns no real property.
5.10 POWERS OF ATTORNEY; ABSENCE OF LIMITATIONS ON COMPETITION;
GUARANTEES.
Except as set forth in SCHEDULE 5.10, (i) no power of attorney or similar
authorization given by Company presently is in effect or outstanding; (ii) no
contract or agreement to which Company is a party or is bound or to which
Company's properties or assets are subject limits the freedom of Company to
compete in any line of business or with any Person; and (iii) Company is not a
party to or bound by any guarantee of any debt or obligation of any other
Person.
7
<PAGE>
5.11 SIGNIFICANT SUPPLIERS. Set forth on SCHEDULE 5.11 is a true and
correct list of Company's ten largest suppliers for the most recent twelve (12)
month period ending December 31, 1997 and for the period beginning January 1,
1998 and ending May 31, 1998, together with the amount attributable to such
suppliers expressed in dollars and as a percentage of total supplies purchased.
None of the suppliers identified on SCHEDULE 5.11 has terminated, materially
reduced or threatened to terminate or materially reduce its supplies to Company
during the period covered by such schedule.
5.12 GOVERNMENTAL APPROVALS. Except as set forth on SCHEDULE 5.12, no
registration or filing with, or consent or approval of or other action by, any
Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by Company of this
Agreement.
5.13 VALIDITY, ETC. Except as set forth on SCHEDULE 5.13, neither the
execution and delivery of this Agreement or the other Documents, the
consummation of the transactions contemplated hereby or thereby, nor the
performance of this Agreement or the other Documents in compliance with the
terms and conditions hereof and thereof by Company will (i) violate, conflict
with or result in any breach of any trust agreement, Articles of Incorporation,
bylaw, judgment, decree, order, statute or regulation applicable to Company,
(ii) violate, conflict with or result in a breach, default or termination or
give rise to any right of termination, cancellation or acceleration of the
maturity of any payment date of any of the obligations of Company or increase or
otherwise affect the obligations of Company under any law, rule, regulation or
any judgment, decree, order, governmental permit, license or order or any of the
terms, conditions or provisions of any mortgage, indenture, note, license,
agreement or other instrument or obligation related to Company or to Company's
ability to consummate the transactions contemplated hereby or thereby, except
for such defaults (or rights of termination, cancellation or acceleration) as to
which requisite waivers or consents have been obtained in writing and provided
to Parent, or (iii) violate any order, writ, injunction, decree, statute, rule
or regulation applicable to Company.
5.14 ABSENCE OF ADVERSE CHANGE; CONDUCT OF BUSINESS.
During the period from the Balance Sheet Date to and including the date
of this Agreement, except as set forth on SCHEDULE 5.14, Company has not
(i) borrowed or agreed to borrow, other than in the ordinary course of business,
any material amount of funds or incurred any liability or obligation of any
nature (whether accrued, absolute, contingent or otherwise), or guaranteed or
agreed to guarantee any obligations of others, (ii) canceled any indebtedness
owing to it or any claims that it might have possessed, waived any material
rights of substantial value or sold, leased, encumbered, transferred or
otherwise disposed of, or agreed to sell, lease, encumber, or otherwise dispose
of its assets or permitted any of its assets to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction or charge of any kind,
(iii) made any capital expenditure or commitment therefor, (iv) declared or paid
any dividend or made any distribution on any shares of its capital stock, or
redeemed, purchased or otherwise acquired any shares of its capital stock or any
option, warrant or other right to purchase or acquire any such shares,
(v) increased its indebtedness for borrowed money, or made any loan to any
Person, (vi) written off as uncollectible any notes or accounts receivable,
except write-offs in
8
<PAGE>
the ordinary course of business, (vii) made any material change in any method
of accounting, (viii) otherwise conducted its business or entered into any
transaction, except in the usual and ordinary manner, or (ix) agreed, whether
or not in writing, to do any of the foregoing.
5.15 CERTAIN PRACTICES. None of Company, any of Company's directors or
officers, or to the best knowledge of Company, Company's employees has, directly
or indirectly, used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
established or maintained any unlawful or unrecorded fund of corporate monies or
other assets; made any false or fictitious entry on the books or records of
Company or any subsidiary; made any bribe, rebate, payoff, influence payment,
kickback, or other unlawful payment; given any favor or gift which is not
deductible for federal income tax purposes; or made any bribe, kickback, or
other payment of a similar or comparable nature, whether lawful or not, to any
person or entity, private or public, regardless of form, whether in money,
business or to obtain special concessions, or to pay for favorable treatment for
business secured or for special concessions already obtained.
5.16 COMPLIANCE WITH LAW; LICENSES AND PERMITS.
Except as set forth on SCHEDULE 5.16, Company has complied in all
material respects with all laws, ordinances, legal requirements, rules,
regulations and orders applicable to it, its operations, properties, assets,
products and services. Except as set forth on SCHEDULE 5.16, there is no
existing law, rule, regulation or order, and Company is not aware of any
proposed law, rule, regulation or order, whether federal, state or local, which
would prohibit or materially restrict Sub from, or otherwise materially
adversely affect Sub in, conducting the business of Company in the manner
heretofore conducted by Company in any jurisdiction in which such business is
now conducted. Company possesses all franchises, permits, licenses,
certificates and consents required from any governmental or regulatory authority
in order for Company to carry on its business as currently conducted and to own
and operate its properties and assets as now owned and operated and all of such
licenses and permits are set forth on SCHEDULE 5.16.
5.17 EMPLOYEE BENEFITS.
(a) Set forth on SCHEDULE 5.17 is a list of all pension, profit
sharing, retirement, deferred compensation, stock purchase, stock option,
incentive, bonus, vacation, severance, disability, hospitalization, medical
insurance, life insurance, fringe benefit, welfare and other employee benefit
plans, programs or arrangements pursuant to which Company or its ERISA
Affiliates provides (directly or indirectly, individually or jointly through
others) benefits or compensation to or on behalf of employees or independent
contractors or former employees or former independent contractors of Company or
its ERISA Affiliates, whether formal or informal, whether or not written
("Employee Plan"). On request by Parent, Company shall furnish a copy of each
Employee Plan and a copy of any related materials. Company will maintain the
benefits listed on SCHEDULE 5.17 in full force and effect through the Effective
Date. Except as set forth on
9
<PAGE>
SCHEDULE 5.17, Parent shall not have any obligation or liability of any kind
or nature for any compensation or benefits of any kind or nature to the
employees or consultants of Company for services rendered prior to the
Effective Date.
(b) Each Employee Plan covering any present or former employee
of Company which is subject to the continuation health coverage requirements of
Section 4980B of the Code or Section 601 of ERISA or any applicable state law
has complied with all such requirements for continuation coverage.
(c) There are no actions, suits or claims pending (other than
routine claims for benefits) or threatened against or with respect to any
Employee Plan or the assets of any Employee Plan.
(d) Each Employee Plan (and the related trust or funding
vehicle, if any) has been administered and maintained in accordance with its
terms and with applicable law. Except as set forth on SCHEDULE 5.17(d), each
Employee Plan which is intended to be qualified under Section 401 of the Code
and each amendment to such plan is subject to a favorable determination letter
from the Internal Revenue Service ("IRS") and each such plan has at all times
been maintained, by its terms and in operation, in accordance with Section 401
of the Code. The assets of each Employee Plan which is not funded through the
general assets of Company are at least equal to the liabilities under such
Employee Plan, and all assets of each Employee Plan are shown on the books and
records of such Employee Plan at fair market value. No Employee Plan has
unfunded liabilities that as of the Effective Time are not accurately and fully
reflected on Company's Balance Sheet.
(e) Neither Company nor any of its ERISA Affiliates is or has
been a participant in, or is or has been obligated to maintain or to make
contributions to, a multi-employer plan (within the meaning of ERISA Section
3(37) and ERISA Section 4001(a)(3)) or an Employee Plan which is subject to
Title IV of ERISA. Neither Company nor any ERISA Affiliate has sponsored,
contributed to or been obligated under Title I or IV of ERISA to contribute to a
"defined benefit plan" (as defined in ERISA Section 3(35)). Company is not
obligated to provide post-retirement medical benefits or any other unfunded
post-retirement welfare benefits to or on behalf of any persons whatsoever
(except the benefits pursuant to the continuation health coverage requirements
under Section 4980B of the Code, ERISA Section 601, or applicable state law).
(f) Neither Company nor its ERISA Affiliates is subject to and,
to the best knowledge of Company, no facts exist which could subject Company or
any of its ERISA Affiliates to, any liability whatsoever which is directly or
indirectly related to any Employee Plan, including, but not limited to,
liability for benefit payments or related claims, any liability for any tax or
related penalty under the Code, or liability for any damages or penalties
arising under Title I or Title IV of ERISA. No reportable event under Section
4043 of ERISA has occurred or, to the best knowledge of Company, will occur with
respect to such Employee Plan.
(g) Termination of or withdrawal from any Employee Plan
immediately after the Effective Time would not subject Parent to any liability,
tax or penalty whatsoever.
10
<PAGE>
(h) The execution or performance of the transactions
contemplated by this Agreement will not create, accelerate or increase any
obligations under the Employee Plans, including any obligation to make any
payment which would not be deductible as an excess golden parachute payment
under Section 280G of the Code.
(i) All contributions to or under each Employee Plan and all
expenses of each Employee Plan are fully deductible for income tax purposes for
the taxable year for which such contributions are made or such expenses are
paid. All contributions to or under each Employee Plan have been made when due
under the terms of such Employee Plan in accordance with applicable law.
(j) For purposes of this Section 5.17, the term "ERISA" shall
mean the Employee Retirement Income Security Act of 1974, as amended, and the
term "ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with Company is treated as a single employer under
Section 414(b), (c), (m), (o) or (t) of the Code.
5.18 FIXED ASSETS. SCHEDULE 5.18 contains a true and complete list of
Company's fixed assets with a net book value of greater than $1,000.00, whether
owned or leased. Except as shown on SCHEDULE 5.18, Company has good and
marketable title to all of its fixed assets, free and clear of all claims,
liens, mortgages, charges and encumbrances except as disclosed in the Balance
Sheet. All of Company's fixed assets, whether owned or leased, are adequate and
usable for the purposes for which they are currently used, are in good operating
condition and repair and have been properly maintained.
5.19 INSURANCE. Company is, and will be through the Closing, insured
with insurers in respect of its properties, assets and businesses as set forth
on the attached SCHEDULE 5.19. SCHEDULE 5.19 lists the insurance coverage
carried by Company, which insurance will remain in full force and effect with
respect to all events occurring prior to the Effective Date. Except as set
forth on SCHEDULE 5.19, Company (i) has not failed to give any notice or present
any claim under any such policy or binder in due and timely fashion, (ii) has
not received notice of cancellation or non-renewal of any such policy or binder,
(iii) is not aware of any threatened or proposed cancellation or non-renewal of
any such policy or binder, (iv) has not received notice of any insurance premium
which will be materially increased in the future, and (v) is not aware of any
insurance premium which will be materially increased in the future. There are
no outstanding claims under any such policy which have gone unpaid for more than
45 days, or as to which the insurer has disclaimed liability.
5.20 ACCOUNTS RECEIVABLE; SHAREHOLDER NOTES. The accounts receivable
and other debts due or recorded in the respective records and books of account
of Company as being due to Company as of the Effective Date, set forth on
SCHEDULE 5.20, arose in the ordinary course of business of Company, are not
subject to any counterclaim or set-off and are fully collectible within 120 days
after the Effective Date without resort to litigation and without offset or
counterclaim. As of the Closing Date, all notes payable to Shareholders by
Company have been paid in full.
11
<PAGE>
5.21 OUTSTANDING CONTRACTS. SCHEDULE 5.21 sets forth a description of
all existing contracts, agreements, leases, commitments, licenses and
franchises, which involve obligations or commitments by Company of $10,000 or
more and are not cancelable by Company without penalty within 30 days
(collectively "Contracts"), whether written or oral, relating to Company.
Company has delivered or made available to Parent true, correct and complete
copies of all of the Contracts specified on SCHEDULE 5.21 which are in writing,
and such schedule sets forth a complete description of all Contracts which are
not in writing. All of the Contracts are in full force and effect and
enforceable in accordance with their terms, except to the extent that the
enforceability thereof may be subject to or affected by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium, or other laws
relating to or affecting the rights of creditors generally. Except as set forth
on SCHEDULE 5.21, Company and, to the best knowledge of Company, each other
party thereto has materially performed all the obligations required to be
performed by it, has received no notice of default and is not in default (with
due notice or lapse of time or both) under any of the Contracts. Company has no
present expectation or intention of not fully performing all its obligations
under each of the Contracts, and Company has no knowledge of any breach or
anticipated breach by the other party to any of the Contracts to which Company
is a party. Except as set forth on SCHEDULE 5.21, none of the Contracts has
been terminated; no notice has been given by any party thereto of any alleged
default by any party thereunder; and Company is not aware of any intention or
right of any party to declare another party to any of the Contracts to be in
default. Except as set forth on SCHEDULE 5.21, there exists no actual or, to
the best knowledge of Company, threatened termination, cancellation or
limitation of the business relationship of Company by any party to any of the
Contracts.
5.22 OUTSTANDING LEASES. SCHEDULE 5.22 sets forth a description of
each agreement by which Company leases each parcel of real property (the "Leased
Parcels") used in connection with the business (collectively, the "Leases").
Company has delivered or made available to Parent true, correct and complete
copies of all of the Leases specified on SCHEDULE 5.22. All rents due under the
Leases have been paid. All of the Leases are in full force and effect and
enforceable in accordance with their terms, except to the extent that the
enforceability thereof may be subject to or affected by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium, or other laws
relating to or affecting the rights of creditors generally. Except as set forth
on SCHEDULE 5.22, Company and, to the best knowledge of Company, each other
party thereto has performed all the obligations required to be performed by it,
has received no notice of default and, to the best knowledge of Company, is not
in default (with due notice or lapse of time or both) under any of the Leases.
Company has no present expectation or intention of not fully performing all its
obligations under each of the Leases, and Company has no knowledge of any breach
or anticipated breach by the other party to any of the Leases. Except as set
forth on SCHEDULE 5.22, none of the Leases has been terminated; no notice has
been given by any party thereto of any alleged default by any party thereunder;
and Company is not aware of any intention or right of any party to declare
another party to any of the Leases to be in default. There exists no actual or,
to the best knowledge of Company, threatened termination, cancellation or
limitation of the business relationship of Company with any party to any of the
Leases.
12
<PAGE>
5.23 INTELLECTUAL PROPERTIES. SCHEDULE 5.23 contains an accurate and
complete list of all domestic and foreign letters patent, patents, patent
applications, patent licenses, software licenses and know-how licenses, trade
names, trademarks, copyrights, unpatented inventions, service marks, trademark
registrations and applications, service mark registrations and applications and
copyright registrations and applications, trade secrets or other confidential
proprietary information owned or used by Company in the operation of the
business (collectively the "Intellectual Property"). Except as set forth on
SCHEDULE 5.23 and except for commercial software licensed for use on personal
computers, Company owns the entire right, title and interest in and to the
Intellectual Property, trade secrets and technology used in the operation of its
business and each item constituting part of the Intellectual Property and trade
secrets and technology which is owned by Company has been, to the extent
indicated in SCHEDULE 5.23, duly registered with, filed in or issued by, as the
case may be, the United States Patent and Trademark office or such other
government entities, domestic or foreign, as are indicated in SCHEDULE 5.23 and
such registrations, filings and issuances remain in full force and effect.
There have been and are no pending or, to the best knowledge of Company,
threatened proceedings or litigation or other adverse claims affecting or with
respect to the Intellectual Property. There is, to the best knowledge of
Company, no reasonable basis upon which a claim may be asserted against Company
for infringement of any domestic or foreign letters patent, patents, patent
applications, patent licenses and know-how licenses, trade names, trademark
registrations and applications, common law trademarks, service marks, service
mark registrations or applications, copyrights, copyright registrations or
applications, trade secrets or other confidential proprietary information. To
the best knowledge of Company, no Person is infringing the Intellectual
Property.
5.24 PROPRIETARY INFORMATION OF THIRD PARTIES.
Except as disclosed on SCHEDULE 5.24, no third party has claimed or, to
the best knowledge of Company, has reason to claim that any Person employed by
or consulting with Company ("Related Person") has (i) violated or may be
violating any of the terms or conditions of such person's employment,
non-competition or non-disclosure agreement with such third party, (ii)
disclosed or may be disclosing or utilized or may be utilizing any trade
secret or proprietary information or documentation of such third party, or
(iii) interfered or may be interfering in the employment relationship between
such third party and any of its present or former employees. No third party
has requested information from Company which suggests that such a claim might
be contemplated. Except as disclosed on SCHEDULE 5.24, to the best knowledge
of Company, no Related Person has employed or proposes to employ any trade
secret or any information or documentation proprietary to any former employer
and no Related Person has violated any confidential relationship which such
person may have had with any third party, in connection with the development
or sale of any service of Company, and Company has no reason to believe there
will be any such employment or violation.
5.25 TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE
5.25, to the best knowledge of Company, no director, officer or shareholder of
Company, or member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or any member of
the family of any such person, has a beneficial interest greater than 5%
13
<PAGE>
or is an officer, director, trustee, partner or holder of any equity interest
greater than 5% (an "Affiliate"), is a party to any transaction with Company,
including any contract, agreement or other arrangement providing for the
employment of, furnishing of services by, rental of real or personal property
from or otherwise requiring payments or involving other obligations to any
such person or firm.
5.26 ABSENCE OF UNDISCLOSED LIABILITIES.
(a) Except as and to the extent of the amounts specifically
reflected or reserved against in the Balance Sheet, or except as set forth on
SCHEDULE 5.26, Company has no liabilities or obligations of any nature
whatsoever due or to become due, accrued, absolute, contingent or otherwise,
except for liabilities and obligations incurred since the date thereof in the
ordinary course of business and consistent with past practice. Company does not
know of, and has no reason to know of, any basis for the assertion against
Company of any liability or obligation not fully reflected or reserved against
in the Balance Sheet or set forth on SCHEDULE 5.26.
(b) Company is not bound by any agreement, or subject to any
charter or other corporate restriction or any legal requirement, which has, or,
to the best knowledge of Company, in the future can reasonably be expected to
have, a material adverse effect on the business or prospects of Company.
5.27 TAXES. SCHEDULE 5.27 lists all the states and localities with
respect to which Company is required to file any corporate, income and/or
franchise tax returns. Except as set forth on SCHEDULE 5.27, all federal,
state, local and foreign tax returns and tax reports required to be filed by
Company on or before the date hereof have been timely filed with the appropriate
governmental agencies in all jurisdictions in which such returns and reports are
required to be filed and all amounts shown as owing thereon have been paid. All
taxes (including, without limitation, income, accumulated earnings, property,
sales, use, franchise, excise, license, value added, fuel, employees' income
withholding and social security taxes) which have become due or payable or are
required to be collected by Company or are otherwise attributable to any periods
ending on or before the Effective Date and all interest and penalties thereon,
whether disputed or not, have been paid or will be paid in full or adequately
reflected on SCHEDULE 5.27. Except as set forth on SCHEDULE 5.27, all deposits
required by law to be made by Company with respect to employees' withholding
taxes have been duly made, and as of the Effective Time all such deposits due
will have been made. Company has delivered to Parent true and complete copies
of all of Company's federal and state income tax returns for the fiscal periods
ended December 30, 1997, 1996 and 1995 and all reports and results of income tax
audits, if any, related thereto. Except as set forth on SCHEDULE 5.27, no
examination of any tax return of Company is currently in progress. There are no
outstanding agreements or waivers extending the statutory period of limitations
applicable to any such tax return.
5.28 LITIGATION. Except as set forth on SCHEDULE 5.28, there is no
(i) action, suit, claim, proceeding or investigation pending or, to the best
knowledge of Company, threatened against or affecting Company (whether or not
such Company is a party or prospective party
14
<PAGE>
thereto), at law or in equity, or before or by any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceeding pending
relating to Company or (iii) governmental inquiry pending or threatened
against or involving Company, and there is no basis for any of the foregoing.
Company has not received any opinion or memorandum or legal advice from
legal counsel to the effect that it is exposed, from a legal standpoint, to
any liability or disadvantage which may be material to the business,
prospects, financial condition, operations, property or affairs of Company.
There are no outstanding orders, writs, judgments, injunctions or decrees
served upon Company by any court, governmental agency or arbitration tribunal
against Company. There are no facts or circumstances which may result in
institution of any action, suit, claim or legal, administrative or
arbitration proceeding or investigation against, involving or affecting
Company or the transactions contemplated hereby. Company is not in default
with respect to any order, writ, injunction or decree known to or served upon
it from any court or of any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign. Except as disclosed on SCHEDULE 5.28, there is no action or suit by
Company pending or threatened against others.
5.29 ENVIRONMENTAL MATTERS.
(a) COMPLIANCE. Company and all Leased Parcels are in
compliance with all applicable laws, rules, regulations, orders, ordinances,
judgments and decrees of all governmental authorities with respect to all
environmental statutes, rules and regulations. Except as set forth on
SCHEDULE 5.29, Company has not received notice of, nor does Company have
knowledge of, any past, present or future events, conditions, circumstances,
activities, practices, incidents, actions or plans of Company or Company's
predecessors, either collectively, individually or severally, which may
interfere with or prevent continued compliance with, or which may give rise to
any common law or legal liability or otherwise form the basis of any claim,
action, suit, proceeding, hearing, or investigation, based on or related to the
disposal, storage, handling, manufacture, processing, distribution, use,
treatment or transport, or the emission, discharge, release or threatened
release into the environment, of any Substance. As used in this Section 5.29,
the term "Substance" or "Substances" shall mean any pollutant, contaminant,
hazardous substance, hazardous material, hazardous waste or toxic waste, as
defined in any presently enacted federal, state or local statute or any
regulation that has been promulgated pursuant thereto. No part of any of the
Leased Parcels has been listed or proposed for listing on the National
Priorities List established by the United States Environmental Protection
Agency, or any corresponding list by any state or local authorities.
(b) ENVIRONMENTAL SUBSTANCE LIABILITY. No event has occurred
or condition exists or operating practice is being employed that could give rise
to liability on the part of Company, either at the present time or in the
future, for any losses, liabilities, damages (whether consequential or
otherwise), settlements, penalties, interest, expenses and costs of responses,
including any such liability on account of the right of any governmental or
private entity or person, and including closure expenses, costs of assessment,
containment, removal, or response (other than monitoring or transportation or
disposal of materials required to be transported or disposed of in the ordinary
course of business consistent with past practice) arising under any
15
<PAGE>
rule or federal, state, or local statute, or any regulation that has been
promulgated pursuant thereto, or common law, as a result of or in connection
with, or alleged to be as a result of or in connection with, the following
(collectively the "Hazardous Activities"):
(i) the handling, storage, use, transportation or
disposal of any Substances in or near or from the Leased Parcels;
(ii) the handling, storage, use, transportation or
disposal of any Substances by Company or its predecessors which Substances were
a product, by-product or otherwise resulted from the operations conducted by or
on behalf of Company or its predecessors;
(iii) any intentional or unintentional emission, discharge
or release of any Substances in or near or from facilities into or upon the air,
surface water, ground water or land or any disposal, handling, manufacturing,
processing, distribution, use, treatment, or transport of such Substances in or
near or from facilities by or on behalf of Company or its predecessors; or
(iv) the presence of any toxic or hazardous building
materials (including but not limited to friable asbestos or similar substances)
in any facilities of Company, including but not limited to the inclusion of such
materials in the exterior and interior walls, floors, ceilings, tile, insulation
or any other portion of building structures.
(c) ENVIRONMENTAL PERMITS. Company has obtained and holds all
registrations, permits, licenses, and approvals issued by or on behalf of any
federal, state or local governmental body or agency if any ("Environmental
Permits") that are required in connection with the operation by Company of the
Leased Parcels, the discharge or emission of Substances by Company from the
Leased Parcels or the generation, treatment, storage, transportation, or
disposal of any such Substances by Company. Such Environmental Permits, which
are described on SCHEDULE 5.29, are currently effective and sufficient for the
operation of the Leased Parcels and the business of Company as currently
conducted and intended to be conducted. Company is in compliance with all terms
and conditions of the Environmental Permits, and is also in compliance with all
other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables contained in those laws or
provisions or contained in any regulation, code, plan, order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved thereunder and
applicable to Company.
(d) DELIVERIES. Company has delivered to Parent true and
complete copies and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by Company pertaining to Substances or
Hazardous Activities in, on, or under the Leased Parcels or concerning
compliance by Company or any other Person for whose conduct they are or may be
held responsible, with environmental statutes, rules and regulations.
5.30 INVENTORY. Company has no inventory (whether raw materials,
work-in-process, or finished goods) other than those purchased or incurred
for jobs in process.
16
<PAGE>
5.31 YEAR-2000 COMPLIANCE.
(a) SCHEDULE 5.31 contains a true and complete list of all
Systems (as hereinafter defined), and each System is Year-2000 Compliant (as
hereinafter defined) to the extent indicated on SCHEDULE 5.31.
(b) As used throughout this Agreement, the following
definitions shall have the following meanings:
(1) "External Systems" shall mean all services which are
provided to Company by third parties and which are dependent on information
technology, including, but not limited to, any external payroll, accounting, or
tax filing services or any checking, savings, or other financial services.
(2) "Internal Systems" shall mean all technology
products and systems generally operated or controlled in-house by Company, or
its employees, agents, or independent contractors including, but not limited to,
computers, computer networks, telephone systems, voicemail systems, intercom
systems, pager systems, and software applications.
(3) "Licensed Systems" shall mean all products and
systems developed by or for Company which are licensed, sold, distributed, or
otherwise transferred by Company to third parties.
(4) "System" or "Systems" shall mean any, all, or any
combination of any Internal System, External System, or Licensed System.
(5) "Year-2000 Compliant" shall mean, with respect to
each System, that such System is designed to be used before, during, and after
the calendar year 2000 A.D. and will accurately accept date input and process,
store, and output date data and date-related data, including, without
limitation, calculating, comparing, sorting, and sequencing such data and
calculating leap years before, during, and after the calendar year 2000 A.D.
without any manual intervention.
5.32 DISCLOSURE. All Documents delivered or to be delivered by or on
behalf of Company in connection with this Agreement and the transactions
contemplated hereby are true, complete and correct. Neither this Agreement, nor
any of the other Documents contains any untrue statement of a material fact or
omits a material fact necessary to make the statements made by Company herein or
therein, in light of the circumstances in which made, not misleading. There is
no fact known to Company which materially and adversely affects the business,
prospects or financial condition of Company or its properties or assets, which
has not been set forth in the Documents.
5.33 TAX AND REGULATORY MATTERS. Neither Company nor any Affiliate
thereof has any knowledge of any fact or circumstance that is reasonably likely
to (i) prevent the Merger from qualifying as a reorganization within the meaning
of Section 368(a) of the Code, or (ii)
17
<PAGE>
materially impede or delay receipt of any consents of any federal, state,
county, local or other governmental or regulatory agencies having
jurisdiction over the parties or result in the imposition of a condition or
restriction of the type referred to in the last sentence of Section 9.1(a).
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each of the Shareholders represents and warrants to Parent as follows:
6.1 OWNERSHIP OF SHARES. Each Shareholder individually represents and
warrants as to herself, himself or itself (a) that such Shareholder owns the
shares of Company Common Stock listed opposite such Shareholder's name on
SCHEDULE 6.1 hereto, free and clear of all pledges, security interests, liens,
charges, encumbrances, equities, claims, options or limitations of every kind
("Claims"), and (b) that the delivery to Parent of the Common Stock pursuant to
the provisions of this Agreement will transfer to Parent valid title thereto,
free and clear of all Claims.
6.2 AUTHORITY AND APPROVAL; NO BREACH BY AGREEMENT. Each Shareholder
individually represents and warrants as to herself, himself or itself (a) that
such Shareholder has full legal power, capacity and authority to execute,
deliver and perform this Agreement and the other Documents and to consummate the
transactions contemplated hereby and thereby. This Agreement and the other
Documents have been duly and validly executed and delivered by such Shareholder
and constitute valid and binding obligations of such Shareholder, enforceable
against such Shareholder in accordance with their terms. To the best knowledge
of the Shareholders, no notice to, filing with, or consent of, any public body
or authority or other Person is necessary for the consummation by such
Shareholder of the transactions contemplated in this Agreement. Execution of
this Agreement by such Shareholder shall constitute such Shareholder's written
consent to approval of this Agreement and Plan of Merger in such Shareholder's
capacity as a holder of shares of Company Common Stock, and such Shareholder
hereby waives receipt of any further notice of the Merger, including notice of
the availability of dissenters' rights.
6.3 PURCHASE FOR INVESTMENT; RESTRICTED SECURITIES. Each Shareholder
individually represents and warrants as to himself (a) that such Shareholder is
acquiring shares of Parent Common Stock for investment and not with a present
view toward, or for sale in connection with, any distribution thereof, nor with
any present intention of distributing or selling the shares of Parent Common
Stock so acquired; (b) that such Shareholder has no present plan or intention to
sell, exchange or otherwise dispose of any of the shares of Parent Common Stock
received in the Merger; and (c) such Shareholder acknowledges that (i) the
shares of Parent Common Stock are not and will not be registered under the
Securities Act of 1933, as amended (the "1933 Act"), and (ii) that Parent does
not file periodic reports with the Securities and Exchange Commission
("Commission") pursuant to the requirements of Section 12 or 15(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act").
18
<PAGE>
6.4 BROKER'S OR FINDER'S FEES. Except as set forth on SCHEDULE 6.4,
no agent, broker, person or firm acting on behalf of the Shareholders or Company
is, or will be, entitled to any commission or broker's or finder's fees from the
Shareholders or Company, or from any person controlling, controlled by or under
common control with the Shareholders or Company, in connection with any of the
transactions contemplated herein.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to Company and the Shareholders as
follows:
7.1 ORGANIZATION. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, duly
qualified to transact business as a foreign corporation in each jurisdiction in
which the failure to so qualify would have a material adverse impact on Parent's
ability to perform its obligations under this Agreement.
7.2 CORPORATE POWER AND AUTHORITY. Parent has the corporate power and
authority to execute, deliver and perform this Agreement and the other
Documents. The execution, delivery and performance of the Documents
contemplated hereby and the consummation of the transactions contemplated hereby
and thereby have been duly authorized and approved by all necessary corporate
action of Parent. The Documents to be executed and delivered by Parent have
been duly executed and delivered by, and constitute the legal, valid and binding
obligations of Parent enforceable against Parent in accordance with their terms.
7.3 VALIDITY, ETC. Neither the execution and delivery by Parent of
this Agreement and the other Documents, the consummation by Parent of the
transactions contemplated hereby or thereby, nor the performance by Parent of
this Agreement and such other agreements in compliance with the terms and
conditions hereof and thereof will (i) violate, conflict with or result in any
breach of any trust agreement, articles of incorporation, bylaw, judgment,
decree, order, statute or regulation applicable to Parent, (ii) violate,
conflict with or result in a breach of or default (or give rise to any right of
termination, cancellation or acceleration) under any law, rule or regulation or
any judgment, decree, order, governmental permit, license or order or any of the
terms, conditions or provisions of any mortgage, indenture, note, license,
agreement or other instrument to which Parent is a party, or (iii) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Parent.
7.4 DISCLOSURE. All Documents delivered or to be delivered by or on
behalf of Parent in connection with this Agreement and the transactions
contemplated hereby are true, complete and correct. Neither this Agreement, nor
any of the other Documents contains any untrue statement of a material fact or
omits a material fact necessary to make the statements made by Parent herein or
therein, in light of the circumstances in which made, not misleading. There is
no fact known to Parent which may have a material adverse effect on Parent's
ability to pay its obligations under this Agreement, which has not been set
forth in the Documents.
19
<PAGE>
7.5 CAPITAL STOCK. The authorized capital stock of Parent consists of
(a) 100,000,000 shares of Parent Common Stock, of which 12,762,957 shares were
issued and outstanding as of May 30, 1998 and (b) 50,000,000 shares of $.001 par
value preferred stock, of which no shares were issued and outstanding as of May
30, 1998. All of the issued and outstanding shares of Parent Capital Stock are,
and all of the shares of Parent Common Stock to be issued in exchange for shares
of Company Common Stock upon consummation of the Merger, when issued in
accordance with the terms of this Agreement, will be, duly and validly issued
and outstanding and fully paid and nonassessable. None of the outstanding
shares of Parent Capital Stock has been, and none of the shares of Parent Common
Stock to be issued in exchange for shares of Company Common Stock upon
consummation of the Merger will be, issued in violation of any preemptive rights
of the current or past shareholders of Parent.
7.6 AUTHORITY OF SUB. Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of California as a
wholly owned subsidiary of Parent. The authorized capital stock of Sub consists
of 1,000 shares of Sub Common Stock, of which 100 shares are validly issued and
outstanding, fully paid and nonassessable and is owned by Parent free and clear
of any Claims. Sub (a) has the corporate power and authority to execute,
deliver and perform this Agreement and the other Documents and to consummate the
transactions contemplated hereby and thereby and (b) has taken all necessary
corporate and shareholder action to authorize and approve the execution,
delivery and performance of this Agreement and the other Documents and the
consummation of the transactions contemplated hereby and thereby. This
Agreement and the other Documents have been duly and validly executed and
delivered by Sub and constitute valid and binding obligations of Sub,
enforceable against Sub in accordance with their terms.
7.7 DISCLOSURE STATEMENT. Parent's Disclosure Statement, dated June
25, 1998, which has been previously delivered to the Shareholders is true,
complete and correct in all material respects.
7.8 TAX AND REGULATORY MATTERS. Neither Parent nor any Affiliate
thereof has any knowledge of any fact or circumstance that is reasonably likely
to (i) prevent the Merger from qualifying as a reorganization within the meaning
of Section 368(a) of the Code, or (ii) materially impede or delay receipt of any
consents of any federal, state, county, local or other governmental or
regulatory agencies having jurisdiction over the parties or result in the
imposition of a condition or restriction of the type referred to in the last
sentence of Section 9.1(a).
7.9 BROKER'S OR FINDER'S FEES. Except as set forth on SCHEDULE 7.9,
no agent, broker, person or firm acting on behalf of Parent is, or will be,
entitled to any commission or broker's or finder's fees from Parent, or from any
person controlling, controlled by or under common control with Parent, in
connection with any of the transactions contemplated herein.
20
<PAGE>
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 FILINGS WITH STATE OFFICES. Upon the terms and subject to the
conditions of this Agreement, Company shall and Parent shall cause Sub to
execute and file the Agreement of Merger with the California Secretary of State
in connection with the Closing.
8.2 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms and
conditions of this Agreement, each party hereto agrees to use its reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things reasonably necessary, proper, or advisable under applicable
laws to consummate and make effective, as soon as reasonably practicable after
the date of this Agreement, the transactions contemplated by this Agreement,
including using its reasonable efforts to lift or rescind any order adversely
affecting its ability to consummate the transactions contemplated herein and to
cause to be satisfied the conditions referred to in Article 9; provided, that
nothing herein shall preclude either party hereto from exercising its rights
under this Agreement. Each party hereto shall use its reasonable efforts to
obtain all consents necessary or desirable for the consummation of the
transactions contemplated by this Agreement.
8.3 INVESTIGATION AND CONFIDENTIALITY.
(a) Prior to the Effective Time, each party hereto shall keep
the other party advised of all material developments relevant to its business
and to consummation of the Merger and shall permit the other party to make or
cause to be made such investigation of the business and properties of it and of
its financial and legal conditions as the other party reasonably requests,
provided that such investigation shall be reasonably related to the transactions
contemplated hereby and shall not interfere unnecessarily with normal
operations. No investigation by a party shall affect the representations and
warranties of the other party.
(b) Each party hereto shall, and shall cause its advisers and
agents to, maintain the confidentiality of all confidential information
furnished to it by the other party concerning its and its subsidiaries'
businesses, operations, and financial positions and shall not use such
information for any purpose except in furtherance of the transactions
contemplated by this Agreement. For purposes hereof, the term "confidential
information" does not include any information which at the time of disclosure to
the receiving party was or thereafter became publicly available or a matter of
public knowledge, without a breach of this Agreement by the receiving party, or
was disclosed by the receiving party pursuant to a requirement of law, or in
response to a court order, subpoena or governmental authority.
8.4 PRESS RELEASES. Prior to the Effective Time, Company and Parent
shall consult with each other as to the form and substance of any press release
or other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, that nothing in this Section 8.4
shall be deemed to prohibit any party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such party's disclosure
obligations imposed by law.
21
<PAGE>
8.5 NO SOLICITATION. Except with respect to this Agreement and the
transactions contemplated hereby, neither Company, nor any Shareholder, shall
solicit or enter into discussions with any third party, until the Effective
Date, (a) to purchase any shares of capital stock of Company or an option or
warrant to purchase shares of such capital stock or any securities convertible
into such capital stock, (b) to make an offer of any kind for any shares of such
capital stock, (c) purchase all or a substantial portion of the assets of
Company or (d) to merge, consolidate, engage in a share exchange or otherwise
combine with Company.
8.6 SHAREHOLDER RELEASES. Each Shareholder hereby releases and
forever discharges Company and its officers, directors, employees and insurers,
and their respective successors and assigns, and each of them (hereinafter
individually and collectively, the "Releasees") of and from any and all claims,
demands, debts, accounts, covenants, agreements, obligations, costs, expenses,
actions or causes of action of every nature, character or description, now
accrued or which may hereafter accrue, without limitation of law, equity or
otherwise, based in whole or in part on any facts, conduct, activities,
transactions, events or occurrences known or unknown, which have or allegedly
have existed, occurred, happened, arisen or transpired from the beginning of
time to the Effective Time; excluding, however, (i) claims arising under this
Agreement and the transactions contemplated hereby, and (ii) compensation and
other employee benefits accrued but not yet payable as reflected on the books
and records of Company (the "Released Claims"). Each Shareholder represents and
warrants that no Released Claim released herein has been assigned, expressly,
impliedly, or by operation of law, and that all Released Claims of such
Shareholder released herein are owned by such Shareholder, who has the sole
authority to release them. Each Shareholder agrees that such holder shall
forever refrain and forebear from commencing, instituting or prosecuting any
lawsuit action or proceeding, judicial, administrative, or otherwise, or
otherwise attempting to collect or enforce any Released Claims which are
released and discharged herein.
8.7 ACCOUNTING AND TAX TREATMENT. Each party undertakes and agrees to
use its reasonable efforts to cause the Merger to qualify for treatment as a
"reorganization" within the meaning of Section 368(a), including Section
368(a)(1)(A) and (a)(2)(D), of the Code for federal income tax purposes, and
each party covenants and agrees that each representation made by such party in
the certificates executed by or on behalf of such party and attached to the tax
opinion of Stites & Harbison referred to in Section 9.1(c) is true and correct.
Notwithstanding the foregoing, no party shall have any liability to any other
party in the event the Merger ultimately is determined not to qualify as a
"reorganization" within the meaning of Section 368(a) of the Code as a result of
a breach of any covenant or representation in such certificates by the
Shareholders.
8.8 CHARTER PROVISIONS. Company shall take all necessary action to
ensure that the entering into of this Agreement and the consummation of the
Merger and the other transactions contemplated hereby do not and will not result
in the grant of any rights to any Person under the Articles of Incorporation,
Bylaws or other governing instruments of Company or restrict or impair the
ability of Parent or any of its subsidiaries to vote, or otherwise to exercise
the rights of
22
<PAGE>
a shareholder with respect to, shares of Company that may be directly or
indirectly acquired or controlled by them.
8.9 CERTAIN TAX RETURNS OF COMPANY. The Shareholders shall cause to
be prepared and filed all income tax returns and the payment of all income taxes
of Company for the tax year ending on the Effective Date. Parent and Company
(and not the Shareholders) shall be responsible for the preparation and filing
of all income tax returns and the payment of all income taxes of Company for its
tax year beginning on the day after the Effective Date and all subsequent
periods.
8.10 LANDLORD CONSENTS. The Shareholders shall, on or before the
expiration of thirty (30) days after the Effective Date, use their best efforts
to cause Company to obtain from its landlords (to the extent required under the
pertinent premises lease) written consent to the assignment of said leases to
Sub which assignment is deemed to have resulted from the transactions
contemplated by this Agreement. Parent shall use its best efforts to cause the
Company's landlords to release the Shareholders' personal guaranties in
connection with the Company's performance under such leases.
8.11 Securities Act Compliance.
(a) As long as Parent is not subject to the reporting
requirements of the Exchange Act, Parent will comply with the "Current Public
Information" provisions of Rule 144(c)(2) and such other provisions as may be
reasonably necessary and appropriate to permit Shareholders to sell Parent
Common Stock under Rule 144 and other applicable rules and regulations
promulgated by the Commission.
(b) Parent covenants that, if it becomes subject to the
periodic reporting requirements of Section 13 or 15(d) of the Exchange Act, it
will file on a timely basis the reports required to be filed by Parent under the
1933 Act and the Exchange Act, and the rules and regulations adopted by the
Commission thereunder; and it will take such further action as any Shareholder
or any Shareholder's successors or assigns (each a "Holder") may reasonably
request, all to the extent required from time to time to enable such Holder to
sell the Parent Common Stock without registration under the 1933 Act within the
limitation of the exemptions provided by (i) Rule 144 under the 1933 Act, as
such Rule may be amended from time to time, or (ii) any similar rule or
regulation hereafter adopted by the Commission. Upon the reasonable request of
any Holder, Parent will deliver to such Holder a written statement as to the
status of the filings made by Parent with the Commission with copies of such
filings.
8.12 AUDITED FINANCIAL STATEMENTS. The Shareholders shall furnish to
Parent, as soon as practical and at Shareholders' expense, audited financial
statements of Company for the two (2) fiscal years ending December, 1997 and
1996 and the stub period ending on the Effective Date, as prepared by an
accounting firm selected by Parent; provided, however, that the Shareholders'
expenses associated with the performance of this audit shall be no more than
$22,000.
23
<PAGE>
8.13 TANGIBLE NET WORTH As soon as practicable, but within one hundred
and twenty days (120) days after the Effective Date, the Shareholders, at their
expense, shall cause Kellogg Cromwell, an independent accounting firm, to
prepare a balance sheet of Company as of the Effective Date (the "Effective Time
Balance Sheet") setting forth the Tangible Net Worth (defined below) of Company.
A copy of the Effective Time Balance Sheet shall be promptly furnished to
Parent. If Parent disagrees with the Tangible Net Worth, Parent shall engage an
independent public accounting firm, at its expense, to audit the Effective Time
Balance Sheet and deliver a certified written report to the Shareholders
confirming the Tangible Net Worth ("Audited Tangible Net Worth"). If the
Shareholders fail to notify Parent within fifteen (15) days after receiving the
report from the accounting firm selected by Parent, such report shall be deemed
accepted for purposes of calculating Tangible Net Worth. If the Shareholders
should so notify Parent of a dispute concerning Audited Tangible Net Worth,
Parent shall then engage a big-six independent accounting firm that is mutually
acceptable to Parent and the Shareholders to resolve such dispute and such firm
shall notify Parent and the Shareholders of its resolution of such dispute
within two weeks of its engagement by Parent. The cost of services provided by
such big-six accounting firm shall be borne equally by Parent and the
Shareholders. Any such resolution shall be final and binding on all parties
hereto for the purposes of calculating Tangible Net Worth. In the event the
Tangible Net Worth is less than $750,000, the Shareholders shall pay Parent, on
a dollar-for-dollar basis, the amount of any such deficit within thirty (30)
days following the later of its determination of the Tangible Net Worth,
Parent's audit or the resolution of any dispute by such big-six accounting firm.
In the event the Tangible Net Worth is greater than $750,000, the Parent shall
pay the Shareholders, on a dollar-for-dollar basis, the amount of any such
excess within thirty (30) days following the later of either Kellogg Cromwell's
determination of the Tangible Net Worth or the determination of Audited Tangible
Net Worth. For purposes of this Section, "Tangible Net Worth" shall mean the
net book value of Company on the Effective Date determined using accrual
accounting and in accordance with generally accepted accounting principles
applied on a consistent basis. Net book value shall be calculated by
subtracting the book value of all of the liabilities of Company from the book
value of all tangible assets of Company; provided, however, solely for the
purpose of computing the Tangible Net Worth of the Company under this Paragraph
8.13, that: (i) no depreciation shall be taken on the fixed assets for the year
1998; (ii) all contracts which are entered into prior to the Effective Date and
for which financing has been approved within thirty (30) days after the
Effective Date shall be included on the Effective Time Balance Sheet as an asset
of the Company and all costs associated with the performance of such contracts
shall be included on the Effective Time Balance Sheet as a liability of the
Company; (iii) any tax refunds owing to and payable to the Company after the
Effective Date, which are accruable within one hundred and twenty (120) days
after the Effective Date, shall be included on the Effective Time Balance Sheet
as an asset of the Company; and (iv) the full amount due and owing to Janice
Culp (the "Settlement Amount") under that certain Settlement Agreement and
General Release dated June 3, 1998 among Janice Culp, the Company and the
Shareholders, less any sum agreed to by the parties which reduces the Settlement
Amount, shall be accrued and reflected on the Effective Time Balance Sheet as a
liability of the Company. All payments made by either the Parent or the
Shareholder to the other, as provided hereunder, may be made in Parent Common
Stock. For purposes of this payment, Parent Common Stock shall have a value
equl to $9.83 per share.
24
<PAGE>
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each party to perform this Agreement and consummate the Merger
and the other transactions contemplated hereby are subject to the satisfaction
of the following conditions, unless waived by both parties:
(a) CONSENTS AND APPROVALS. Each party shall have obtained any
and all consents required for consummation of the Merger or for the preventing
of any default under any contract or permit of such party which, if not obtained
or made, is reasonably likely to have, individually or in the aggregate, a
material adverse effect on such party. No consent so obtained which is
necessary to consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner which in the reasonable judgment of the
Board of Directors of Parent or of the Shareholders would so materially
adversely impact the economic or business benefits of the transactions
contemplated by this Agreement that, had such condition or requirement been
known, such party would not, in its reasonable judgment, have entered into this
Agreement.
(b) LEGAL PROCEEDINGS. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any law or order (whether temporary, preliminary or
permanent) or taken any other action which prohibits, restricts or makes illegal
consummation of the transactions contemplated by this Agreement.
(c) TAX MATTERS. Each party shall have received a written
opinion of counsel from Stites & Harbison, in form reasonably satisfactory to
such parties (the "Tax Opinion"), to the effect that (i) the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code,
(ii) the exchange in the Merger of Company Common Stock for Parent Common Stock
will not give rise to gain or loss to the shareholders of Company with respect
to such exchange (except with respect to any cash received), and (iii) none of
Company, Sub or Parent will recognize gain or loss as a consequence of the
Merger (except for amounts resulting from any required change in accounting
methods). In rendering such Tax Opinion, such counsel shall be entitled to rely
upon representations of officers of Company, the Shareholders and Parent
reasonably satisfactory in form and substance to such counsel.
9.2 CONDITIONS TO OBLIGATIONS OF PARENT. The obligations of Parent to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by Parent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Company and the Shareholders herein contained shall be true in all
respects as stated herein, both when made and with the same effect as though
made again as of the Effective Time except to the extent of changes permitted by
the terms of this Agreement. Company and the Shareholders shall have performed
all obligations and complied with all covenants required by this Agreement to be
performed or complied with by Company and the Shareholders prior to the
Effective Time.
25
<PAGE>
(b) CERTIFICATES. Company and the Shareholders shall have
delivered to Parent (i) a certificate, dated as of the Effective Time and signed
on Company's behalf by its President/Secretary/Chief Financial Officer and Vice
President and signed by each Shareholder, to the effect that the conditions set
forth in Section 9.1 as relates to Company and the Shareholders and in Section
9.2(a) have been satisfied, and (ii) certified copies of resolutions duly
adopted by Company's Board of Directors and shareholders evidencing the taking
of all corporate action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as Parent and its counsel
shall request.
(c) TAX CLEARANCE. Company shall have delivered to Parent a
certificate of satisfaction from the California Franchise Tax Board stating that
all taxes imposed by the California Bank and Corporation Tax Law have been paid
or secured in a form acceptable to Parent and the California Secretary of State
in accordance with Section 1103 of the CGCL.
9.3 CONDITIONS TO OBLIGATIONS OF COMPANY AND SHAREHOLDERS. The
obligations of Company and the Shareholders to perform this Agreement and
consummate the Merger and the other transactions contemplated hereby are subject
to the satisfaction of the following conditions, unless waived by Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent herein contained shall be true in all respects as stated
herein, both when made and with the same effect as though made again as of the
Effective Time except to the extent of changes permitted by the terms of this
Agreement. Parent shall have performed all obligations and complied with all
covenants required by this Agreement to be performed or complied with by Parent
prior to the Effective Time.
(b) CERTIFICATES. Parent shall have delivered to Company and
the Shareholders (i) a certificate, dated as of the Effective Time and signed
on its behalf by its President and Secretary, to the effect that the conditions
set forth in Section 9.1 as relates to Parent and in Section 9.3(a) have been
satisfied, and (ii) certified copies of resolutions duly adopted by Parent's
Board of Directors and Sub's Board of Directors and sole shareholder evidencing
the taking of all corporate action necessary to authorize the execution,
delivery and performance of this Agreement, and the consummation of the
transactions contemplated hereby, all in such reasonable detail as Company,
Shareholders and their counsel shall request.
ARTICLE 10
INDEMNIFICATION
10.1 SURVIVAL. Except as set forth on SCHEDULE 3.6 hereto, all
representations and warranties in this Agreement and the other Documents shall
survive the Merger and any investigation at any time made by or on behalf of any
party for a period of three years and all such representations and warranties
shall expire on the third anniversary of the Effective Date, except that (a)
claims, if any, asserted in writing prior to such third anniversary identified
as a claim for indemnification pursuant to this Article 10 shall survive until
finally resolved and
26
<PAGE>
satisfied in full; and (b) tax or environmental claims arising from a breach
of Section 5.27 or Section 5.29, respectively, shall survive for the full
period of the applicable statute of limitations, and until finally resolved
and satisfied in full if asserted on or prior to the expiration of any such
period. The representations and warranties shall not be affected or
otherwise diminished by any investigation at any time by or on behalf of the
party for whose benefit such representations and warranties were made.
10.2 INDEMNIFICATION BY COMPANY AND SHAREHOLDERS. Subject to the terms
herein, Company and the Shareholders shall jointly and severally indemnify,
defend, and hold Parent and the respective officers, directors, and employees of
Parent, and their successors and assigns (the "Shareholders' Indemnitees")
harmless from, against and with respect to any claim, liability, obligation,
loss, damage, assessment, judgment, cost or expense of any kind or character,
including reasonable attorneys' fees (the "Damages"), arising out of or in any
manner incident, relating or attributable to:
(a) Any inaccuracy in any representation or breach of any
warranty of Company or the Shareholders contained in this Agreement;
(b) Any failure by Company or the Shareholders to perform or
observe, or to have performed or observed, in full, any covenant, agreement or
condition to be performed or observed by it under this Agreement;
(c) Reliance by Parent on any books or records of Company or
written information furnished to Parent pursuant to this Agreement by or on
behalf of Company or the Shareholders in the event that such books and records
or written information are false or otherwise materially inaccurate; or
(d) Liabilities or obligations of, or claims against, Company
or Parent (whether absolute, accrued, contingent or otherwise) relating to, or
arising out of, the operation of the business prior to the Effective Time or
facts and circumstances relating specifically to the business, the Leased
Parcels, or Company existing at or prior to the Effective Time, including but
not limited to matters set forth on SCHEDULE 5.26 and SCHEDULE 5.28, whether or
not such liabilities, obligations or claims were known on such date, excluding
only liabilities set forth in the Balance Sheet and liabilities and obligations
incurred since the date thereof in the ordinary course of business and
consistent with past practice.
Provided, however, the Shareholders' Indemnitees shall not be entitled to
indemnification or offset hereunder until Damages in total exceed $25,000 and
then only to the extent of aggregate Damages in excess of $25,000; PROVIDED
FURTHER, HOWEVER, such deductible shall not apply to any Damages arising from a
breach of Sections 5.27, 5.28, 5.29, 6.1, or 6.2, respectively. The
Shareholders' maximum liability under this Section 10.2 is set forth on SCHEDULE
3.6 hereto.
10.3 NOTICE TO SHAREHOLDERS, ETC. If any of the matters as to which
the Shareholders' Indemnitees are entitled to receive indemnification under
Section 10.2 should entail litigation with or claims asserted by parties
other than Company, Shareholders shall be given prompt
27
<PAGE>
notice thereof and shall have the right, at the Shareholders' expense, to
control such claim or litigation upon prompt notice to Parent of his election
to do so. To the extent requested by Shareholders, Parent, at its expense,
shall cooperate with and assist Shareholders, in connection with such claim
or litigation. Parent shall have the right to appoint, at its expense,
single counsel to consult with and remain advised by the Shareholders in
connection with such claim or litigation. Shareholders shall have final
authority to determine all matters in connection with such claim or
litigation; PROVIDED, HOWEVER, that Shareholders shall not settle any third
party claim without the consent of Parent, which shall not be unreasonably
denied or delayed.
10.4 INDEMNIFICATION BY PARENT. Parent shall indemnify, defend, and
hold the Shareholders and their heirs, executors and legal representatives
("Parent's Indemnitees") harmless from, against and with respect to any Damages,
arising out of or in any manner incident, relating or attributable to:
(a) Any inaccuracy in any representation or breach of warranty
of Parent contained in this Agreement;
(b) Any failure by Parent to perform or observe, or to have
performed or observed, in full, any covenant, agreement or condition to be
performed or observed by it under any of the Documents;
(c) Reliance by the Shareholders on any books or records of
Parent or reliance by the Shareholders on any written information furnished to
the Shareholders or Company pursuant to this Agreement by or on behalf of Parent
in the event that such books and records or written information are false or
otherwise materially inaccurate; and
(d) The operation of Company subsequent to the Effective Time.
Provided, however, Parent's Indemnitees shall not be entitled to
indemnification hereunder until Damages in total exceed $25,000 and then only to
the extent of aggregate damages in excess of $25,000. Parent's maximum
liability under this Section 10.4 is set forth on SCHEDULE 3.6 hereto.
10.5 NOTICE TO PARENT, ETC. If any of the matters as to which Parent's
Indemnitees are entitled to receive indemnification under Section 10.4 should
entail litigation with or claims asserted by parties other than Parent, Parent
shall be given prompt notice thereof and shall have the right, at its expense,
to control such claim or litigation upon prompt notice to the Shareholders of
its election to do so. To the extent requested by Parent, Shareholders, at the
expense of the Shareholders, shall cooperate with and assist Parent, in
connection with such claim or litigation. Shareholders shall have the right to
appoint, at their expense, single counsel to consult with and remain advised by
Parent in connection with such claim or litigation. Parent shall have final
authority to determine all matters in connection with such claim or litigation;
PROVIDED, HOWEVER, that Parent shall not settle any third party claim without
the consent of Shareholders, which shall not be unreasonably denied or delayed.
28
<PAGE>
10.6 SURVIVAL OF INDEMNIFICATION. Except as set forth on Schedule 3.6
hereto, the obligations to indemnify and hold harmless pursuant to this Article
10 shall survive the Effective Time of the Merger, for a period of three years,
notwithstanding any investigation at any time made by or on behalf of any party,
except that (a) claims, if any, asserted in writing prior to such third
anniversary identified as a claim for indemnification pursuant to this Article
10 shall survive until finally resolved and satisfied in full; and (b) tax or
environmental claims arising from a breach of Section 5.27 or Section 5.29,
respectively, shall survive for the full period of the applicable statute of
limitations, and until finally resolved and satisfied in full if asserted on or
prior to the expiration of any such period.
10.7 OFFSET. The Shareholders acknowledge and agree that Parent shall
be entitled to offset any indemnity claim under Section 10.2 against any payment
due to Shareholders under Section 3.6 hereunder. Neither the exercise of nor
the failure to give a notice of a Claim shall constitute an election of remedies
nor limit an Indemnitee in any manner in the enforcement of any other remedies
that may be available to it.
ARTICLE 11
MISCELLANEOUS
11.1 KNOWLEDGE OF COMPANY. Where any representation or warranty
contained in this Agreement is expressly qualified by reference to the best
knowledge of Company, Company confirms that it has made due and diligent inquiry
of its President and other officers as to the matters that are the subject of
such representation and warranty.
11.2 KNOWLEDGE OF PARENT. Where any representation or warranty
contained in this Agreement is expressly qualified by reference to the best of
knowledge of Parent, Parent confirms that it has made due and diligent inquiry
of its President and other officers as to the matters that are the subject of
such representations and warranties.
11.3 "PERSON" DEFINED. "Person" shall mean and include an individual,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or other department or agency thereof.
11.4 NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, shall be addressed to the receiving party's
address set forth below or to such other address as a party may designate by
notice hereunder, and shall be either (i) delivered by hand, (ii) sent by
recognized overnight courier, (iii) made by telecopy or facsimile transmission,
or (iv) sent by registered or certified mail, return receipt requested, postage
prepaid.
29
<PAGE>
If to Parent:
ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
Attn: Stephen A. Hoffmann, President
Fax No: (502) 425-5603
With a copy to:
Stites & Harbison
400 W. Market Street, Suite 1800
Louisville, Kentucky 40202
Attn: Ralston W. Steenrod, Esq.
Fax No: (502) 587-6391
If to Company:
Five Star Builders, Inc.
8445 Camino Santa Fe, Suite 103
San Diego, California 92121
Attn: President
Fax No: (619) 625-0044
If to Shareholders:
Bradley A. Smith
948 Olive Crest Drive
Encinitas, California 92024
And
Michael S. Haines
5225 Quakertown Avenue
Woodland Hills, California 91364
With a copy to:
Resch Polster Alpert & Berger LLP
10390 Santa Monica Blvd., Fourth Floor
Los Angeles, California 90025-5058
Attn: Aaron A. Grunfeld, Esq.
Fax No: (310) 552-3209
30
<PAGE>
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof
to the receiving party at the address of such party set forth above, (ii) if
sent by overnight courier, on the next business day following the day such
notice is delivered to the courier service, (iii) if made by telecopy or
facsimile transmission, at the time that receipt thereof has been
acknowledged by electronic confirmation or otherwise, or (iv) if sent by
registered or certified mail, on the fifth business day following the day
such mailing is sent. The address of any party herein may be changed at any
time by written notice to the parties.
11.5 ENTIRE AGREEMENT. This Agreement and the other Documents embody
the entire agreement and understanding between the parties hereto with respect
to the subject matter hereof and supersede all prior oral or written agreements
and understandings relating to the subject matter hereof. No statement,
representation, warranty, covenant or agreement of any kind not expressly set
forth in the other Documents shall affect, or be used to interpret, change or
restrict, the express terms and provisions of this Agreement.
11.6 MODIFICATIONS AND AMENDMENTS. The terms and provisions of this
Agreement may be modified or amended only by written agreement executed by all
parties hereto.
11.7 ASSIGNMENT/BINDING EFFECT. Neither this Agreement, nor any right
hereunder, may be assigned by any of the parties hereto without the prior
written consent of the other parties. This Agreement shall be binding upon,
and inure to the benefit of, the parties hereto and their respective heirs,
personal representatives, successors and permitted assigns.
11.8 PARTIES IN INTEREST. Nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement. Nothing in this
Agreement shall be construed to create any rights or obligations except among
the parties hereto, and no person or entity shall be regarded as a third-party
beneficiary of this Agreement.
11.9 GOVERNING LAW. This Agreement and the rights and obligations of
the parties hereunder shall be construed in accordance with and governed by the
internal laws of the State of California without giving effect to the conflict
of law principles thereof.
11.10 ARBITRATION. The parties hereto agree that any and all disputes,
claims or controversies arising out of or relating to this Agreement that are
not resolved by mutual agreement shall be submitted to final and binding
arbitration before JAMS/ENDISPUTE, or its successor, pursuant to the United
States Arbitration Act, 9 U.S.C. Sec. 1 et seq. Either party may commence the
arbitration process called for in this Agreement by filing a written demand for
arbitration with JAMS/ENDISPUTE, with a copy to the other party. The
arbitration will be conducted in accordance with the provisions of
JAMS/ENDISPUTE's COMPREHENSIVE ARBITRATION RULES AND PROCEDURES in effect at the
time of filing of the demand for arbitration. The parties will cooperate with
JAMS/ENDISPUTE and with one another in selecting an arbitrator from
JAMS/ENDISPUTE's panel of neutrals, and in scheduling the arbitration
proceedings. The parties covenant that they shall participate in the
arbitration in good faith, and that they shall
31
<PAGE>
share equally in its costs. The provisions of this Section may be enforced
by any Court of competent jurisdiction, and the party seeking enforcement
shall be entitled to an award of all costs, fees and expenses, including
attorneys fees, to be paid by the party against whom enforcement is ordered.
All arbitration proceedings shall be held in Los Angeles, California.
11.11 SEVERABILITY. In the event that any arbitral tribunal of
competent jurisdiction shall finally determine that any provision, or any
portion thereof, contained in this Agreement shall be void or unenforceable in
any respect, then such provision shall be deemed limited to the extent that such
arbitral tribunal determines it enforceable, and as so limited shall remain in
full force and effect. In the event that such arbitral tribunal shall determine
any such provision, or portion thereof, wholly unenforceable, the remaining
provisions of this Agreement shall nevertheless remain in full force and effect.
11.12 INTERPRETATION. The parties hereto acknowledge and agree that:
(i) the rule of construction to the effect that any ambiguities are resolved
against the drafting party shall not be employed in the interpretation of this
Agreement, and (ii) the terms and provisions of this Agreement shall be
construed fairly as to all parties hereto and not in favor of or against any
party, regardless of which party was generally responsible for the preparation
of this Agreement.
11.13 HEADINGS AND CAPTIONS. The headings and captions of the various
subdivisions of this Agreement are for convenience of reference only and shall
in no way modify, or affect, or be considered in construing or interpreting the
meaning or construction of any of the terms or provisions hereof.
11.14 RELIANCE. The parties hereto agree that, notwithstanding any
right of any party to this Agreement to investigate the affairs of any other
party to this Agreement, the party having such right to investigate shall have
the right to rely fully upon the representations and warranties of the other
party expressly contained herein.
11.15 EXPENSES. Each of Parent, Sub and the Shareholders shall pay its
own fees and expenses (including the fees of any attorneys, accountants,
appraisers or others engaged by such party) incurred in connection with this
Agreement and the transactions contemplated hereby whether or not the
transactions contemplated hereby are consummated. The Shareholders and not
Company, Parent or Sub shall pay the fees and expenses of Company (including the
fees of any attorneys, accountants, appraisers or others engaged by such party)
incurred in connection with this Agreement and the transactions contemplated
hereby whether or not the transactions contemplated hereby are consummated.
11.16 GENDER. All pronouns and any variation thereof shall be deemed to
refer to the masculine, feminine, neuter, singular, or plural as the identity of
the person or entity or the context may require.
11.17 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by different parties hereto on separate counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
32
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf as of the day and year first above written.
THERMOVIEW INDUSTRIES, INC.
By: /s/ Stephen A. Hoffmann
-----------------------------------
Stephen A. Hoffmann, President
THERMOVIEW MERGER CORP.
By: /s/ Stephen A. Hoffmann
-----------------------------------
Stephen A. Hoffmann, President
FIVE STAR BUILDERS, INC.
By: /s/ Bradley A. Smith
-----------------------------------
Bradley A. Smith, President
SHAREHOLDERS:
/s/ Bradley A. Smith
-----------------------------------
BRADLEY A. SMITH
/s/ Michael S. Haines
-----------------------------------
MICHAEL S. HAINES
33
<PAGE>
This ASSET PURCHASE AGREEMENT (this "Agreement") is entered into this 21st
day of July, 1998 by and among THERMOVIEW INDUSTRIES, INC. (the "Buyer"), a
Delaware corporation, NUVIEW INDUSTRIES, INC. (the "Seller"), a Missouri
corporation, and DOUGLAS E. MILES, an individual residing in St. Louis, Missouri
and the sole shareholders of the Seller ("Miles").
PRELIMINARY STATEMENTS:
The Seller is engaged in the business of designing, selling and installing
custom vinyl new and replacement thermal paned windows for the existing home
market (the "Business");
The Seller desires to sell or otherwise transfer certain of its assets and
the Business; and
The Buyer desires to purchase the Business through ThermoView of Missouri,
Inc., a Missouri corporation and wholly-owned subsidiary of the Buyer (the
"Subsidiary").
In consideration of these preliminary statements and the mutual covenants,
representations, warranties and agreements hereinafter set forth, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I. PURCHASE AND SALE OF ASSETS
SECTION 1.1 TRANSFER OF ASSETS.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time (as hereinafter defined) the Seller shall
transfer to the Buyer, free and clear of all claims, charges, liens, contracts,
rights, options, security interests, mortgages, encumbrances and restrictions
whatsoever (collectively, "Claims"), all of the assets, properties and rights
owned by the Seller or in which the Seller has any right or interest of every
type and description, real, personal and mixed, tangible and intangible,
confirmed or contingent (other than the Excluded Assets as hereinafter defined),
including, without limitation, business agreements, property, the Accounts
Receivable (as defined in Section 2.30), goodwill, supplier lists, customer
lists, prepaid insurance, licenses and permits, processes, service marks,
know-how, show-how, trade secrets, software (including, without limitation,
documentation and related source and object codes), licenses thereto, computers
and computer equipment, files and other records, systems and processes, security
deposits, contracts, arrangements and understandings, oral and written, formal
and informal, for work to be performed and/or services to be provided, real
estate and interests therein, leasehold and other improvements, machines,
machinery, equipment, furniture, fixtures, supplies, all rights and claims under
insurance policies and other contracts of whatever nature, all causes of action,
claims and demands of every nature relating to the Assumed Liabilities,
Contracts and Leases (as hereinafter defined), the right to use the name
<PAGE>
"NuView" or any derivative thereof, and all other assets, properties and rights
of every kind and nature owned by the Seller, whether or not specifically
referred to in this Agreement (collectively, the "Transferred Assets"), all with
the intention that the Business shall be transferred to the Buyer as a going
concern.
(b) Notwithstanding any provision of this Agreement to the
contrary, there shall be excluded from the Transferred Assets and retained by
the Seller the following assets (the "Excluded Assets"): (i) all cash on hand
and in banks (including all uncollected items); (ii) all other claims for
services provided to customers prior to the Effective Time; and (iii) all
contracts, arrangements and understandings which are not capable of being
transferred or assigned without the approval or consent of any party thereto
other than the Seller if such approval or consent has not been obtained,
subject, however, to Sections 1.3 and 5.1 herein.
(c) The Seller shall transfer the Transferred Assets to the Buyer
pursuant to a Bill of Sale in substantially the form of EXHIBIT A, an Assignment
and Assumption Agreement in substantially the form of EXHIBIT B, a Sublease
Agreement in substantially the form of EXHIBIT C, and such other documents and
instruments as the Buyer or its counsel may reasonably request.
(d) At any time and from time to time after the Closing Date, at
the request of the Buyer and without further consideration, the Seller shall
execute and deliver such other instruments of sale, transfer, conveyance,
assignment and confirmation as may be reasonably requested in order to more
effectively transfer, convey and assign to the Buyer and to confirm the Buyer's
title to the Transferred Assets.
SECTION 1.2 CONSIDERATION FOR THE TRANSFERRED ASSETS. In consideration
for the transfer of the Transferred Assets, upon the terms and subject to the
conditions set forth in this Agreement, the Buyer shall assume the Assumed
Liabilities pursuant to Section 1.3 hereof and shall make payments as follows:
(a) CLOSING PAYMENT. An initial payment of One Million One Hundred
Fifty Thousand Dollars ($1,150,000.00) shall be delivered to
the Seller in cash on the Closing Date (defined below) by
certified check;
(b) EARN OUT. Post closing earn out payments shall be paid if
earned as set forth on SCHEDULE 1.2(B) hereto.
SECTION 1.3 ASSUMPTION OF LIABILITIES. The only obligations and
liabilities to be assumed by the Buyer in connection with its acquisition of the
Transferred Assets (the "Assumed Liabilities") are the obligations and
liabilities specifically listed on SCHEDULE 1.3 and obligations and liabilities
arising from the operation of the Business after the Effective Date, including
obligations under executory contracts listed on SCHEDULE 1.3 arising from the
operation of the Business after the Effective Date (provided such contracts are
not in default
2
<PAGE>
and are assigned in writing by the Seller with the written consent of the
other party or parties thereto, if necessary, and are delivered to the Buyer
on or prior to the Effective Date).
The Buyer shall assume such obligations and liabilities pursuant to the
Assignment and Assumption Agreement substantially in the form of EXHIBIT B and
the Sublease Agreement substantially in the form of EXHIBIT C. The Seller shall
remain liable for the payment of all other liabilities and obligations which
accrue prior or subsequent to the Effective Date. Except for the Assumed
Liabilities in the amount and to the extent provided in this Section 1.3, the
Buyer shall not assume or be responsible for any other liabilities or
obligations which relate in any manner to the operation of the Business prior to
the Effective Date, and the Seller shall indemnify, defend, and hold the Buyer
harmless from all of such obligations and liabilities as set forth in
Section 9.2 below. Operating expenses, including without limitation rent
payable under real estate and equipment leases, staff commissions, unpaid
vacation and holiday pay and rebates to customers for which bills are received
or payment became due after the Effective Date with respect to periods both
prior to and after the Effective Date will be allocated to each of the Seller
and the Buyer on a pro-rata basis according to the ratio of pre-Effective Time
days to post-Effective Time days; promptly upon receipt of notice from the Buyer
of amounts so allocated to the Seller, the Seller shall remit full payment
therefor to the Buyer.
SECTION 1.4 ALLOCATION OF PURCHASE PRICE. The considerations paid and the
liabilities assumed by the Buyer pursuant to Sections 1.2 and 1.3 above shall be
allocated among the Transferred Assets purchased hereunder as set forth on
SCHEDULE 1.4 attached hereto. The Seller and the Buyer each hereby covenant and
agree that neither of them will take a position on any income tax return, before
any governmental agency, or in any judicial proceeding that is in any way
inconsistent with the allocation set forth on SCHEDULE 1.4. Each party shall
duly and timely file Form 8594 with its appropriate tax returns.
SECTION 1.5 NET CURRENT ASSETS. As soon as practicable but within thirty
(30) days after the Closing Date, the Seller, at its expense, shall cause Connor
Ash P.C., an independent accounting firm, to prepare a balance sheet of the
Seller immediately prior to the Effective Time (the "Effective Time Balance
Sheet") setting forth the net current assets of the Seller using accrual
accounting and in conformance with generally accepted accounting principles (the
"Net Current Assets"). A copy of the Effective Time Balance Sheet shall be
promptly furnished to the Buyer. If the Buyer disagrees with the Net Current
Assets, the Buyer shall engage Coopers & Lybrand, an independent public
accounting firm, at its expense, to audit the Effective Time Balance Sheet and
deliver a certified written report to the Seller confirming the Net Current
Assets ("Audited Net Current Assets"). If the Seller fails to notify the Buyer
within fifteen (15) days after receiving the Coopers & Lybrand report, such
report shall be deemed accepted for purposes of calculating Net Current Assets.
If the Seller should so notify the Buyer of a dispute concerning Audited Net
Current Assets, the Buyer shall then engage another big-six independent
accounting firm that is mutually acceptable to the Buyer and the Seller to
resolve such dispute and such firm shall notify the Buyer and the Seller of its
resolution of such dispute within two weeks of its engagement by
3
<PAGE>
the Buyer. The cost of services provided by such big-six accounting firm
shall be borne equally by the Buyer on one hand and the Seller on the other.
Any such resolution shall be final and binding on all parties hereto for the
purposes of calculating Net Current Assets. In the event the amount of Net
Current Assets is less than $50,000, the Seller shall pay such deficit amount
to the Buyer on a dollar-for-dollar basis within thirty (30) days following
the later of its determination of the Net Current Assets, the Buyer's audit
or the resolution of any dispute by such big-six accounting firm. In the
event the amount of the Net Current Assets is greater than $50,000, the Buyer
shall pay such excess amount on a dollar-for-dollar basis to the Seller
within thirty (30) days following the later of either Connor Ash P.C.'s
determination of the Net Current Assets or the determination of Audited Net
Current Assets. For purposes of this Section 1.5, "Net Current Assets" shall
mean the current assets of the Seller at the Effective Time determined in
accordance with generally accepted accounting principles applied on a
consistent basis. Net current assets shall be calculated by subtracting the
book value of all of the current liabilities of the Seller from the book
value of all current tangible assets of the Seller.
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE SELLER
As an inducement to the Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, the Seller represents and
warrants to the Buyer as follows:
SECTION 2.1 ORGANIZATION AND QUALIFICATION. The Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Missouri. The nature of the Business or the Transferred Assets does
not require the Seller to be licensed or qualified in any other jurisdiction.
The Seller has made available to the Buyer complete and correct copies of the
Articles of Incorporation and By-laws of the Seller as currently in effect.
SECTION 2.2 CORPORATE POWER AND AUTHORITY. The Seller has the corporate
power and authority to own and hold its properties and to carry on its business
as now conducted, including the right to use the corporate name "NuView
Industries." The Seller (a) has the corporate power and authority to execute,
deliver and perform this Agreement and the Exhibits and to deliver the Schedules
hereto and the other documents and instruments contemplated hereby (collectively
this Agreement, the Exhibits and Schedules hereto, and the other documents and
instruments contemplated hereby shall constitute the "Documents") and to
consummate the transactions contemplated hereby and thereby and (b) has taken
all necessary corporate and shareholder action to authorize and approve the
execution, delivery and performance of this Agreement and the other Documents
and the consummation of the transactions contemplated hereby and thereby. This
Agreement and the other Documents have been duly and validly executed and
delivered by the Seller and constitute valid and binding obligations of the
Seller, enforceable against the Seller in accordance with their terms.
4
<PAGE>
SECTION 2.3 VALIDITY, ETC. Except as set forth on SCHEDULE 2.3, neither
the execution and delivery of this Agreement or the other Documents, the
consummation of the transactions contemplated hereby or thereby, nor the
performance of this Agreement or the other Documents and such other agreements
in compliance with the terms and conditions hereof and thereof by the Seller
will (i) violate, conflict with or result in any breach of any trust agreement,
Articles of Incorporation, bylaw, judgment, decree, order, statute or regulation
applicable to the Seller, (ii) violate, conflict with or result in a breach,
default or termination or give rise to any right of termination, cancellation or
acceleration of the maturity of any payment date of any of the obligations of
the Seller or increase or otherwise affect the obligations of the Seller under
any law, rule, regulation or any judgment, decree, order, governmental permit,
license or order or any of the terms, conditions or provisions of any mortgage,
indenture, note, license, agreement or other instrument or obligation related to
the Seller or to the Seller's ability to consummate the transactions
contemplated hereby or thereby, except for such defaults (or rights of
termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained in writing and provided to the Buyer, (iii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
the Seller or (iv) result in the creation of any Claim upon the Transferred
Assets.
SECTION 2.4 SUBSIDIARIES AND INVESTMENTS. The Seller has no subsidiaries
and does not own, directly or indirectly, any capital stock or other equity or
ownership or proprietary interest in any other corporation, partnership,
association, trust, joint venture or other entity.
SECTION 2.5 BOOKS AND RECORDS. The minute books of the Seller, which have
been and will be made available to the Buyer and its representatives, contain
accurate records of all meetings of and corporate actions or written consents by
the shareholders and Board of Directors of the Seller set forth in such minute
books.
SECTION 2.6 FINANCIAL STATEMENTS. The Seller has previously furnished to
the Buyer, and attached hereto as SCHEDULE 2.6 are, the compiled balance sheet
of the Seller as at December 31, 1997, the related compiled income statement for
the fiscal year and three months ended December 31, 1997, and the unaudited
balance sheet (the "Balance Sheet") of the Seller as at June 8, 1998 (the
"Balance Sheet Date") and the related unaudited income statement for the five
months and eight days then ended. Except as set forth on SCHEDULE 2.6 hereto,
all such financial statements (the "Financial Statements") have been prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied and were prepared from the books and records of the Seller. Such books
and records are complete and correct in all material respects, accurately
reflect all transactions of the business of the Seller, and have been made
available to the Buyer for examination. The Financial Statements fairly present
the financial position of the Seller as of the dates thereof and the results of
its operations and cash flows for the periods ended on the dates thereof. The
Financial Statements reflect reserves appropriate and adequate for all known
material liabilities and reasonably anticipated losses as required by GAAP.
Since the Balance Sheet Date, (i) there has been no change in the assets,
liabilities or financial condition of the Seller from that reflected in the
Balance Sheet except for changes in the ordinary course of business
5
<PAGE>
consistent with past practice and which have not been materially adverse, and
(ii) none of the business, prospects, financial condition, operations,
property or affairs of the Seller has been materially adversely affected by
any occurrence or development, individually or in the aggregate, whether or
not insured against. The Seller has disclosed to the Buyer all material facts
relating to the preparation of the Financial Statements.
SECTION 2.7 ABSENCE OF UNDISCLOSED LIABILITIES.
(a) Except as and to the extent of the amounts specifically
reflected or reserved against in the Balance Sheet, or except as set forth on
SCHEDULE 2.7, the Seller has no liabilities or obligations of any nature
whatsoever due or to become due, accrued, absolute, contingent or otherwise,
except for liabilities and obligations incurred since the date thereof in the
ordinary course of business and consistent with past practice. The Seller does
not know of, and has no reason to know of, any basis for the assertion against
the Seller of any liability or obligation not fully reflected or reserved
against in the Balance Sheet.
(b) The Seller is not bound by any agreement, or subject to any
charter or other corporate restriction or any legal requirement, which has, or
in the future can reasonably be expected to have, a material adverse effect on
the business or prospects of the Seller.
SECTION 2.8 EMPLOYMENT AND LABOR MATTERS.
(a) SCHEDULE 2.8 lists all non-temporary employees and officers of
the Seller on the date hereof, along with the amount of the current annual
salaries and total compensation paid or due for services to each non-temporary
employee or officer for the most recent fiscal year end and the year to date,
and a full and complete description of any commitments to such non-temporary
employees and officers with respect to compensation payable thereafter. To the
best knowledge of the Seller, no key employee or group of employees has any
plans to terminate employment with the Seller.
(b) The Seller is not a party to or bound by any collective
bargaining agreement with any labor organization, group or association covering
any of its employees, and the Seller has no knowledge of any attempt to organize
the Seller's employees by any Person, unit or group seeking to act as their
bargaining agent. There are no pending or, to the best knowledge of the Seller,
threatened charges (by employees, their representatives or governmental
authorities) of unfair labor practices or of employment discrimination or of any
other wrongful action with respect to any aspect of employment of any person
employed or formerly employed by the Seller. No union representation election
relating to employees of the Seller has been scheduled by any governmental
agency or authority, no organizational effort is being made with respect to any
of such employees, and there is no investigation of the Seller's employment
policies or practices by any governmental agency or authority pending or
threatened. The Seller is not currently, nor has it been, involved in labor
negotiations with any unit or group seeking to become the bargaining unit for
any employees
6
<PAGE>
of the Seller. The Seller has not experienced any material work stoppages,
and to the best knowledge of the Seller, no work stoppage is planned.
SECTION 2.9 REAL PROPERTY. The Seller owns no real property.
SECTION 2.10 POWERS OF ATTORNEY; ABSENCE OF LIMITATIONS ON COMPETITION;
GUARANTEES. Except as set forth in SCHEDULE 2.10, (i) no power of attorney or
similar authorization given by the Seller presently is in effect or outstanding;
(ii) no contract or agreement to which the Seller is a party or is bound or to
which the Seller's properties or assets are subject limits the freedom of the
Seller to compete in any line of business or with any Person; and (iii) the
Seller is not a party to or bound by any guarantee of any debt or obligation of
any other Person.
SECTION 2.11 SIGNIFICANT SUPPLIERS. Set forth on SCHEDULE 2.11 is a true
and correct list of Seller's ten largest suppliers for the most recent twelve
(12) month period ending December 31, 1997 and for the four (4) month period
ending April 30, 1998, together with the amount attributable to such suppliers
expressed in dollars and as a percentage of total supplies purchased. None of
the suppliers identified on SCHEDULE 2.11 has terminated, materially reduced or
threatened to terminate or materially reduce its supplies to Seller during the
period covered by such schedule.
SECTION 2.12 GOVERNMENTAL APPROVALS. No registration or filing with, or
consent or approval of or other action by, any Federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Seller of this Agreement.
SECTION 2.13 ABSENCE OF ADVERSE CHANGE; CONDUCT OF BUSINESS. During the
period from the Balance Sheet Date to and including the date of this Agreement,
except as set forth on SCHEDULE 2.13, the Seller has not (i) borrowed or agreed
to borrow any material amount of funds or incurred any liability or obligation
of any nature (whether accrued, absolute, contingent or otherwise), or
guaranteed or agreed to guarantee any obligations of others, (ii) canceled any
indebtedness owing to it or any claims that it might have possessed, waived any
material rights of substantial value or sold, leased, encumbered, transferred or
otherwise disposed of, or agreed to sell, lease, encumber, or otherwise dispose
of its assets or permitted any of its assets to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction or charge of any kind,
(iii) made any capital expenditure or commitment therefor, (iv) increased its
indebtedness for borrowed money or made any loan to any Person, (v) written off
as uncollectible any notes or accounts receivable, except write-offs in the
ordinary course of business charged to applicable reserves, (vi) made any
material change in any method of accounting or auditing practice, (vii)
otherwise conducted its business or entered into any transaction, except in the
usual and ordinary manner, or (viii) agreed, whether or not in writing, to do
any of the foregoing.
7
<PAGE>
SECTION 2.14 CERTAIN PRACTICES. None of the Seller, the Seller's
directors or officers, or to the best knowledge of the Seller, the Seller's
employees have, directly or indirectly, used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful expenses relating to
political activity; made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or campaigns
from corporate funds; violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended; established or maintained any unlawful or unrecorded
fund of corporate monies or other assets; made any false or fictitious entry on
the books or records of the Seller or any subsidiary; made any bribe, rebate,
payoff, influence payment, kickback, or other unlawful payment; given any favor
or gift which is not deductible for federal income tax purposes; or made any
bribe, kickback, or other payment of a similar or comparable nature, whether
lawful or not, to any person or entity, private or public, regardless of form,
whether in money, business or to obtain special concessions, or to pay for
favorable treatment for business secured or for special concessions already
obtained.
SECTION 2.15 COMPLIANCE WITH LAW; LICENSES AND PERMITS. Except as set
forth on SCHEDULE 2.15, the Seller has complied in all material respects with
all laws, ordinances, legal requirements, rules, regulations and orders
applicable to it, its operations, properties, assets, products and services.
Except as set forth on SCHEDULE 2.15, there is no existing law, rule, regulation
or order, and the Seller is not aware of any proposed law, rule, regulation or
order, whether Federal, state or local, which would prohibit or materially
restrict the Buyer from, or otherwise materially adversely affect the Buyer in,
conducting the Business in the manner heretofore conducted by the Seller in any
jurisdiction in which the Business is now conducted. The Seller possesses all
franchises, permits, licenses, certificates and consents required from any
governmental or regulatory authority in order for the Seller to carry on its
business as currently conducted and to own and operate its properties and assets
as now owned and operated and all of such licenses and permits are set forth on
SCHEDULE 2.15.
SECTION 2.16 EMPLOYEE BENEFITS.
(a) Set forth on SCHEDULE 2.16 is a list of all pension, profit
sharing, retirement, deferred compensation, stock purchase, stock option,
incentive, bonus, vacation, severance, disability, hospitalization, medical
insurance, life insurance, fringe benefit, welfare and other employee benefit
plans, programs or arrangements pursuant to which the Seller or its ERISA
Affiliates provides (directly or indirectly, individually or jointly through
others) benefits or compensation to or on behalf of employees or independent
contractors or former employees or former independent contractors of the Seller
or its ERISA Affiliates, whether formal or informal, whether or not written
("Employee Plan"). Except as set forth on SCHEDULE 2.16, the Buyer shall not
have any obligation or liability of any kind or nature for any compensation or
benefits of any kind or nature to the employees or consultants of the Seller for
services rendered prior to the Effective Date.
(b) Each Employee Plan covering any present or former employee of
the Seller which is subject to the continuation health coverage requirements of
Section 4980B of
8
<PAGE>
the Code or Section 601 of ERISA or any applicable state law has complied
with all such requirements for continuation coverage.
(c) There are no actions, suits or claims pending (other than
routine claims for benefits) or threatened against or with respect to any
Employee Plan or the assets of any Employee Plan.
(d) Each Employee Plan (and the related trust or funding vehicle,
if any) has been administered and maintained in accordance with its terms and
with applicable law. Except as set forth on SCHEDULE 2.16(d), each Employee
Plan which is intended to be qualified under Section 401 of the Code and each
amendment to such plan is subject to a favorable determination letter from the
Internal Revenue Service ("IRS") and each such plan has at all times been
maintained, by its terms and in operation, in accordance with Section 401 of the
Code. The assets of each Employee Plan which is not funded through the general
assets of the Seller are at least equal to the liabilities under such Employee
Plan, and all assets of each Employee Plan are shown on the books and records of
such Employee Plan at fair market value. No Employee Plan has unfunded
liabilities that as of the Effective Time are not accurately and fully reflected
on the Seller's Balance Sheet.
(e) Neither the Seller nor any of its ERISA Affiliates is or has
been a participant in, or is or has been obligated to maintain or to make
contributions to, a multi-employer plan (within the meaning of ERISA Section
3(37) and ERISA Section 4001(a)(3)) or an Employee Plan which is subject to
Title IV of ERISA. Neither the Seller nor any ERISA Affiliate has sponsored,
contributed to or been obligated under Title I or IV of ERISA to contribute to a
"defined benefit plan" (as defined in ERISA Section 3(35)). The Seller is not
obligated to provide post-retirement medical benefits or any other unfunded
post-retirement welfare benefits to or on behalf of any persons whatsoever
(except the benefits pursuant to the continuation health coverage requirements
under Section 4980B of the Code, ERISA Section 601, or applicable state law).
(f) Neither the Seller nor its ERISA Affiliates is subject to and,
to the best knowledge of the Seller, no facts exist which could subject the
Seller or any of its ERISA Affiliates to, any liability whatsoever which is
directly or indirectly related to any Employee Plan, including, but not limited
to, liability for benefit payments or related claims, any liability for any tax
or related penalty under the Code, or liability for any damages or penalties
arising under Title I or Title IV of ERISA. No reportable event under Section
4043 of ERISA has occurred or, to the best knowledge of the Seller, will occur
with respect to such Employee Plan.
(g) Termination of or withdrawal from any Employee Plan immediately
after the Effective Time would not subject the Buyer to any liability, tax or
penalty whatsoever.
9
<PAGE>
(h) The execution or performance of the transactions contemplated
by this Agreement will not create, accelerate or increase any obligations under
the Employee Plans, including any obligation to make any payment which would not
be deductible as an excess golden parachute payment under Section 280G of the
Code.
(i) All contributions to or under each Employee Plan and all
expenses of each Employee Plan are fully deductible for income tax purposes for
the taxable year for which such contributions are made or such expenses are
paid. All contributions to or under each Employee Plan have been made when due
under the terms of such Employee Plan in accordance with applicable law.
(j) For purposes of this Section 2.16, the term "ERISA" shall mean
the Employee Retirement Income Security Act of 1974, as amended, and the term
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Seller is treated as a single employer
under Section 414(b), (c), (m), (o) or (t) of the Code.
SECTION 2.17 FIXED ASSETS. SCHEDULE 2.17 contains a true and complete
list of all of the Transferred Assets which are fixed assets with a net book
value of greater than $1,000.00, whether owned or leased. Except as shown on
SCHEDULE 2.17, the Seller has good and marketable title to all of its fixed
assets, free and clear of all claims, liens, mortgages, charges and encumbrances
except as disclosed in the Balance Sheet. All of the Seller's fixed assets,
whether owned or leased, are adequate and usable for the purposes for which they
are currently used, are in good operating condition and repair and have been
properly maintained.
SECTION 2.18 INSURANCE. The Seller is, and will be through the Effective
Date, insured with insurers in respect of its properties, assets and businesses
as set forth on the attached SCHEDULE 2.18. SCHEDULE 2.18 lists the insurance
coverage carried by the Seller, which insurance will remain in full force and
effect with respect to all events occurring prior to the Effective Date. Except
as set forth on SCHEDULE 2.18, the Seller (i) has not failed to give any notice
or present any claim under any such policy or binder in due and timely fashion,
(ii) has not received notice of cancellation or non-renewal of any such policy
or binder, (iii) is not aware of any threatened or proposed cancellation or
non-renewal of any such policy or binder, (iv) has not received notice of any
insurance premium which will be materially increased in the future, and (v) is
not aware of any insurance premium which will be materially increased in the
future. There are no outstanding claims under any such policy which have gone
unpaid for more than 45 days, or as to which the insurer has disclaimed
liability.
SECTION 2.19 OUTSTANDING CONTRACTS. SCHEDULE 2.19 sets forth a
description of all existing contracts, agreements, leases, commitments, licenses
and franchises, which involve obligations or commitments by the Seller of
$10,000 or more and are not cancelable by the Seller without penalty within 30
days (collectively "Contracts"), whether written or oral,
10
<PAGE>
relating to the Seller. The Seller has delivered or made available to the
Buyer true, correct and complete copies of all of the Contracts specified on
SCHEDULE 2.19 which are in writing, and such schedule sets forth a complete
description of all Contracts which are not in writing. All of the Contracts
are in full force and effect and enforceable in accordance with their terms,
except to the extent that the enforceability thereof may be subject to or
affected by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, or other laws relating to or affecting the rights
of creditors generally. Except as set forth on SCHEDULE 2.19, the Seller
and, to the best knowledge of the Seller, each other party thereto has
materially performed all the obligations required to be performed by it, has
received no notice of default and is not in default (with due notice or lapse
of time or both) under any of the Contracts. The Seller has no present
expectation or intention of not fully performing all its obligations under
each of the Contracts, and the Seller has no knowledge of any breach or
anticipated breach by the other party to any of the Contracts to which the
Seller is a party. Except as set forth on SCHEDULE 2.19, none of the
Contracts has been terminated; no notice has been given by any party thereto
of any alleged default by any party thereunder; and the Seller is not aware
of any intention or right of any party to declare another party to any of the
Contracts to be in default. Except as set forth on SCHEDULE 2.19, there
exists no actual or, to the best knowledge of the Seller, threatened
termination, cancellation or limitation of the business relationship of the
Seller by any party to any of the Contracts.
SECTION 2.20 OUTSTANDING LEASES. SCHEDULE 2.20 sets forth a description
of each agreement by which the Seller leases each parcel of real property (the
"Leased Parcels") used in connection with the Business (collectively, the
"Leases"). The Seller has delivered or made available to the Buyer true,
correct and complete copies of all of the Leases specified on SCHEDULE 2.20.
All rents due under the Leases have been paid. All of the Leases are in full
force and effect and enforceable in accordance with their terms, except to the
extent that the enforceability thereof may be subject to or affected by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, or other laws relating to or affecting the rights of creditors
generally. Except as set forth on SCHEDULE 2.20, the Seller and to the best
knowledge of the Seller, each other party thereto has performed all the
obligations required to be performed by it, has received no notice of default
and is not in default (with due notice or lapse of time or both) under any of
the Leases. The Seller has no present expectation or intention of not fully
performing all its obligations under each of the Leases, and the Seller has no
knowledge of any breach or anticipated breach by the other party to any of the
Leases. Except as set forth on SCHEDULE 2.20, none of the Leases has been
terminated; no notice has been given by any party thereto of any alleged default
by any party thereunder; and the Seller is not aware of any intention or right
of any party to declare another party to any of the Leases to be in default.
There exists no actual or, to the best knowledge of the Seller, threatened
termination, cancellation or limitation of the business relationship of the
Seller with any party to any of the Leases.
SECTION 2.21 INTELLECTUAL PROPERTIES. SCHEDULE 2.21 contains an accurate
and complete list of all domestic and foreign letters patent, patents, patent
applications, patent licenses, software licenses and know-how licenses, trade
names, trademarks, copyrights,
11
<PAGE>
unpatented inventions, service marks, trademark registrations and
applications, service mark registrations and applications and copyright
registrations and applications, trade secrets or other confidential
proprietary information owned or used by the Seller in the operation of the
Business (collectively the "Intellectual Property"). Except as set forth on
SCHEDULE 2.21 and except for commercial software licensed for use on personal
computers, the Seller owns the entire right, title and interest in and to the
Intellectual Property, trade secrets and technology used in the operation of
its business and each item constituting part of the Intellectual Property and
trade secrets and technology which is owned by the Seller has been, to the
extent indicated in SCHEDULE 2.21, duly registered with, filed in or issued
by, as the case may be, the United States Patent and Trademark office or such
other government entities, domestic or foreign, as are indicated in SCHEDULE
2.21 and such registrations, filings and issuances remain in full force and
effect. There have been and are no pending or, to the best knowledge of the
Seller, threatened proceedings or litigation or other adverse claims
affecting or with respect to the Intellectual Property. There is, to the
best knowledge of the Seller, no reasonable basis upon which a claim may be
asserted against the Seller for infringement of any domestic or foreign
letters patent, patents, patent applications, patent licenses and know-how
licenses, trade names, trademark registrations and applications, common law
trademarks, service marks, service mark registrations or applications,
copyrights, copyright registrations or applications, trade secrets or other
confidential proprietary information. To the best knowledge of the Seller, no
Person is infringing the Intellectual Property.
SECTION 2.22 PROPRIETARY INFORMATION OF THIRD PARTIES. Except as
disclosed on SCHEDULE 2.22, no third party has claimed or, to the best knowledge
of the Seller, has reason to claim that any Person employed by or consulting
with the Seller ("Related Person") has (i) violated or may be violating any of
the terms or conditions of such person's employment, non-competition or
non-disclosure agreement with such third party, (ii) disclosed or may be
disclosing or utilized or may be utilizing any trade secret or proprietary
information or documentation of such third party, or (iii) interfered or may be
interfering in the employment relationship between such third party and any of
its present or former employees. No third party has requested information from
the Seller which suggests that such a claim might be contemplated. Except as
disclosed on SCHEDULE 2.22, to the best knowledge of the Seller, no Related
Person has employed or proposes to employ any trade secret or any information or
documentation proprietary to any former employer and no Related Person has
violated any confidential relationship which such person may have had with any
third party, in connection with the development or sale of any service of the
Seller, and the Seller has no reason to believe there will be any such
employment or violation.
SECTION 2.23 TRANSACTIONS WITH AFFILIATES. No director, officer or
shareholder of the Seller, or member of the family of any such person, or any
corporation, partnership, trust or other entity in which any such person, or any
member of the family of any such person, has a beneficial interest greater than
5% or is an officer, director, trustee, partner or holder of any equity interest
greater than 5%, is a party to any transaction with the Seller, including any
contract, agreement or other arrangement providing for the employment of,
12
<PAGE>
furnishing of services by, rental of real or personal property from or otherwise
requiring payments or involving other obligations to any such person or firm.
SECTION 2.24 TAXES. The Seller has timely filed a valid election to be
treated as an S corporation in accordance with the provisions of Section 1361 of
the Code, effective for its tax year ended December 31, 1995 and has qualified
and continues to qualify as an S corporation for all years and periods
thereafter through and including the close of business on the Closing Date. The
Seller is not and has not been subject to the built-in gains tax under Section
1374 of the Code or to the tax on passive income under Section 1375 of the Code.
SCHEDULE 2.24 lists all the states and localities with respect to which the
Seller is required to file any corporate, income and/or franchise tax returns
and sets forth whether the Seller is treated as the equivalent of an S
corporation by or with respect to each such state and/or locality. Except as
set forth on SCHEDULE 2.24, all federal, state, local and foreign tax returns
and tax reports required to be filed by the Seller on or before the date hereof
have been timely filed with the appropriate governmental agencies in all
jurisdictions in which such returns and reports are required to be filed and all
amounts shown as owing thereon have been paid. All taxes (including, without
limitation, income, accumulated earnings, property, sales, use, franchise,
excise, license, value added, fuel, employees' income withholding and social
security taxes) which have become due or payable or are required to be collected
by the Seller or are otherwise attributable to any periods ending on or before
the Closing Date and all interest and penalties thereon, whether disputed or
not, have been paid or will be paid in full or adequately reflected on the
Balance Sheet or the Seller's books and records in accordance with generally
accepted accounting principles on or prior to the Closing Date. Except as set
forth on SCHEDULE 2.24, all deposits required by law to be made by the Seller
with respect to employees' withholding taxes have been duly made, and as of the
Closing Date all such deposits due will have been made. The Seller has
delivered to the Buyer true and complete copies of all of the Seller's federal
and state income tax returns for the fiscal periods ended December 31, 1997,
1996 and 1995 and all reports and results of income tax audits, if any, related
thereto. Except as set forth on SCHEDULE 2.24, no examination of any tax return
of the Seller is currently in progress. There are no outstanding agreements or
waivers extending the statutory period of limitations applicable to any such tax
return.
SECTION 2.25 LITIGATION. Except as set forth on SCHEDULE 2.25, there is
no (i) action, suit, claim, proceeding or investigation pending or, to the best
knowledge of the Seller, threatened against or affecting the Seller (whether or
not such Seller is a party or prospective party thereto), at law or in equity,
or before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
(ii) arbitration proceeding pending relating to the Seller or (iii) governmental
inquiry pending or threatened against or involving the Seller, and there is no
basis for any of the foregoing. The Seller has not received any opinion or
memorandum or legal advice from legal counsel to the effect that it is exposed,
from a legal standpoint, to any liability or disadvantage which may be material
to the business, prospects, financial condition, operations, property or affairs
of the Seller. There are no outstanding orders, writs, judgments, injunctions
or decrees served upon the Seller by any court, governmental
13
<PAGE>
agency or arbitration tribunal against the Seller. There are no facts or
circumstances which may result in institution of any action, suit, claim or
legal, administrative or arbitration proceeding or investigation against,
involving or affecting the Seller or the transactions contemplated hereby.
The Seller is not in default with respect to any order, writ, injunction or
decree known to or served upon it from any court or of any federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign. Except as disclosed on SCHEDULE
2.25, there is no action or suit by the Seller pending or threatened against
others.
SECTION 2.26 ENVIRONMENTAL MATTERS.
(a) COMPLIANCE. The Seller and all Leased Parcels are in
compliance with all applicable laws, rules, regulations, orders, ordinances,
judgments and decrees of all governmental authorities with respect to all
environmental statutes, rules and regulations. Except as set forth on
SCHEDULE 2.26, the Seller has not received notice of, nor does the Seller have
knowledge of, any past, present or future events, conditions, circumstances,
activities, practices, incidents, actions or plans of the Seller or the Seller's
predecessors, either collectively, individually or severally, which may
interfere with or prevent continued compliance with, or which may give rise to
any common law or legal liability or otherwise form the basis of any claim,
action, suit, proceeding, hearing, or investigation, based on or related to the
disposal, storage, handling, manufacture, processing, distribution, use,
treatment or transport, or the emission, discharge, release or threatened
release into the environment, of any Substance. As used in this Section 2.26,
the term "Substance" or "Substances" shall mean any pollutant, contaminant,
hazardous substance, hazardous material, hazardous waste or toxic waste, as
defined in any presently enacted federal, state or local statute or any
regulation that has been promulgated pursuant thereto. No part of any of the
Leased Parcels has been listed or proposed for listing on the National
Priorities List established by the United States Environmental Protection
Agency, or any corresponding list by any state or local authorities.
(b) ENVIRONMENTAL SUBSTANCE LIABILITY. No event has occurred or
condition exists or operating practice is being employed that could give rise to
liability on the part of the Seller, either at the present time or in the
future, for any losses, liabilities, damages (whether consequential or
otherwise), settlements, penalties, interest, expenses and costs of responses,
including any such liability on account of the right of any governmental or
private entity or person, and including closure expenses, costs of assessment,
containment, removal, or response (other than monitoring or transportation or
disposal of materials required to be transported or disposed of in the ordinary
course of business consistent with past practice) arising under any rule or
federal, state, or local statute, or any regulation that has been promulgated
pursuant thereto, or common law, as a result of or in connection with, or
alleged to be as a result of or in connection with, the following (collectively
the "Hazardous Activities"):
14
<PAGE>
(1) the handling, storage, use, transportation or disposal of
any Substances in or near or from the Leased Parcels;
(2) the handling, storage, use, transportation or disposal of
any Substances by the Seller or its predecessors which
Substances were a product, by-product or otherwise
resulted from the operations conducted by or on behalf of
the Seller or its predecessors;
(3) any intentional or unintentional emission, discharge or
release of any Substances in or near or from facilities
into or upon the air, surface water, ground water or land
or any disposal, handling, manufacturing, processing,
distribution, use, treatment, or transport of such
Substances in or near or from facilities by or on behalf
of the Seller or its predecessors; or
(4) the presence of any toxic or hazardous building materials
(including but not limited to friable asbestos or similar
substances) in any facilities of the Seller, including
but not limited to the inclusion of such materials in the
exterior and interior walls, floors, ceilings, tile,
insulation or any other portion of building structures.
(c) ENVIRONMENTAL PERMITS. The Seller has obtained and holds all
registrations, permits, licenses, and approvals issued by or on behalf of any
federal, state or local governmental body or agency if any ("Environmental
Permits") that are required in connection with the operation by the Seller of
the Leased Parcels, the discharge or emission of Substances by the Seller from
the Leased Parcels or the generation, treatment, storage, transportation, or
disposal of any such Substances by the Seller. Such Environmental Permits,
which are described on SCHEDULE 2.26, are currently effective and sufficient for
the operation of the Leased Parcels and the business of the Seller as currently
conducted and intended to be conducted. The Seller is in compliance with all
terms and conditions of the Environmental Permits, and is also in compliance
with all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables contained in those laws or
provisions or contained in any regulation, code, plan, order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved thereunder and
applicable to the Seller.
(d) DELIVERIES. The Seller has delivered to the Buyer true and
complete copies and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by the Seller pertaining to Substances or
Hazardous Activities in, on, or under the Leases Parcels or concerning
compliance by the Seller or any other Person for whose conduct they are or may
be held responsible, with environmental statutes, rules and regulations.
15
<PAGE>
SECTION 2.27 BROKER'S OR FINDER'S FEES. Except as set forth on SCHEDULE
2.27, no agent, broker, person or firm acting on behalf of the Seller is, or
will be, entitled to any commission or broker's or finder's fees from of the
Seller or from any person controlling, controlled by or under common control
with the Seller in connection with any of the transactions contemplated herein.
SECTION 2.28 YEAR-2000 COMPLIANCE.
(a) SCHEDULE 2.28 contains a true and complete list of all Systems (as
hereinafter defined), and each System is Year-2000 Compliant (as hereinafter
defined) to the extent indicated on SCHEDULE 2.28.
(b) As used throughout this Agreement, the following definitions shall
have the following meanings:
(1) "External Systems" shall mean all services which are provided
to Seller by third parties and which are dependent on
information technology, including, but not limited to, any
external payroll, accounting, or tax filing services or any
checking, savings, or other financial services.
(2) "Internal Systems" shall mean all technology products and
systems generally operated or controlled in-house by Seller, or
its employees, agents, or independent contractors including,
but not limited to, computers, computer networks, telephone
systems, voicemail systems, intercom systems, pager systems,
and software applications.
(3) "Licensed Systems" shall mean all products and systems
developed by or for Seller which are licensed, sold,
distributed, or otherwise transferred by Seller to third
parties.
(4) "System" or "Systems" shall mean any, all, or any combination
of any Internal System, External System, or Licensed System.
(5) "Year-2000 Compliant" shall mean, with respect to each System,
that such System is designed to be used before, during, and
after the calendar year 2000 A.D. and will accurately accept
date input and process, store, and output date data and
date-related data, including, without limitation, calculating,
comparing, sorting, and sequencing such data and calculating
leap years before, during, and after the calendar year 2000
A.D. without any manual intervention.
SECTION 2.29 INVENTORY. The Seller has no inventory.
16
<PAGE>
SECTION 2.30 ACCOUNTS RECEIVABLE. The accounts receivable and other debts
due or recorded in the respective records and books of account of the Seller as
being due to the Seller as of the Effective Time, all of which are set forth on
SCHEDULE 2.30 (the "Accounts Receivable"), arose in the ordinary course of
business of the Seller, are not subject to any counterclaim or set-off and are
fully collectible within 120 days after the Effective Date without resort to
litigation and without offset or counterclaim.
SECTION 2.31 DISCLOSURE. All Documents delivered or to be delivered by or
on behalf of the Seller in connection with this Agreement and the transactions
contemplated hereby are true, complete and correct. Neither this Agreement, nor
any of the other Documents contains any untrue statement of a material fact or
omits a material fact necessary to make the statements made by the Seller herein
or therein, in light of the circumstances in which made, not misleading. There
is no fact known to the Seller which materially and adversely affects the
business, prospects or financial condition of the Seller or its properties or
assets, which has not been set forth in the Documents.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE BUYER
As an inducement to the Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, the Buyer represents and
warrants to the Seller as follows:
SECTION 3.1 ORGANIZATION. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is duly qualified to transact business as a foreign corporation in each
jurisdiction in which the failure to so qualify would have a material adverse
impact on the Buyer's ability to purchase the Business pursuant to this
Agreement and perform its obligations under this Agreement.
SECTION 3.2 CORPORATE POWER AND AUTHORITY. The Buyer has the corporate
power and authority to execute, deliver and perform this Agreement and the other
Documents. The execution, delivery and performance of the Documents contemplated
hereby and the consummation of the transactions contemplated hereby and thereby
have been duly authorized and approved by all necessary corporate action of the
Buyer. The Documents to be executed and delivered by the Buyer have been duly
executed and delivered by, and constitute the legal, valid and binding
obligation of the Buyer enforceable against the Buyer in accordance with their
terms.
SECTION 3.3 VALIDITY, ETC. Neither the execution and delivery by the
Buyer of this Agreement and the other Documents, the consummation by the Buyer
of the transactions contemplated hereby or thereby, nor the performance by the
Buyer of this Agreement and such other agreements in compliance with the terms
and conditions hereof and thereof will (i) violate, conflict with or result in
any breach of any trust agreement, articles of incorporation, bylaw, judgment,
decree, order, statute or regulation applicable to the Buyer, (ii) violate,
conflict with or result in a breach of or default (or give rise to any right of
termination, cancellation or
17
<PAGE>
acceleration) under any law, rule or regulation or any judgment, decree,
order, governmental permit, license or order or any of the terms, conditions
or provisions of any mortgage, indenture, note, license, agreement or other
instrument to which the Buyer is a party, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Buyer.
SECTION 3.4 BROKER'S OR FINDER'S FEES. No agent, broker, person or firm
acting on behalf of the Buyer is, or will be, entitled to any commission or
broker's or finder's fees from the Buyer, or from any person controlling,
controlled by or under common control with the Buyer, in connection with any of
the transactions contemplated herein.
SECTION 3.5 DISCLOSURE. All Documents delivered or to be delivered by or
on behalf of the Buyer in connection with this Agreement and the transactions
contemplated hereby are true, complete and correct. Neither this Agreement, nor
any of the other Documents contains any untrue statement of a material fact or
omits a material fact necessary to make the statements made by the Buyer herein
or therein, in light of the circumstances in which made, not misleading. There
is no fact known to the Buyer which may have a material adverse effect on the
Buyer's ability to pay its obligations under this Agreement, which has not been
set forth in the Documents.
ARTICLE IV. COVENANTS AND AGREEMENTS
SECTION 4.1 BEST EFFORTS. The Seller and the Buyer shall each use its
best efforts to procure upon reasonable terms and conditions all consents and
approvals, completion of all filings, all registrations and certificates, and
satisfaction of all other requirements prescribed by law which are necessary for
the consummation of the transactions contemplated by this Agreement and the
Buyer's ownership and operation of the Seller's Business after the Closing Date.
Prior to the Closing Date, the Seller will use its best efforts to preserve its
relationships with its employees, customers and others having business
relationships with the Seller.
SECTION 4.2 TAX RETURNS. The Seller shall prepare and timely file, at its
sole expense, all of its required tax returns for all periods ending on or prior
to the Effective Date. The Seller shall be responsible for the payment of, and
will indemnify, defend and hold the Buyer harmless against all taxes due or
assessed which relate to the operations of the Business for all periods ending
on or prior to the Effective Date.
SECTION 4.3 PRESERVATION OF BUSINESS. The Seller shall use its best
efforts to preserve the possession and control of all of its Transferred Assets
and Business, to preserve the goodwill of its customers and others with whom it
has business relations, and to do nothing to impair the ability to keep and
preserve its Business as it exists on the date of this Agreement.
SECTION 4.4 PAYMENT OF LIABILITIES. Except for the Assumed Liabilities,
the Seller shall pay and satisfy in full all of its other obligations and
liabilities, of any nature whatsoever, which accrue prior or subsequent to the
Effective Date.
18
<PAGE>
SECTION 4.5 EMPLOYEES AND CONSULTANTS. The Buyer and the Seller have
determined in good faith that the closing of the transactions contemplated by
this Agreement will not result in an "employment loss" within the meaning of the
Workers Adjustment Retraining and Notification act, 29 U.S.C. Section 2101 ET
SEQ (the "Warn Act"). The Seller has made all of its employees and consultants
available to be hired by the Buyer. Notwithstanding the foregoing and except as
otherwise set forth in this Agreement, the Buyer shall be under no obligation to
hire any such employees and consultants. The Buyer and the Seller understand
and acknowledge that each is an employer subject to the Warn Act. The Seller
shall be responsible for any Warn Act violations based on or arising from acts,
events or omissions prior to the Closing, and the Buyer shall be responsible for
any Warn Act violations based on or arising from acts, events or omissions after
the Closing. At the Closing, the Seller shall provide to the Buyer a list of
all employees or former employees terminated by the Seller during the ninety
(90) day period prior to the Closing. The Buyer represents and warrants that
during the first ninety (90) days after the Closing it will not terminate any
employee or employees whose termination would, in the aggregate with
terminations by the Seller during the ninety (90) day period prior to the
Closing, result in a violation of the Warn Act. Nothing herein shall be deemed
either to affect or to limit in any way the management prerogatives of the Buyer
with respect to employees, or to create or to grant to such employees any third
party beneficiary rights or claims or causes of action of any kind or nature.
SECTION 4.6 SPECIAL PROVISIONS REGARDING EMPLOYEES OF THE SELLER.
(a) NEW EMPLOYEES OF THE BUYER. It is the intention of the Buyer,
and the Seller hereby acknowledges and agrees with such position, that any
employees of the Seller that the Buyer hires will be new employees of the Buyer
as of the Effective Date or the date of hire, whichever is later. Such new
employees shall be entitled only to such compensation and employee benefits as
are agreed to by such employees and the Buyer or as are otherwise provided by
the Buyer, in its sole discretion.
(b) HIRING OF EMPLOYEES. The Buyer will use its reasonable efforts
to hire the existing employees of the Seller engaged in the Business in
connection with its purchase of the Transferred Assets; provided, however, that
the Buyer shall be entitled to review employee records, conduct employee
interviews and employee screening procedures used by the Buyer in its business,
and may refuse to offer employment to any employee of the Seller if such
employee fails to meet the hiring criteria of the Buyer.
(c) NO CONTRIBUTIONS. After the Closing, the Seller shall make no
contributions to any Employee Plan on behalf of any former employee or
independent contractor of the Seller who is employed by the Buyer after the
Closing.
(d) COBRA ISSUES. The Buyer shall be a successor employer of
Seller solely for the purposes of providing continuation coverage to the extent
required under Code Section 4980B and ERISA Section 601 to individuals
receiving such continuation coverage on the Effective Date and individuals
qualifying (or who would otherwise qualify but for this Section 4.5) for such
19
<PAGE>
coverage commencing on or after the Effective Date. The Seller shall be liable
for any and all liabilities, costs, expenses and fees whatsoever arising under
Code Section 4980B and ERISA Section 601 before the Effective Date.
SECTION 4.7 CONSENTS OF LANDLORDS. Within 30 days following the Closing
Date, the Seller shall have obtained consents (when required by the terms of the
lease) from all lessors of real property leased by the Business to the
assignment of such leases to the Buyer without any amendment, modification or
change in the terms of such leases.
SECTION 4.8 AUDITED FINANCIAL STATEMENTS. The Seller shall furnish to the
Buyer, as soon as practical and at Seller's expense, audited financial
statements of the Seller for the three (3) fiscal years ending December 31,
1997, 1996 and 1995.
ARTICLE V. CONDITIONS TO THE BUYER'S OBLIGATIONS
The obligation of the Buyer to make deliveries to the Seller pursuant to
Section 1.2 and 1.3 hereof and to consummate the other transactions contemplated
hereby is subject to the satisfaction, on or before the Closing Date, of the
following conditions each of which may be waived by the Buyer in its sole
discretion:
SECTION 5.1 CONSENTS. Except for the consents of landlords provided for
in Section 4.12 above and except as set forth on SCHEDULE 5.1, all requisite
governmental approvals identified on and consents of third parties identified on
such schedule or otherwise identified by the Seller as required to be received
to prevent any material license, permit or agreement relating to the Business
from terminating prior to its scheduled termination, as a result of the
consummation of the transactions contemplated hereby, shall have been obtained
and all permits listed in SCHEDULE 2.13 shall have been transferred or reissued
to the Buyer.
SECTION 5.2 EMPLOYMENT AGREEMENT. Douglas E. Miles shall have executed
and delivered to the Buyer, an Employment Agreement, in substantially the form
attached hereto as EXHIBIT D.
SECTION 5.3 NONCOMPETITION AGREEMENT. Douglas E. Miles shall have
executed and delivered to the Buyer, a Noncompetition Agreement, in
substantially the form attached hereto as EXHIBIT E.
SECTION 5.4 OPINION OF COUNSEL TO THE SELLER. Buyer shall receive from
Craig A. Sullivan, Esq., counsel to the Seller, an opinion, dated as of the
Closing Date, in form and substance reasonably satisfactory to Buyer, and to the
following effect:
(a) The Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of Missouri. The nature of the
business does not require the Seller to be licensed or qualified in any other
jurisdiction;
20
<PAGE>
(b) The Seller has the corporate power and authority to execute,
deliver and perform this Agreement and the other Documents. The execution,
delivery and performance of this Agreement and the other Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized and approved by all necessary corporate action of the Seller. This
Agreement and each of the other Documents to be executed and delivered by the
Seller have been duly executed and delivered by, and constitute the legal, valid
and binding obligations of the Seller, enforceable against the Seller in
accordance with their terms; and
(c) In connection with the Seller's purchase, transfer and
acceptance of the assets and certain liabilities of Nu-View Windows of St.
Louis, Inc. ("NuView St. Louis"), a Missouri corporation, and Nu-View Windows of
Illinois, Inc. ("NuView Illinois"), an Illinois corporation, on or about January
1997, there has been no assertion of successor liability against the Seller by
any third party and the Seller is not and cannot be deemed a "successor" to
NuView St. Louis or NuView Illinois under the laws of the state of Missouri.
(d) The Employment Agreement has been duly executed and delivered
by, and constitutes the legal, valid and binding obligation of Douglas E. Miles
enforceable against him in accordance with its terms;
(e) The Noncompetition Agreement has been duly executed and
delivered by, and constitutes the legal, valid and binding obligation of Douglas
E. Miles enforceable against him in accordance with its terms;
(f) There is no (i) action, suit, claim, proceeding or
investigation pending or, to the best knowledge of Counsel, threatened against
or affecting the Seller (whether or not the Seller is a party or prospective
party thereto), at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceeding pending
relating to the Seller or (iii) governmental inquiry pending or threatened
against or involving the Seller, and, to the best knowledge of counsel, there is
no basis for any of the foregoing. The Seller has not received any opinion or
memorandum or legal advice from legal counsel to the effect that it is exposed,
from a legal standpoint, to any liability or disadvantage which may be material
to the business, prospects, financial condition, operations, property or affairs
of the Seller. There are no outstanding orders, writs, judgments, injunctions
or decrees served upon the Seller by any court, governmental agency or
arbitration tribunal against the Seller. To the best knowledge of counsel, there
are no facts or circumstances which may result in institution of any action,
suit, claim or legal, administrative or arbitration proceeding or investigation
against, involving or affecting the Seller or the transactions contemplated
hereby. The Seller is not in default with respect to any order, writ,
injunction or decree known to or served upon it from any court or of any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign. There is no action or
suit by the Seller pending or threatened against others;
21
<PAGE>
(g) The execution and delivery of this Agreement and the other
Documents, the consummation of the transactions contemplated hereby and thereby,
and the performance of the Agreement and such other agreements in compliance
with the terms and conditions hereof and thereof by the Seller will not (i)
violate, conflict with or result in any breach of any trust agreement, articles
of incorporation, bylaw, judgment, decree, order, statute or regulation
applicable to the Seller, (ii) violate, conflict with or result in a breach,
default or termination or give rise to any right of termination, cancellation or
acceleration of the maturity of any payment date of any of the obligations of
the Seller or increase or otherwise affect the obligations of the Seller under
any law, rule, regulation or any judgment, decree, order, governmental permit,
license or order or any of the terms, conditions or provisions of any mortgage,
indenture, note, license, agreement or other instrument or obligation related to
the Seller or to the Seller's ability to consummate the transactions
contemplated hereby or thereby, except for such defaults (or rights of
termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained in writing and provided to the Buyer, (iii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
the Seller or (iv) result in the creation of any Claim upon the Transferred
Assets; and
(h) The Bill of Sale conveys all right, title and interest in and
to the Transferred Assets.
SECTION 5.5 CHANGE OF CORPORATE NAME. The Seller shall amend its
respective Articles of Incorporation to change its name to a name other than
"NuView Industries." The Seller shall deliver to the Buyer at the Closing, an
executed copy of such Amendment to the Articles of Incorporation, and any such
other documents or consents needed to effectuate such change in name, for filing
with the Office of the Missouri Secretary of State. Also, the Seller shall
withdraw its assumed trade or fictitious names, which are set forth on SCHEDULE
5.5 hereto. The Seller shall deliver to the Buyer at the Closing, an executed
copy of such withdrawal, and any such other documents or consents needed to
effectuate such change in name, for filing with the Office of the Missouri
Secretary of State.
SECTION 5.6 CLOSING DOCUMENTS. The Seller shall have delivered all of the
resolutions, certificates, documents and instruments required by this Agreement.
SECTION 5.7 APPROVAL OF THE BUYER AND ITS COUNSEL. All actions,
proceedings, consents, instruments and documents required to be delivered by, or
at the behest or direction of, the Seller hereunder or incident to its
performance hereunder, and all other related matters, shall be reasonably
satisfactory as to form and substance to the Buyer and its counsel.
ARTICLE VI. CONDITIONS TO THE SELLER'S OBLIGATIONS
The obligation of the Seller to transfer the Transferred Assets to the
Buyer and to consummate the other transactions contemplated hereby is subject to
the satisfaction, on or
22
<PAGE>
before the Closing Date, of the following conditions, each of which may be
waived by the Seller in its sole discretion:
SECTION 6.1 EMPLOYMENT AGREEMENT. The Buyer shall have executed and
delivered an Employment Agreement, in substantially the form attached hereto as
EXHIBIT D.
SECTION 6.2 OPINION OF STITES & HARBISON. The Seller shall have received
from Stites & Harbison, counsel to the Buyer, an opinion dated as of the Closing
Date, in form and substance reasonably satisfactory to the Seller, and to the
following effect:
(a) The Buyer is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and is duly qualified
to transact business as a foreign corporation in each jurisdiction in which the
failure to so qualify would have a material adverse impact on the Buyer's
ability to pay its obligations under this Agreement;
(b) The Buyer has the corporate power and authority to execute,
deliver and perform the Agreement and the other Documents. The execution,
delivery and performance of the Agreement and the other Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly executed and delivered by the Buyer and constitute the legal, valid
and binding obligations of the Buyer, enforceable against the Buyer in
accordance with their terms; and
(c) The execution and delivery of the Agreement and the other
Documents, the consummation of the transactions contemplated hereby and thereby,
and the performance of the Agreement and such other agreements in compliance
with the terms and conditions hereof and thereof by the Buyer will not (i)
violate, conflict with or result in any breach of any trust agreement, articles
of incorporation, bylaw, judgment, decree, order, statute or regulation
applicable to the Buyer, (ii) violate, conflict with or result in a breach of or
default (or give rise to any right of termination, cancellation or acceleration)
under any law, rule or regulation or any judgment, decree, order, governmental
permit, license or order or any of the terms, conditions or provisions of any
mortgage, indenture, note, license, agreement or other instrument to which the
Buyer is a party, or (iii) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to the Buyer.
SECTION 6.3 CLOSING DOCUMENTS. The Buyer shall have delivered all of the
resolutions, certificates, documents and instruments required by this Agreement.
SECTION 6.4 APPROVAL OF THE SELLER AND ITS COUNSEL. All actions,
proceedings, consents, instruments and documents required to be delivered by, or
at the behest or direction of, the Buyer hereunder or incident to its
performance hereunder, and all other related matters, shall be reasonably
satisfactory as to form and substance to the Seller and its counsel.
23
<PAGE>
ARTICLE VII. THE CLOSING AND CERTAIN CLOSING DELIVERIES
SECTION 7.1 TIME AND PLACE OF CLOSING. Upon the terms and subject to the
satisfaction or waiver of the conditions contained in this Agreement, the
closing of the transactions contemplated by this Agreement (the "Closing") shall
take place at the offices of Craig A. Sullivan, Esq., 12444 Powerscourt Dr.,
Suite 250, St. Louis, MO 63131, on the date hereof (the "Closing Date"). The
transactions contemplated by this Agreement shall be effective as of the close
of business (the "Effective Time") on the date hereof (the "Effective Date").
SECTION 7.2 DELIVERIES BY THE SELLER. At the Closing, the Seller will
deliver or cause to be delivered to the Buyer the following:
(a) All required consents of third parties to the sale conveyance,
transfer, assignment and delivery of the Transferred Assets and Business of the
Seller hereunder;
(b) A certificate of the Secretary of the Seller certifying as of
the Closing Date, (i) a true, correct, and complete copy of the Certificate of
Incorporation of the Seller and all amendments thereto as in effect on the
Closing Date; (ii) a true, correct, and complete copy of the by-laws of the
Seller and all amendments thereto as in effect on the Closing Date; (iii) a
true, correct, and complete copy of the resolutions approved and adopted by the
Seller's Board of Directors and Shareholders authorizing and approving the
execution, performance and delivery of this Agreement and the transactions
contemplated by this Agreement; (iv) Good Standing Certificate from the Missouri
Secretary of State and all other jurisdictions where the Seller is qualified to
do business; and (v) the incumbency of the duly authorized officers of the
Seller.
(c) The affidavit of the Seller certifying as to its non-foreign
status in accordance with Section 1445(b)(2) of the Code;
(d) The Bill of Sale required by Section 1.1(c);
(e) The Assignment and Assumption Agreement required by
Section 1.1(c);
(f) The Sublease Agreement required by Section 1.1(c);
(g) The Employment Agreement required by Section 5.2;
(h) The Noncompetition Agreement required by Section 5.3;
(i) The opinion of the Seller's counsel required by Section 5.4
above;
(j) Duly executed Amendment to the Articles of Incorporation of the
Seller and withdrawal of assumed trade names as required by Section 5.5 above;
24
<PAGE>
(k) Upon joint written request by the Seller and the Buyer, a
statement from the Missouri director of revenue showing that no employment
security, withholding, sales and use, income and franchise taxes, interest,
addition to tax or penalties are due;
(l) A Certificate of Discharge of the personal property of the
Seller signed by the Internal Revenue Service; and
(m) All other documents, instruments and writings required to be
delivered by the Seller at or prior to the Closing Date pursuant to this
Agreement or otherwise required in connection herewith.
SECTION 7.3 DELIVERIES BY THE BUYER. At the Closing, the Buyer will
deliver the following to or for the account of the Seller or certain of its
employees, as the case may be:
(a) The payment required by Section 1.2(a) above;
(b) The Assignment and Assumption Agreement required by
Section 1.3;
(c) The Sublease Agreement required by Section 1.3;
(d) The Employment Agreement required by Section 6.1 above;
(e) The Opinion of the Buyer's counsel required by Section 6.2
above;
(f) A certificate of an officer of the Buyer certifying as of the
Closing Date (i) a true, correct, and complete copy of the Articles of
Incorporation of the Buyer and all amendments thereto as in effect on the
Closing Date; (ii) a true, correct, and complete copy of the bylaws of the Buyer
and all amendments thereto as in effect on the Closing Date; (iii) a true,
correct, and complete copy of the resolutions approved and adopted by the Board
of Directors of the Buyer authorizing the transactions contemplated herein; and
(iv) Good Standing Certificate from the Delaware Secretary of State; and
(g) All other documents, instruments and writings required to be
delivered by the Buyer at or prior to the Closing Date pursuant to this
Agreement or otherwise required in connection herewith.
ARTICLE VIII. [INTENTIONALLY OMITTED]
ARTICLE IX. INDEMNIFICATION
SECTION 9.1 SURVIVAL. All representations and warranties in this
Agreement and the other Documents shall survive the Closing of the purchase of
the Transferred Assets
25
<PAGE>
contemplated hereby and any investigation at any time made by or on behalf of
any party for a period of three years and all such representations and
warranties shall expire on the third anniversary of the Closing Date, except
that (a) claims, if any, asserted in writing prior to such third anniversary
identified as a claim for indemnification pursuant to this Article IX shall
survive until finally resolved and satisfied in full; (b) any Year-2000
Indemnification Obligations (as hereinafter defined) shall survive until
February 1, 2003 and until finally resolved and satisfied in full if asserted
on or prior to February 1, 2003; and (c) tax or environmental claims arising
from a breach of Section 2.24 or Section 2.26, respectively, shall survive
for the full period of the applicable statute of limitations, and until
finally resolved and satisfied in full if asserted on or prior to the
expiration of any such period. The representations and warranties shall not
be affected or otherwise diminished by any investigation at any time by or on
behalf of the party for whose benefit such representations and warranties
were made.
SECTION 9.2 INDEMNIFICATION BY THE SELLER. Subject to the terms herein,
the Seller and Miles, jointly and severally, shall indemnify, defend, and hold
the Buyer and the respective officers, directors, and employees of the Buyer,
and their successors and assigns (the "Seller's Indemnitees") harmless from,
against and with respect to any claim, liability, obligation, loss, damage,
assessment, judgment, cost or expense of any kind or character, including
reasonable attorneys' fees, whether known or unknown (the "Damages"), arising
out of or in any manner incident, relating or attributable to:
(a) Any inaccuracy in any representation or breach of any warranty
of the Seller contained in this Agreement; or
(b) Any failure by the Seller to perform or observe, or to have
performed or observed, in full, any covenant, agreement or
condition to be performed or observed by it under this
Agreement; or
(c) Reliance by the Buyer on any books or records of the Seller or
written information furnished to the Buyer pursuant to this
Agreement by or on behalf of the Seller in the event that such
books and records or written information are false or
materially inaccurate; or
(d) Damages relating to, or arising out of, the operation of the
Business prior to the Closing Date or facts and circumstances
relating specifically to the Business, the Leased Parcels, or
the Seller existing at or prior to the Closing Date, including
but not limited to matters set forth on SCHEDULE 2.25, whether
or not such liabilities, obligations or claims were known on
such date, excluding only the Assumed Liabilities; or
(e) Damages relating to, or arising out of, the Seller's purchase,
transfer and acceptance of assets and liabilities from NuView
St. Louis and
26
<PAGE>
NuView Illinois, or facts and circumstances relating to such
acquired assets and liabilities, including, but not limited to
Damages pursuant to Section 288.110 R.S.Mo.; or
(f) Damages relating to, or arising out of any pension, profit
sharing, retirement, deferred compensation, stock purchase,
stock option, incentive, bonus, vacation, severance,
disability, hospitalization, medical insurance, life insurance,
fringe benefit, welfare and other employee benefit plans,
programs or arrangements pursuant to which NuView St. Louis,
NuView Illinois or any of the ERISA Affiliates of either
provided (directly or indirectly, individually or jointly
through others) benefits or compensation to or on behalf of
employees or independent contractors or former employees or
former independent contractors of NuView St. Louis or NuView
Illinois or any of the ERISA Affiliates of either, whether
formal or informal, whether or not written, including, but not
limited to the NuView Employees Savings Plan maintained by
NuView St. Louis and NuView Illinois.
Provided, however, the Seller's Indemnitees shall not be entitled to
indemnification or offset hereunder until Damages in total exceed $10,000 and
then only to the extent of aggregate Damages in excess of $10,000; provided
further, however, this limitation or "basket" shall not apply to any Damages
arising in connection with the representations and warranties with respect to
taxes and successor liability as set forth in Sections 2.24, 2.25, 9.2(e) or
9.2(f) hereof, respectively.
SECTION 9.3 NOTICE TO THE SELLER, ETC. If any of the matters as to which
the Seller's Indemnitees are entitled to receive indemnification under Section
9.2 should entail litigation with or claims asserted by parties other than the
Seller, the Seller shall be given prompt notice thereof and shall have the
right, at his expense, to control such claim or litigation upon prompt notice to
the Buyer of his election to do so. To the extent requested by the Seller, the
Buyer, at its expense, shall cooperate with and assist the Seller, in connection
with such claim or litigation. The Buyer shall have the right to appoint, at
its expense, single counsel to consult with and remain advised by the Seller in
connection with such claim or litigation. The Seller shall have final authority
to determine all matters in connection with such claim or litigation; PROVIDED,
HOWEVER, that the Seller shall not settle any third party claim without the
consent of the Buyer, which shall not be unreasonably denied or delayed.
SECTION 9.4 INDEMNIFICATION BY THE BUYER. The Buyer shall indemnify,
defend, and hold the Seller and its successors and assigns (the "Buyer's
Indemnitees") harmless from, against and with respect to any claim, liability,
obligation, loss, damage, assessment, judgment, cost or expense of any kind or
character, including reasonable attorneys' fees (the "Damages"), arising out of
or in any manner incident, relating or attributable to:
27
<PAGE>
(a) Any inaccuracy in any representation or breach of warranty of
the Buyer contained in this Agreement;
(b) Any failure by the Buyer to perform or observe, or to have
performed or observed, in full, any covenant, agreement or
condition to be performed or observed by it under any of the
Documents;
(c) Reliance by the Seller on any books or records of the Buyer or
reliance by the Seller on any written information furnished to
the Seller pursuant to this Agreement by or on behalf of the
Buyer in the event that such books and records or written
information are false or inaccurate;
(d) The failure of the Buyer to pay or perform the Assumed
Liabilities, Contracts and Leases subsequent to the Closing
Date; or
(e) Liabilities or obligations of, or claims against, the Seller
(whether absolute, accrued, contingent or otherwise) relating
to, or arising out of, the operation of the Business subsequent
to the Closing Date.
Provided, however, the Buyer's Indemnitees shall not be entitled to
indemnification hereunder until Damages in total exceed $10,000 and then only to
the extent of aggregate damages in excess of $10,000.
SECTION 9.5 NOTICE TO THE BUYER, ETC. If any of the matters as to which
the Buyer's Indemnitees are entitled to receive indemnification under Section
9.4 should entail litigation with or claims asserted by parties other than the
Buyer, the Buyer shall be given prompt notice thereof and shall have the right,
at its expense, to control such claim or litigation upon prompt notice to the
Seller of its election to do so. To the extent requested by the Buyer, the
Seller, at his expense, shall cooperate with and assist the Buyer, in connection
with such claim or litigation. The Seller shall have the right to appoint, at
its expense, single counsel to consult with and remain advised by the Buyer in
connection with such claim or litigation. The Buyer shall have final authority
to determine all matters in connection with such claim or litigation; PROVIDED,
HOWEVER, that the Buyer shall not settle any third party claim without the
consent of the Seller, which shall not be unreasonably denied or delayed.
SECTION 9.6 SURVIVAL OF INDEMNIFICATION. The obligations to indemnify and
hold harmless pursuant to this Article IX shall survive the Closing of the
purchase of the Transferred Assets contemplated hereby for a period of three
years, notwithstanding any investigation at any time made by or on behalf of any
party, except that (a) claims, if any, asserted in writing prior to such third
anniversary identified as a claim for indemnification pursuant to this Article
IX shall survive until finally resolved and satisfied in full; (b) any Year-2000
Indemnification Obligations (as hereinafter defined) shall survive until
February 1,
28
<PAGE>
2003 and until finally resolved and satisfied in full if asserted on or prior
to February 1, 2003; and (c) tax or environmental claims arising from a
breach of Section 2.24 or Section 2.26, respectively, shall survive for the
full period of the applicable statute of limitations, and until finally
resolved and satisfied in full if asserted on or prior to the expiration of
any such period. As used in this Article IX, the term "Year-2000
Indemnification Obligations" shall mean Seller's obligation to indemnify,
defend, and hold the Seller's Indemnitees harmless from, against and with
respect to any Damages arising out of or in any manner incident, relating or
attributable to (i) any claim or allegation that any Licensed System is not
Year-2000 Compliant and (ii) any claim arising from a breach of Section 2.28.
SECTION 9.7 OFFSET. The Seller acknowledges and agrees that the Buyer
shall be entitled to offset any indemnity claim under Section 9.2 against any
payment due to the Seller under Section 1.2(b) hereof at the Buyer's sole
option. Neither the exercise of nor the failure to give a notice of a Claim
shall constitute an election of remedies nor limit Indemnitee in any manner in
the enforcement of any other remedies that may be available to it.
ARTICLE X. MISCELLANEOUS
SECTION 10.1 KNOWLEDGE OF THE SELLER. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to the
best knowledge of the Seller, the Seller confirms that it has made due and
diligent inquiry of its President as to the matters that are the subject of such
representation and warranty.
SECTION 10.2 KNOWLEDGE OF THE BUYER. Where any representation or warranty
contained in this Agreement is expressly qualified by reference to the best of
knowledge of the Buyer, the Buyer confirms that it has made due and diligent
inquiry of its President as to the matters that are the subject of such
representations and warranties.
SECTION 10.3 "PERSON" DEFINED. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or other department or agency
thereof.
SECTION 10.4 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) sent by recognized overnight courier, (iii) made by telecopy or facsimile
transmission, or (iv) sent by registered or certified mail, return receipt
requested, postage prepaid.
29
<PAGE>
If to the Buyer:
ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
Attn: Stephen A. Hoffmann,
President
Fax No: (502) 425-5603
With a copy to:
Stites & Harbison
400 W. Market Street, Suite 1800
Louisville, Kentucky 40202
Attn: Cynthia L. Coffee, Esq.
Fax No: (502) 587-6391
If to the Seller:
Douglas E. Miles
1917 Beltway Drive
St. Louis, Missouri 63114
Fax No: (314) 423-5112
With a copy to:
Craig A. Sullivan, Esq.
12444 Powerscourt Drive, Suite 250
St. Louis, Missouri 63131
Fax No: (314) 965-3568
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof to
the receiving party at the address of such party set forth above, (ii) if sent
by overnight courier, on the next business day following the day such notice is
delivered to the courier service, (iii) if made by telecopy or facsimile
transmission, at the time that receipt thereof has been acknowledged by
electronic confirmation or otherwise, or (iv) if sent by registered or certified
mail, on the fifth business day following the day such mailing is sent. The
address of any party herein may be changed at any time by written notice to the
parties.
SECTION 10.5 ENTIRE AGREEMENT. This Agreement and the other Documents
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or
30
<PAGE>
agreement of any kind not expressly set forth in the other Documents shall
affect, or be used to interpret, change or restrict, the express terms and
provisions of this Agreement.
SECTION 10.6 MODIFICATIONS AND AMENDMENTS. The terms and provisions of
this Agreement may be modified or amended only by written agreement executed by
all parties hereto.
SECTION 10.7 ASSIGNMENT/BINDING EFFECT. Neither this Agreement, nor any
right hereunder, may be assigned by any of the parties hereto without the prior
written consent of the other parties, provided, however, that the Buyer may
assign its rights to acquire the Transferred Assets and its obligations to
assume the Assumed Liabilities to Subsidiary. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
heirs, personal representatives, successors and permitted assigns.
SECTION 10.8 PARTIES IN INTEREST. Nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement. Nothing in this
Agreement shall be construed to create any rights or obligations except among
the parties hereto, and no person or entity shall be regarded as a third-party
beneficiary of this Agreement.
SECTION 10.9 GOVERNING LAW. This Agreement and the rights and obligations
of the parties hereunder shall be construed in accordance with and governed by
the internal laws of the State of Missouri without giving effect to the conflict
of law principles thereof.
SECTION 10.10 ARBITRATION. Any dispute or difference between the parties
hereto arising out of or relating to this Agreement shall be finally settled by
arbitration in accordance with the Commercial Rules of the American Arbitration
Association by a panel of three qualified arbitrators. The Seller and the Buyer
shall each choose an arbitrator and the third shall be chosen by the two so
chosen. If either the Seller or the Buyer fails to choose an arbitrator within
30 days after notice of commencement of arbitration or if the two arbitrators
fail to choose a third arbitrator within 30 days after their appointment, the
American Arbitration Association shall, upon the request of any party to the
dispute or difference, appoint the arbitrator or arbitrators to constitute or
complete the panel as the case may be. Arbitration proceedings hereunder may be
initiated by either the Seller or the Buyer making a written request to the
American Arbitration Association, together with any appropriate filing fee, at
the office of the American Arbitration Association in St. Louis, Missouri. All
arbitration proceedings shall be held in St. Louis, Missouri. Any order or
determination of the arbitral tribunal shall be final and binding upon the
parties to the arbitration and may be entered in any court having jurisdiction.
SECTION 10.11 SEVERABILITY. In the event that any arbitral tribunal of
competent jurisdiction shall finally determine that any provision, or any
portion thereof, contained in this Agreement shall be void or unenforceable in
any respect, then such provision shall be deemed limited to the extent that such
arbitral tribunal determines it enforceable, and as so
31
<PAGE>
limited shall remain in full force and effect. In the event that such
arbitral tribunal shall determine any such provision, or portion thereof,
wholly unenforceable, the remaining provisions of this Agreement shall
nevertheless remain in full force and effect.
SECTION 10.12 INTERPRETATION. The parties hereto acknowledge and agree
that: (i) the rule of construction to the effect that any ambiguities are
resolved against the drafting party shall not be employed in the interpretation
of this Agreement, and (ii) the terms and provisions of this Agreement shall be
construed fairly as to all parties hereto and not in favor of or against any
party, regardless of which party was generally responsible for the preparation
of this Agreement.
SECTION 10.13 HEADINGS AND CAPTIONS. The headings and captions of the
various subdivisions of this Agreement are for convenience of reference only and
shall in no way modify, or affect, or be considered in construing or
interpreting the meaning or construction of any of the terms or provisions
hereof.
SECTION 10.14 RELIANCE. The parties hereto agree that, notwithstanding
any right of any party to this Agreement to investigate the affairs of any other
party to this Agreement, the party having such right to investigate shall have
the right to rely fully upon the representations and warranties of the other
party expressly contained herein.
SECTION 10.15 EXPENSES. Each party shall pay its own fees and expenses
(including the fees of any attorneys, accountants, appraisers or others engaged
by such party) incurred in connection with this Agreement and the transactions
contemplated hereby whether or not the transactions contemplated hereby are
consummated.
SECTION 10.16 GENDER. All pronouns and any variation thereof shall be
deemed to refer to the masculine, feminine, neuter, singular, or plural as the
identity of the person or entity or the context may require.
SECTION 10.17 PUBLICITY. Except by the mutual agreement between the
Seller and the Buyer, no party shall issue any press release or otherwise make
any public statement with respect to the execution of, or the transactions
contemplated by, this Agreement except as may be required by law.
SECTION 10.18 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by different parties hereto on separate counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
32
<PAGE>
IN WITNESS WHEREOF, the Buyer and the Seller have each caused its duly
authorized officer to execute this Agreement and Miles has executed this
Agreement as of the day and year first above written.
Buyer: THERMOVIEW INDUSTRIES, INC.
By: /s/ Stephen A. Hoffmann
-----------------------------------------
Stephen A. Hoffmann, President
Seller: NUVIEW INDUSTRIES, INC.
By: /s/ Douglas E. Miles
-----------------------------------------
Douglas E. Miles, President
/s/ Douglas E. Miles
------------------------------------------------------
DOUGLAS E. MILES, individually
33
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into on this 14th day of August, 1998 by and between ALVIN W. LEINGANG (the
"Seller") and THERMOVIEW INDUSTRIES, INC., a Delaware corporation (the
"Buyer").
PRELIMINARY STATEMENTS
The Seller owns all of the issued and outstanding shares of common
stock, with par value of $4.00 per share (the "Common Stock"), of Leingang
Siding and Window, Inc., a North Dakota corporation (the "Company").
The Company is engaged in designing, selling and installing state of the
art custom vinyl new and replacement thermal paned windows and vinyl and
steel siding for the existing home market (the "Business").
The Buyer desires to purchase and the Seller desires to sell all of the
outstanding shares of Common Stock of the Company, upon the terms and subject
to the conditions set forth in this Agreement.
In consideration of these preliminary statements and the mutual
covenants, representations, warranties and agreements hereinafter set forth,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereby agree as follows:
ARTICLE I. PURCHASE AND SALE OF STOCK
SECTION 1.1 SALE OF STOCK. Upon the terms and subject to the
conditions set forth in this Agreement, on the Closing Date the Seller agrees
to sell, assign, transfer and deliver to the Buyer, and the Buyer agrees to
purchase 24,408 shares of Common Stock, representing all of the issued and
outstanding shares of Common Stock of the Company. The certificate
representing the Common Stock shall be duly endorsed in blank, or accompanied
by a stock power duly executed in blank, by the Seller.
SECTION 1.2 CONSIDERATION. Upon the terms and subject to
satisfaction of the conditions set forth in this Agreement, in consideration
of the aforesaid sale, assignment, transfer and delivery of all of the issued
and outstanding shares of Common Stock, the Buyer will pay to the Seller
consideration as follows:
(a) A closing payment of $2,240,000 shall be made to the Seller in
cash on the Closing Date (defined below) by certified check, wire transfer or
other means of immediately available funds.
1
<PAGE>
(b) The Seller shall also be entitled to receive post-closing
earn-out as set forth on SCHEDULE 1.2, partially represented by a contingent
promissory note in substantially the form of EXHIBIT A (the "Contingent
Promissory Note") hereto as described in SCHEDULE 1.2.
SECTION 1.3 PURCHASE PRICE ADJUSTMENT. As soon as practicable but
within thirty (30) days after the Closing Date, the Seller, at his expense,
shall cause Rodney W. Melby, an independent certified public accountant, to
prepare a balance sheet of the Company immediately prior to the Effective
Time (the "Effective Time Balance Sheet") setting forth the tangible net
worth of the Company using accrual accounting and in conformance with
generally accepted accounting principles (the "Tangible Net Worth"). A copy
of the Effective Time Balance Sheet shall be promptly furnished to the Buyer.
If the Buyer disagrees with the Tangible Net Worth, the Buyer shall engage an
independent public accounting firm, at its expense, to audit the Effective
Time Balance Sheet and deliver a certified written report to the Seller
confirming the Tangible Net Worth ("Audited Tangible Net Worth"). If the
Seller fails to notify the Buyer within fifteen (15) days after receiving the
report from the accounting firm selected by the Buyer, such report shall be
deemed accepted for purposes of calculating Tangible Net Worth. If the
Seller should so notify the Buyer of a dispute concerning Audited Tangible
Net Worth, the Buyer shall then engage another big-five independent
accounting firm that is mutually acceptable to the Buyer and the Seller to
resolve such dispute and such firm shall notify the Buyer and the Seller of
its resolution of such dispute within two weeks of its engagement by the
Buyer. The cost of services provided by such big-five accounting firm shall
be borne equally by the Buyer and the Seller. Any such resolution shall be
final and binding on all parties hereto for the purposes of calculating
Tangible Net Worth. In the event the Tangible Net Worth is less than
$770,000, the Seller shall pay such deficit portion to the Buyer within
thirty (30) days following the later of its determination of the Tangible Net
Worth, the Buyer's audit or the resolution of any dispute by such big-five
accounting firm on a dollar-for-dollar basis. In the event the Tangible Net
Worth is greater than $770,000, the Buyer shall pay the excess amount, on a
dollar-for-dollar basis, to the Seller within thirty (30) days following the
later of either Rodney W. Melby's determination of the Tangible Net Worth or
the determination of Audited Tangible Net Worth. For purposes of this
Section 1.3, "Tangible Net Worth" shall mean the net book value of the
Company at the Effective Time determined in accordance with generally
accepted accounting principles applied on a consistent basis. Net book value
shall be calculated by subtracting the book value of all of the liabilities
of the Company from the book value of all tangible assets of the Company.
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE SELLER
As an inducement to the Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, the Seller represents and
warrants to the Buyer as follows:
SECTION 2.1 OWNERSHIP OF STOCK. The Seller represents and warrants
(a) that he owns all of the issued and outstanding shares of Common Stock
free and clear of all pledges, security interests, liens, charges,
encumbrances, equities, claims, options or
2
<PAGE>
limitations of every kind ("Claims"), and (b) that the delivery to the Buyer
of the Common Stock pursuant to the provisions of this Agreement will
transfer to the Buyer valid title thereto, free and clear of all Claims.
SECTION 2.2 AUTHORITY RELATIVE TO THIS AGREEMENT. The Seller has
full legal power, capacity and authority to execute, deliver and perform this
Agreement and the Exhibits and to deliver the Schedules hereto, and the other
documents and instruments contemplated hereby (collectively, this Agreement,
the Exhibits and Schedules hereto, and the other documents and instruments
contemplated hereby shall constitute the "Documents") and to consummate the
transactions contemplated hereby and thereby. This Agreement and the other
Documents have been duly and validly executed and delivered by the Seller and
constitute valid and binding obligations of the Seller, enforceable against
the Seller in accordance with their terms.
SECTION 2.3 FOREIGN PERSON. The Seller is not a foreign person as
that term is defined in Section 1445(f)(3) of the Code and applicable
regulations.
SECTION 2.4 ORGANIZATION, QUALIFICATION AND CORPORATE POWER.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of North Dakota. The Company is
qualified to do business as a foreign corporation and is in good standing in
the states set forth on SCHEDULE 2.4. The nature of the Business does not
require the Company to be licensed or qualified in any other jurisdiction.
The Seller has made available to the Buyer complete and correct copies of the
Articles of Incorporation and Bylaws of the Company as currently in effect.
The Company has the corporate power and authority to own, lease, operate and
hold its properties and to carry on its business as now conducted, including
the right to use the name "Leingang Century Siding and Window" or any
derivative thereof.
SECTION 2.5 CAPITALIZATION. The Company has authorized capital
consisting of 25,000 shares of common stock, with par value of $4.00 per
share, of which 24,408 shares are issued and outstanding and no shares are
held as treasury stock. All of the outstanding shares of the Company have
been duly authorized and validly issued and are fully paid and nonassessable.
None of the outstanding shares of the Company has been issued in violation
of any preemptive right. There are no outstanding options, warrants, rights,
calls, commitments, conversion rights, rights of exchange, plans or other
agreements of any character providing for the purchase, issuance or sale of
any shares of capital stock of the Company, other than as contemplated by
this Agreement.
SECTION 2.6 SUBSIDIARIES AND INVESTMENTS. The Company has no
subsidiaries and does not own, directly or indirectly, any capital stock or
other equity or ownership or proprietary interest in any other corporation,
partnership, association, trust, joint venture or other entity.
3
<PAGE>
SECTION 2.7 BOOKS AND RECORDS. The minute books of the Company,
which have been and will be made available to the Buyer and its
representatives, contain accurate records of all meetings of and corporate
actions or written consents by the shareholders and Board of Directors of the
Company set forth in such minute books. The Company does not have any of its
records, systems, controls, data or information recorded, stored, maintained,
operated or otherwise wholly or partly dependent upon or held by any means
(including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and
therefrom) are not under the exclusive ownership and direct control of the
Company.
SECTION 2.8 FINANCIAL STATEMENTS. The Seller has previously
furnished to the Buyer, and attached hereto as SCHEDULE 2.8 are, the audited
balance sheets of the Company as of December 31, 1997 and 1996, December 31,
1996 and 1995 and December 31, 1995 and 1994 and the related audited
statements of income, changes in retained earnings, and cash flows for the
years then ended and the unaudited balance sheet of the Company (the "Balance
Sheet") as at June 30, 1998 (the "Balance Sheet Date") and the related
statement of income for the six (6) months then ended. All such financial
statements (the "Financial Statements") have been prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied and
were prepared from the books and records of the Company. Such books and
records are complete and correct in all material respects, accurately reflect
all transactions of the Business, and have been made available to the Buyer
for examination. The Financial Statements fairly present the financial
position of the Company as of the dates thereof. The Financial Statements
reflect reserves appropriate and adequate for all known material liabilities
and reasonably anticipated losses as required by GAAP. Since the Balance
Sheet Date, (i) there has been no change in the assets, liabilities or
financial condition of the Company from that reflected in the Balance Sheet
except for changes in the ordinary course of business consistent with past
practice and which have not been materially adverse, and (ii) none of the
business, prospects, financial condition, operations, property or affairs of
the Company has been materially adversely affected by any occurrence or
development, individually or in the aggregate, whether or not insured
against. The Seller has disclosed to the Buyer all material facts relating to
the preparation of the Financial Statements.
SECTION 2.9 EMPLOYMENT AND LABOR MATTERS.
(a) SCHEDULE 2.9 lists all employees, leased employees,
independent contractors and officers of the Company on the date hereof, along
with the amount of the current annual salaries and total compensation paid or
due for services to each employee, leased employee, independent contractor or
officer for the most recent fiscal year end and the year to date, and a full
and complete description of any commitments to such employees, leased
employees, independent contractors and officers with respect to compensation
payable thereafter. To the best knowledge of the Seller, (1) no key employee
or group of employees has any plans to terminate employment with Company and
(2) no independent contractor has any plans to terminate its services to the
Company and the Company has no plans to
4
<PAGE>
terminate its relationship with any of its independent contractors.
(b) The Company is not a party to or bound by any collective
bargaining agreement with any labor organization, group or association
covering any of its employees, and the Seller has no knowledge of any attempt
to organize the Company's employees by any Person, unit or group seeking to
act as their bargaining agent. There are no pending or threatened charges
(by employees, their representatives or governmental authorities) of unfair
labor practices or of employment discrimination or of any other wrongful
action with respect to any aspect of employment of any person employed or
formerly employed by the Company. No union representation election relating
to employees of the Company has been scheduled by any governmental agency or
authority, no organizational effort is being made with respect to any of such
employees, and there is no investigation of the Company's employment policies
or practices by any governmental agency or authority pending or threatened.
The Company is not currently, nor has it been, involved in labor negotiations
with any unit or group seeking to become the bargaining unit for any
employees of the Company. The Company has not experienced any material work
stoppages, and to the best knowledge of the Seller, no work stoppage is
planned.
SECTION 2.10 REAL PROPERTY. The Company owns no real property.
SECTION 2.11 POWERS OF ATTORNEY; ABSENCE OF LIMITATIONS ON COMPETITION;
GUARANTEES.
Except as set forth in SCHEDULE 2.11, (i) no power of attorney or
similar authorization given by the Company presently is in effect or
outstanding; (ii) no contract or agreement to which the Company is a party or
is bound or to which the Company's properties or assets are subject limits
the freedom of the Company to compete in any line of business or with any
Person; and (iii) the Company is not a party to or bound by any guarantee of
any debt or obligation of any other Person.
SECTION 2.12 SIGNIFICANT SUPPLIERS. Set forth on SCHEDULE 2.12 is a
true and correct list of the Company's ten largest suppliers for the most
recent twelve (12) month period ending December 31, 1997, and most recent
seven (7) month period ending July 31, 1998 together with the amount
attributable to such suppliers expressed in dollars and as a percentage of
total supplies purchased. None of the suppliers identified on SCHEDULE 2.12
has terminated, materially reduced or threatened to terminate or materially
reduce its supply of products or services to the Company during the period
covered by such schedule.
SECTION 2.13 GOVERNMENTAL APPROVALS. Except as set forth on SCHEDULE
2.13, no registration or filing with, or consent or approval of or other
action by, any Federal, state or other governmental agency or instrumentality
is or will be necessary for the valid execution, delivery and performance by
the Seller of this Agreement.
SECTION 2.14 VALIDITY, ETC. Except as set forth on SCHEDULE 2.14,
neither the
5
<PAGE>
execution and delivery of this Agreement or the other Documents, the
consummation of the transactions contemplated hereby or thereby, nor the
performance of this Agreement or the other Documents in compliance with the
terms and conditions hereof and thereof by the Seller will (i) violate,
conflict with or result in any breach of any trust agreement, Articles of
Incorporation, bylaw, judgment, decree, order, statute or regulation
applicable to the Company, (ii) violate, conflict with or result in a breach,
default or termination or give rise to any right of termination, cancellation
or acceleration of the maturity of any payment date of any of the obligations
of the Company or increase or otherwise affect the obligations of the Company
under any law, rule, regulation or any judgment, decree, order, governmental
permit, license or order or any of the terms, conditions or provisions of any
mortgage, indenture, note, license, agreement or other instrument or
obligation related to the Company or to the Seller's ability to consummate
the transactions contemplated hereby or thereby, except for such defaults (or
rights of termination, cancellation or acceleration) as to which requisite
waivers or consents have been obtained in writing and provided to the Buyer,
or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Company.
SECTION 2.15 ABSENCE OF ADVERSE CHANGE; CONDUCT OF BUSINESS.
During the period from the Balance Sheet Date to and including the date
of this Agreement, except as set forth on SCHEDULE 2.15, the Company has not
(i) borrowed or agreed to borrow any material amount of funds or incurred any
liability or obligation of any nature (whether accrued, absolute, contingent
or otherwise), or guaranteed or agreed to guarantee any obligations of
others, (ii) canceled any indebtedness owing to it or any claims that it
might have possessed, waived any material rights of substantial value or
sold, leased, encumbered, transferred or otherwise disposed of, or agreed to
sell, lease, encumber, or otherwise dispose of its assets or permitted any of
its assets to be subjected to any mortgage, pledge, lien, security interest,
encumbrance, restriction or charge of any kind, (iii) made any capital
expenditure or commitment therefor, (iv) declared or paid any dividend or
made any distribution on any shares of its capital stock, or redeemed,
purchased or otherwise acquired any shares of its capital stock or any
option, warrant or other right to purchase or acquire any such shares, (v)
increased its indebtedness for borrowed money, or made any loan to any
Person, (vi) written off as uncollectible any notes or accounts receivable,
except write-offs in the ordinary course of business charged to applicable
reserves, (vii) made any material change in any method of accounting or
auditing practice, (viii) otherwise conducted its business or entered into
any transaction, except in the usual and ordinary manner, or (ix) agreed,
whether or not in writing, to do any of the foregoing.
SECTION 2.16 CERTAIN PRACTICES. None of the Seller, the Company, the
Company's directors or officers, or to the best knowledge of the Seller, the
Company's employees has, directly or indirectly, used any corporate funds for
unlawful contributions, gifts, entertainment, or other unlawful expenses
relating to political activity; made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds; violated any provision
of the
6
<PAGE>
Foreign Corrupt Practices Act of 1977, as amended; established or maintained
any unlawful or unrecorded fund of corporate monies or other assets; made any
false or fictitious entry on the books or records of the Company or any
subsidiary; made any bribe, rebate, payoff, influence payment, kickback, or
other unlawful payment; given any favor or gift which is not deductible for
federal income tax purposes; or made any bribe, kickback, or other payment of
a similar or comparable nature, whether lawful or not, to any person or
entity, private or public, regardless of form, whether in money, business or
to obtain special concessions, or to pay for favorable treatment for business
secured or for special concessions already obtained.
SECTION 2.17 COMPLIANCE WITH LAW; LICENSES AND PERMITS.
Except as set forth on SCHEDULE 2.17, the Company has complied in all
material respects with all laws, ordinances, legal requirements, rules,
regulations and orders applicable to it, its operations, properties, assets,
products and services. Except as set forth on SCHEDULE 2.17, there is no
existing law, rule, regulation or order, and the Seller are not aware of any
proposed law, rule, regulation or order, whether Federal, state or local,
which would prohibit or materially restrict the Buyer from, or otherwise
materially adversely affect the Buyer in, conducting the Business in the
manner heretofore conducted by the Company in any jurisdiction in which the
Business is now conducted. The Company possesses all franchises, permits,
licenses, certificates and consents required from any governmental or
regulatory authority in order for the Company to carry on its business as
currently conducted and to own and operate its properties and assets as now
owned and operated and all of such licenses and permits are set forth on
SCHEDULE 2.17.
SECTION 2.18 EMPLOYEE BENEFITS.
(a) Set forth on SCHEDULE 2.18 is a list of all pension, profit
sharing, retirement, deferred compensation, stock purchase, stock option,
incentive, bonus, vacation, severance, disability, hospitalization, medical
insurance, life insurance, fringe benefit, welfare and other employee benefit
plans, programs or arrangements pursuant to which the Company or its ERISA
Affiliates provides (directly or indirectly, individually or jointly through
others) benefits or compensation to or on behalf of employees or independent
contractors or former employees or former independent contractors of the
Company or its ERISA Affiliates, whether formal or informal, whether or not
written ("Employee Plan"). On request by the Buyer, the Seller shall furnish
a copy of each Employee Plan and a copy of any related materials. The
Company will maintain the benefits listed on SCHEDULE 2.18 in full force and
effect through the Effective Date. Except as set forth on SCHEDULE 2.18, the
Buyer shall not have any obligation or liability of any kind or nature for
any compensation or benefits of any kind or nature to the employees or
consultants of the Company for services rendered prior to the Effective Date.
(b) Each Employee Plan covering any present or former employee of the
Company which is subject to the continuation health coverage requirements of
Section 4980B
7
<PAGE>
of the Code or Section 601 of ERISA or any applicable state law has complied
with all such requirements for continuation coverage.
(c) There are no actions, suits or claims pending (other than
routine claims for benefits) or threatened against or with respect to any
Employee Plan or the assets of any Employee Plan.
(d) Each Employee Plan (and the related trust or funding vehicle,
if any) has been administered and maintained in accordance with its terms and
with applicable law. Except as set forth on SCHEDULE 2.18(d), each Employee
Plan which is intended to be qualified under Section 401 of the Code and each
amendment to such plan is subject to a favorable determination letter from
the Internal Revenue Service and each such plan has at all times been
maintained, by its terms and in operation, in accordance with Section 401 of
the Code. The assets of each Employee Plan which is not funded through the
general assets of the Company are at least equal to the liabilities under
such Employee Plan, and all assets of each Employee Plan are shown on the
books and records of such Employee Plan at fair market value. No Employee
Plan has unfunded liabilities that as of the Closing Date are not accurately
and fully reflected on the Company's Balance Sheet.
(e) Neither the Company nor any of its ERISA Affiliates is or has
been a participant in, or is or has been obligated to maintain or to make
contributions to, a multi-employer plan (within the meaning of ERISA Section
3(37) and ERISA Section 4001(a)(3)) or an Employee Plan which is subject to
Title IV of ERISA. Neither the Company nor any ERISA Affiliate has
sponsored, contributed to or been obligated under Title I or IV of ERISA to
contribute to a "defined benefit plan" (as defined in ERISA Section 3(35)).
The Company is not obligated to provide post-retirement medical benefits or
any other unfunded post-retirement welfare benefits to or on behalf of any
persons whatsoever (except the benefits pursuant to the continuation health
coverage requirements under Section 4980B of the Code, ERISA Section 601, or
applicable state law).
(f) Neither the Company nor its ERISA Affiliates is subject to
and, to the best knowledge of the Seller, no facts exist which could subject
the Company or any of its ERISA Affiliates to, any liability whatsoever which
is directly or indirectly related to any Employee Plan, including, but not
limited to, liability for benefit payments or related claims, any liability
for any tax or related penalty under the Code, or liability for any damages
or penalties arising under Title I or Title IV of ERISA. No reportable event
under Section 4043 of ERISA has occurred or, to the best knowledge of the
Seller, will occur with respect to such Employee Plan.
(g) Termination of or withdrawal from any Employee Plan
immediately after the Closing Date would not subject the Buyer to any
liability, tax or penalty whatsoever.
(h) The execution or performance of the transactions contemplated by
this
8
<PAGE>
Agreement will not create, accelerate or increase any obligations under the
Employee Plans, including any obligation to make any payment which would not
be deductible as an excess golden parachute payment under Section 280G of the
Code.
(i) All contributions to or under each Employee Plan and all
expenses of each Employee Plan are fully deductible for income tax purposes
for the taxable year for which such contributions are made or such expenses
are paid. All contributions to or under each Employee Plan have been made
when due under the terms of such Employee Plan in accordance with applicable
law.
(j) For purposes of this Section 2.18, the term "ERISA" shall mean
the Employee Retirement Income Security Act of 1974, as amended, and the term
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Company is treated as a single employer
under Section 414(b), (c), (m), (o) or (t) of the Code.
SECTION 2.19 FIXED ASSETS. SCHEDULE 2.19 contains a true and complete
list of all of the Company's fixed assets with a net book value of greater
than $1,000.00, whether owned or leased. Except as shown on SCHEDULE 2.19,
the Company has good and marketable title to all of its fixed assets, free
and clear of all claims, liens, mortgages, charges and encumbrances except as
disclosed in the Balance Sheet. All of the Company's fixed assets, whether
owned or leased, are adequate and usable for the purposes for which they are
currently used, are in good operating condition and repair and have been
properly maintained.
SECTION 2.20 INSURANCE. The Company is, and will be through the
Closing, insured with insurers in respect of its properties, assets and
businesses as set forth on the attached SCHEDULE 2.20. SCHEDULE 2.20 lists
the insurance coverage carried by the Company, which insurance will remain in
full force and effect with respect to all events occurring prior to the
Effective Date. Except as set forth on SCHEDULE 2.20, the Company (i) has
not failed to give any notice or present any claim under any such policy or
binder in due and timely fashion, (ii) has not received notice of
cancellation or non-renewal of any such policy or binder, (iii) is not aware
of any threatened or proposed cancellation or non-renewal of any such policy
or binder, (iv) has not received notice of any insurance premium which will
be materially increased in the future, and (v) is not aware of any insurance
premium which will be materially increased in the future. There are no
outstanding claims under any such policy which have gone unpaid for more than
45 days, or as to which the insurer has disclaimed liability.
SECTION 2.21 ACCOUNTS RECEIVABLE; SELLER NOTES. The accounts
receivable and other debts due or recorded in the respective records and
books of account of the Company as being due to the Company as of the
Effective Date, all of which are set forth on SCHEDULE 2.21, arose in the
ordinary course of business of the Company, are not subject to any
counterclaim or set-off and are fully collectible within 90 days after the
Effective Date
9
<PAGE>
without resort to litigation and without offset or counterclaim. All notes
payable to the Seller by the Company and all notes receivable to the Company
from the Seller have been paid in full.
SECTION 2.22 OUTSTANDING CONTRACTS. SCHEDULE 2.22 sets forth a
description of all existing contracts, agreements, leases, commitments,
licenses and franchises, which involve obligations or commitments by the
Company of $10,000 or more and are not cancelable by the Company without
penalty within 30 days (collectively "Contracts"), whether written or oral,
relating to the Company. The Seller has delivered or made available to the
Buyer true, correct and complete copies of all of the Contracts specified on
SCHEDULE 2.22 which are in writing, and such schedule sets forth a complete
description of all Contracts which are not in writing. All of the Contracts
are in full force and effect and enforceable in accordance with their terms,
except to the extent that the enforceability thereof may be subject to or
affected by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, or other laws relating to or affecting the rights
of creditors generally. Except as set forth on SCHEDULE 2.22, the Company
and, to the best knowledge of the Seller, each other party thereto has
materially performed all the obligations required to be performed by it, has
received no notice of default and is not in default (with due notice or lapse
of time or both) under any of the Contracts. The Company has no present
expectation or intention of not fully performing all its obligations under
each of the Contracts, and the Seller has no knowledge of any breach or
anticipated breach by the other party to any of the Contracts to which the
Company is a party. Except as set forth on SCHEDULE 2.22, none of the
Contracts has been terminated; no notice has been given by any party thereto
of any alleged default by any party thereunder; and the Seller is not aware
of any intention or right of any party to declare another party to any of the
Contracts to be in default. Except as set forth on SCHEDULE 2.22, there
exists no actual or, to the best knowledge of the Seller, threatened
termination, cancellation or limitation of the business relationship of the
Company by any party to any of the Contracts.
SECTION 2.23 OUTSTANDING LEASES. SCHEDULE 2.23 sets forth a
description of each agreement by which the Company leases each parcel of real
property (the "Leased Parcels") used in connection with the Business
(collectively, the "Leases"). The Seller has delivered or made available to
the Buyer true, correct and complete copies of all of the Leases specified on
SCHEDULE 2.23. All rents due under the Leases have been paid. All of the
Leases are in full force and effect and enforceable in accordance with their
terms, except to the extent that the enforceability thereof may be subject to
or affected by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, or other laws relating to or affecting the rights
of creditors generally. Except as set forth on SCHEDULE 2.23, the Company
and to the best knowledge of the Seller, each other party thereto has
performed all the obligations required to be performed by it, has received no
notice of default and is not in default (with due notice or lapse of time or
both) under any of the Leases. The Company has no present expectation or
intention of not fully performing all its obligations under each of the
Leases, and the Seller has no knowledge of any breach or anticipated breach
by the other party to any of the Leases. Except as set forth on SCHEDULE
10
<PAGE>
2.23, none of the Leases has been terminated; no notice has been given by any
party thereto of any alleged default by any party thereunder; and the Seller
is not aware of any intention or right of any party to declare another party
to any of the Leases to be in default. There exists no actual or, to the best
knowledge of the Seller, threatened termination, cancellation or limitation
of the business relationship of the Company with any party to any of the
Leases.
SECTION 2.24 INTELLECTUAL PROPERTIES. SCHEDULE 2.24 contains an
accurate and complete list of all domestic and foreign letters patent,
patents, patent applications, patent licenses, software licenses and know-how
licenses, trade names, trademarks, copyrights, unpatented inventions, service
marks, trademark registrations and applications, service mark registrations
and applications and copyright registrations and applications, trade secrets
or other confidential proprietary information owned or used by the Company in
the operation of the Business (collectively the "Intellectual Property").
Except as set forth on SCHEDULE 2.24 and except for commercial software
licensed for use on personal computers, the Company owns the entire right,
title and interest in and to the Intellectual Property, trade secrets and
technology used in the operation of its business and each item constituting
part of the Intellectual Property and trade secrets and technology which is
owned by the Company has been, to the extent indicated in SCHEDULE 2.24, duly
registered with, filed in or issued by, as the case may be, the United States
Patent and Trademark office or such other government entities, domestic or
foreign, as are indicated in SCHEDULE 2.24 and such registrations, filings
and issuances remain in full force and effect. There have been and are no
pending or, to the best knowledge of the Seller, threatened proceedings or
litigation or other adverse claims affecting or with respect to the
Intellectual Property. There is, to the best knowledge of the Seller, no
reasonable basis upon which a claim may be asserted against the Company for
infringement of any domestic or foreign letters patent, patents, patent
applications, patent licenses and know-how licenses, trade names, trademark
registrations and applications, common law trademarks, service marks, service
mark registrations or applications, copyrights, copyright registrations or
applications, trade secrets or other confidential proprietary information. To
the best knowledge of the Seller, no Person is infringing upon the
Intellectual Property.
11
<PAGE>
SECTION 2.25 PROPRIETARY INFORMATION OF THIRD PARTIES.
Except as disclosed on SCHEDULE 2.25, no third party has claimed or, to
the best knowledge of the Seller, has reason to claim that any Person
employed by or consulting with the Company ("Related Person") has (i)
violated or may be violating any of the terms or conditions of such person's
employment, non-competition or non-disclosure agreement with such third
party, (ii) disclosed or may be disclosing or utilized or may be utilizing
any trade secret or proprietary information or documentation of such third
party, or (iii) interfered or may be interfering in the employment
relationship between such third party and any of its present or former
employees. No third party has requested information from the Company which
suggests that such a claim might be contemplated. Except as disclosed on
SCHEDULE 2.25, to the best knowledge of the Seller, no Related Person has
employed or proposes to employ any trade secret or any information or
documentation proprietary to any former employer and no Related Person has
violated any confidential relationship which such person may have had with
any third party, in connection with the development or sale of any product or
service of the Company, and the Seller has no reason to believe there will be
any such employment or violation.
SECTION 2.26 TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 2.26, to the best knowledge of each Seller, no director, officer or
shareholder of the Company, or member of the family of any such person, or
any corporation, partnership, trust or other entity in which any such person,
or any member of the family of any such person, has a beneficial interest
greater than 5% or is an officer, director, trustee, partner or holder of any
equity interest greater than 5%, is a party to any transaction with the
Company, including any contract, agreement or other arrangement providing for
the employment of, furnishing of services by, rental of real or personal
property from or otherwise requiring payments or involving other obligations
to any such person or firm.
SECTION 2.27 ABSENCE OF UNDISCLOSED LIABILITIES.
(a) Except as and to the extent of the amounts specifically
reflected or reserved against in the Balance Sheet, or except as set forth on
SCHEDULE 2.27, the Company has no liabilities or obligations of any nature
whatsoever due or to become due, accrued, absolute, contingent or otherwise,
except for liabilities and obligations incurred since the date thereof in the
ordinary course of business and consistent with past practice. The Seller
does not know of, and has no reason to know of, any basis for the assertion
against the Company of any liability or obligation not fully reflected or
reserved against in the Balance Sheet.
(b) The Company is not bound by any agreement, or subject to any
charter or other corporate restriction or any legal requirement, which has,
or in the future can reasonably be expected to have, a material adverse
effect on the business or prospects of the Company.
SECTION 2.28 TAXES. The Company has timely filed a valid election to be
12
<PAGE>
treated as an S corporation in accordance with the provisions of Section 1361
of the Code, effective for its tax year beginning January 1, 1992 and ending
December 31, 1992, and has qualified and shall continue to qualify as an S
corporation for all years and periods thereafter until the Effective Time.
SCHEDULE 2.28 lists all the states and localities with respect to which the
Company is required to file any corporate, income and/or franchise tax
returns and sets forth whether the Company is treated as the equivalent of an
S corporation by or with respect to each such state or locality. The Company
has not engaged in any activity which would disqualify its treatment as an S
corporation for those tax purposes. Except as set forth on SCHEDULE 2.28,
all federal, state, local and foreign tax returns and tax reports required to
be filed by the Company on or before the date hereof have been timely filed
with the appropriate governmental agencies in all jurisdictions in which such
returns and reports are required to be filed and all amounts shown as owing
thereon have been paid. All taxes (including, without limitation, income,
accumulated earnings, property, sales, use, franchise, excise, license, value
added, fuel, employees' income withholding and social security taxes) which
have become due or payable or are required to be collected by the Company or
are otherwise attributable to any periods ending on or before the Effective
Time and all interest and penalties thereon, whether disputed or not, have
been paid or will be paid in full on or prior to the Closing Date or are
adequately reflected on the Balance Sheet or the Company's books and records
in accordance with GAAP. Except as set forth on SCHEDULE 2.28, all deposits
required by law to be made by the Company with respect to employees'
withholding taxes have been duly made, and as of the Effective Time all such
deposits due will have been made. The Company has delivered to the Buyer
true and complete copies of all of the Company's federal and state income tax
returns for the fiscal periods ended December 31, 1997, 1996 and 1995 and all
reports and results of income tax audits, if any, related thereto. Except as
set forth on SCHEDULE 2.28, no examination of any tax return of the Company
is currently in progress. There are no outstanding agreements or waivers
extending the statutory period of limitations applicable to any such tax
return.
SECTION 2.29 LITIGATION. Except as set forth on SCHEDULE 2.29, there
is no (i) action, suit, claim, proceeding or investigation pending or, to the
best knowledge of the Seller, threatened against or affecting the Company
(whether or not such Company is a party or prospective party thereto), at law
or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceeding pending
relating to the Company or (iii) governmental inquiry pending or threatened
against or involving the Company, and there is no basis for any of the
foregoing. The Company has not received any opinion or memorandum or legal
advice from legal counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage which may be material to the
business, prospects, financial condition, operations, property or affairs of
the Company. There are no outstanding orders, writs, judgments, injunctions
or decrees served upon the Company by any court, governmental agency or
arbitration tribunal against the Company. There are no facts or
circumstances which may result in institution of any action, suit, claim or
legal, administrative or arbitration proceeding or investigation against,
involving or affecting the Company or the transactions contemplated hereby.
The Company is not in
13
<PAGE>
default with respect to any order, writ, injunction or decree known to or
served upon it from any court or of any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. Except as disclosed on SCHEDULE 2.29,
there is no action or suit by the Company pending or threatened against
others.
SECTION 2.30 ENVIRONMENTAL MATTERS.
(a) COMPLIANCE. The Company and all Leased Parcels are in
compliance with all applicable laws, rules, regulations, orders, ordinances,
judgments and decrees of all governmental authorities with respect to all
environmental statutes, rules and regulations. Except as set forth on
SCHEDULE 2.30, the Company has not received notice of, nor does the Seller
has knowledge of, any past, present or future events, conditions,
circumstances, activities, practices, incidents, actions or plans of the
Company or the Company's predecessors, either collectively, individually or
severally, which may interfere with or prevent continued compliance with, or
which may give rise to any common law or legal liability or otherwise form
the basis of any claim, action, suit, proceeding, hearing, or investigation,
based on or related to the disposal, storage, handling, manufacture,
processing, distribution, use, treatment or transport, or the emission,
discharge, release or threatened release into the environment, of any
Substance. As used in this Section 2.30, the term "Substance" or
"Substances" shall mean any pollutant, contaminant, hazardous substance,
hazardous material, hazardous waste or toxic waste, as defined in any
presently enacted federal, state or local statute or any regulation that has
been promulgated pursuant thereto. No part of any of the Leased Parcels has
been listed or proposed for listing on the National Priorities List
established by the United States Environmental Protection Agency, or any
other corresponding list by any state or local authorities.
(b) ENVIRONMENTAL SUBSTANCE LIABILITY. No event has occurred or
condition exists or operating practice is being employed that could give rise
to liability on the part of the Company, either at the present time or in the
future, for any losses, liabilities, damages (whether consequential or
otherwise), settlements, penalties, interest, expenses and costs of
responses, including any such liability on account of the right of any
governmental or private entity or person, and including closure expenses,
costs of assessment, containment, removal, or response (other than monitoring
or transportation or disposal of materials required to be transported or
disposed of in the ordinary course of business consistent with past practice)
arising under any rule or federal, state, or local statute, or any regulation
that has been promulgated pursuant thereto, or common law, as a result of or
in connection with, or alleged to be as a result of or in connection with,
the following (collectively the "Hazardous Activities"):
(A) the handling, storage, use, transportation or disposal of
any Substances in or near or from the Leased Parcels;
14
<PAGE>
(B) the handling, storage, use, transportation or disposal of
any Substances by the Company or its predecessors which
Substances were a product, by-product or otherwise
resulted from the operations conducted by or on behalf of
the Company or its predecessors;
(C) any intentional or unintentional emission, discharge or
release of any Substances in or near or from facilities
into or upon the air, surface water, ground water or land
or any disposal, handling, manufacturing, processing,
distribution, use, treatment, or transport of such
Substances in or near or from facilities by or on behalf
of the Company or its predecessors; or
(D) the presence of any toxic or hazardous building materials
(including but not limited to friable asbestos or similar
substances) in any facilities of the Company, including
but not limited to the inclusion of such materials in the
exterior and interior walls, floors, ceilings, tile,
insulation or any other portion of building structures.
(c) ENVIRONMENTAL PERMITS. The Company has obtained and holds all
registrations, permits, licenses, and approvals issued by or on behalf of any
federal, state or local governmental body or agency if any ("Environmental
Permits") that are required in connection with the operation by the Company
of the Leased Parcels, the discharge or emission of Substances by the Company
from the Leased Parcels or the generation, treatment, storage,
transportation, or disposal of any such Substances by the Company. Such
Environmental Permits, which are described on SCHEDULE 2.30, are currently
effective and sufficient for the operation of the Leased Parcels and the
business of the Company as currently conducted and intended to be conducted.
The Company is in compliance with all terms and conditions of the
Environmental Permits, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables contained in those laws or provisions or contained
in any regulation, code, plan, order, decree, judgment, notice or demand
letter issued, entered, promulgated or approved thereunder and applicable to
the Company.
(d) DELIVERIES. The Seller has delivered to the Buyer true and
complete copies and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by the Seller pertaining to Substances or
Hazardous Activities in, on, or under the Leased Parcels or concerning
compliance by the Seller or any other Person for whose conduct they are or
may be held responsible, with environmental statutes, rules and regulations.
SECTION 2.31 BROKER'S OR FINDER'S FEES. No agent, broker, person or
firm acting on behalf of the Seller or the Company is, or will be, entitled
to any commission or broker's or finder's fees from the Seller or the
Company, or from any person controlling, controlled by or under common
control with the Seller or the Company, in connection with
15
<PAGE>
any of the transactions contemplated herein.
SECTION 2.32 INVENTORY. All inventory of the Company, whether or
not reflected in the Financial Statements or Balance Sheet, consists of a
quality and quantity usable and salable in the ordinary course of business,
except for obsolete items and items of below-standard quality, all of which
have been written off or written down to net realizable value in the
Financial Statements or the Balance Sheet, as the case may be. All
inventories not written off have been priced at the lower of cost or market
on a first in, first out basis. The quantities of each item of inventory
(whether raw materials, work-in-process, or finished goods) are not
excessive, but are reasonable in the present circumstances of the Company.
SECTION 2.33 YEAR-2000 COMPLIANCE.
(a) SCHEDULE 2.33 contains a true and complete list of all Systems (as
hereinafter defined), and each System is Year-2000 Compliant (as hereinafter
defined) to the extent indicated on SCHEDULE 2.33.
(b) As used throughout this Agreement, the following definitions shall
have the following meanings:
(1) "External Systems" shall mean all services which are provided
to the Company by third parties and which are dependent on
information technology, including, but not limited to, any
external payroll, accounting, or tax filing services or any
checking, savings, or other financial services.
(2) "Internal Systems" shall mean all technology products and
systems generally operated or controlled in-house by the
Company, or its employees, agents, or independent contractors
including, but not limited to, computers, computer networks,
telephone systems, voicemail systems, intercom systems, pager
systems, and software applications.
(3) "Licensed Systems" shall mean all products and systems
developed by or for the Company which are licensed, sold,
distributed, or otherwise transferred by the Company to third
parties.
(4) "System" or "Systems" shall mean any, all, or any combination
of any Internal System, External System, or Licensed System.
(5) "Year-2000 Compliant" shall mean, with respect to each System,
that such System is designed to be used before, during, and
after the calendar year 2000 A.D. and will accurately accept
date input and process, store, and output date data and
date-related data, including, without limitation,
16
<PAGE>
calculating, comparing, sorting, and sequencing such data and
calculating leap years before, during, and after the calendar
year 2000 A.D. without any manual intervention.
SECTION 2.34 PURCHASE FOR INVESTMENT; RESTRICTED SECURITIES. The
Seller represents and warrants (a) that he is acquiring shares of Buyer
Common Stock, as hereinafter defined, for investment and not with a present
view toward, or for sale in connection with, any distribution thereof, nor
with any present intention of distributing or selling the shares of Buyer
Common Stock so acquired; (b) that he has no present plan or intention to
sell, exchange or otherwise dispose of any of the shares of Buyer Common
Stock that may be received in connection with the Earn-Out Payments; and (c)
he acknowledges that (i) the shares of Buyer Common Stock are not and will
not be registered under the Securities Act of 1933, as amended (the "1933
Act"), and (ii) that the Buyer does not file periodic reports with the
Securities and Exchange Commission pursuant to the requirements of Section 12
or 15(d) of the Securities Exchange Act of 1934, as amended.
SECTION 2.35 DISCLOSURE. All Documents delivered or to be delivered by
or on behalf of the Seller or the Company in connection with this Agreement
and the transactions contemplated hereby are true, complete and correct.
Neither this Agreement, nor any of the other Documents contains any untrue
statement of a material fact or omits a material fact necessary to make the
statements made by the Seller herein or therein, in light of the
circumstances in which made, not misleading. There is no fact known to the
Seller which materially and adversely affects the business, prospects or
financial condition of the Company or its properties or assets, which has not
been set forth in the Documents.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE BUYER
As an inducement to the Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, the Buyer represents and
warrants to the Seller as follows:
SECTION 3.1 ORGANIZATION. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is duly qualified to transact business as a foreign corporation in each
jurisdiction in which the failure to so qualify would have a material adverse
impact on the Buyer's ability to purchase the Common Stock pursuant to this
Agreement and perform its obligations under this Agreement.
SECTION 3.2 CORPORATE POWER AND AUTHORITY. The Buyer has the
corporate power and authority to execute, deliver and perform this Agreement
and the other Documents. The execution, delivery and performance of the
Documents contemplated hereby and the consummation of the transactions
contemplated hereby and thereby have been duly authorized and approved by all
necessary corporate action of the Buyer. The Documents to be executed and
delivered by the Buyer have been duly executed and delivered by, and
constitute the legal, valid and binding obligation of the Buyer enforceable
against the Buyer in accordance with their
17
<PAGE>
terms.
SECTION 3.3 VALIDITY, ETC. Neither the execution and delivery by the
Buyer of this Agreement and the other Documents, the consummation by the
Buyer of the transactions contemplated hereby or thereby, nor the performance
by the Buyer of this Agreement and such other agreements in compliance with
the terms and conditions hereof and thereof will (i) violate, conflict with
or result in any breach of any trust agreement, articles of incorporation,
bylaw, judgment, decree, order, statute or regulation applicable to the
Buyer, (ii) violate, conflict with or result in a breach of or default (or
give rise to any right of termination, cancellation or acceleration) under
any law, rule or regulation or any judgment, decree, order, governmental
permit, license or order or any of the terms, conditions or provisions of any
mortgage, indenture, note, license, agreement or other instrument to which
the Buyer is a party, or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Buyer.
SECTION 3.4 CAPITAL STOCK. The authorized capital stock of the Buyer
consists of (a) 100,000,000 shares of of $.001 par value common stock ("Buyer
Common Stock"), of which 13,464,918 shares were issued and outstanding as of
August 4, 1998 and (b) 50,000,000 shares of $.001 par value preferred stock
("Buyer Preferred Stock"), of which 1,701,000 shares were issued and
outstanding as of August 6, 1998 (collectively, Buyer Common Stock and Buyer
Preferred Stock are referred to as "Buyer Capital Stock"). All of the issued
and outstanding shares of Buyer Capital Stock are, and all of the shares of
Buyer Common Stock to be issued pursuant to SCHEDULE 1.2, when issued in
accordance with the terms of this Agreement, will be, duly and validly issued
and outstanding and fully paid and nonassessable. None of the outstanding
shares of Buyer Capital Stock has been, and none of the shares of Buyer
Common Stock to be issued in connection with this transaction will be, issued
in violation of any preemptive rights of the current or past shareholders of
the Buyer.
SECTION 3.5 DISCLOSURE STATEMENT. The Buyer's Disclosure Statement,
dated June 25, 1998, which has been previously delivered to the Seller is
true, complete and correct in all material respects.
SECTION 3.6 ACQUISITION OF STOCK FOR INVESTMENT. The Buyer is
acquiring the shares of Common Stock for investment and not with a view
toward, or for sale in connection with, any distribution thereof, nor with
any present intention of distributing or selling such shares of Common Stock.
The Buyer agrees that such shares of Common Stock may not be sold,
transferred, offered for sale, pledged, hypothecated or otherwise disposed of
without registration under the Securities Act of 1933, as amended, except
pursuant to an exemption from registration available under such Act. The
Buyer will not sell, offer to sell or solicit offers to buy any of the shares
of Common Stock in violation of the Securities Act of 1933 or the securities
law of any state. The Buyer understands that the shares of Common Stock have
not been registered under federal or any state's securities laws.
SECTION 3.7 BROKER'S OR FINDER'S FEES. No agent, broker, person or firm
acting
18
<PAGE>
on behalf of the Buyer is, or will be, entitled to any commission or broker's
or finder's fees from the Buyer, or from any person controlling, controlled
by or under common control with the Buyer, in connection with any of the
transactions contemplated herein.
SECTION 3.8 GOVERNMENTAL APPROVALS. No registration or filing with,
or consent or approval of or other action by, any Federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Buyer of this Agreement.
SECTION 3.9 DISCLOSURE. All Documents delivered or to be delivered
by or on behalf of the Buyer in connection with this Agreement and the
transactions contemplated hereby are true, complete and correct. Neither
this Agreement, nor any of the other Documents contains any untrue statement
of a material fact or omits a material fact necessary to make the statements
made by the Buyer herein or therein, in light of the circumstances in which
made, not misleading. There is no fact known to the Buyer which may have a
material adverse effect on the Buyer's ability to pay its obligations under
this Agreement, which has not been set forth in the Documents.
ARTICLE IV. COVENANTS AND AGREEMENTS
SECTION 4.1 BEST EFFORTS. The Seller and the Buyer shall each use
their best efforts to procure upon reasonable terms and conditions all
consents and approvals, completion of all filings, all registrations and
certificates, and satisfaction of all other requirements prescribed by law
which are necessary for the consummation of the transactions contemplated by
this Agreement and the Buyer's ownership and operation of the Company's
Business after the Closing Date. Prior to the Closing Date, the Seller will
use his best efforts to preserve the Company's relationships with its
employees, customers and others having business relationships with the
Company.
SECTION 4.2 TAX RETURNS. The Seller shall cause the Company to
prepare and timely file, at his sole expense, all of the Company's required
tax returns for all periods ending on or prior to the Effective Date. The
Seller shall be responsible for the payment of, and will indemnify, defend
and hold the Buyer harmless against all taxes due or assessed which relate to
the operations of the Business for all periods ending on or prior to the
Effective Date.
SECTION 4.3 INVESTIGATIONS. The Seller shall give the Buyer and its
employees, accountants, attorneys and other authorized representatives full
access during all reasonable times to all the premises, properties, books and
records, and furnish the Buyer with such financial and operating data,
analyses and other information of any kind respecting the Company's business
and properties as the Buyer shall from time to time request. Any
investigation shall be conducted in a manner which does not unreasonably
interfere with business operations.
19
<PAGE>
SECTION 4.4 PRESERVATION OF BUSINESS. The Seller shall cause the
Company to use its best efforts to preserve the possession and control of all
of its assets and Business, to preserve the goodwill of its customers and
others with whom it has business relations, and to do nothing to impair its
ability to keep and preserve its Business as it exists on the date of this
Agreement.
SECTION 4.5 SECTION 338(h)(10) ELECTION. The Buyer and the Seller
shall make a simultaneous joint election (the "Election") under Section
338(h)(10) of the Code for the Company on Internal Revenue Service Form 8023
in accordance with the instructions to the form and any similar state law
provisions in all applicable states, with respect to the sale and purchase of
the Company's shares pursuant to this Agreement, and each party shall provide
to the others all necessary information to permit such election to be made.
Such election shall be made not later than the 15th day of the ninth month
beginning after the month in which the Closing Date occurs. The Buyer and
the Seller shall, as promptly as practicable following the Closing Date, take
all actions necessary and appropriate (including filing such forms, returns,
schedules and other documents as may be required) to effect and preserve a
timely election. All taxes attributable to the election made pursuant to
this Section 4.5 shall be the liability of the Seller; provided. however,
that the Buyer shall pay the Seller on or before April 15, 1999, the amount
that the Seller's Federal income tax due in connection with the sale of the
Common Stock and the Election is greater than the amount of Federal income
tax that would have been due in connection with the sale of the Common Stock
if the Election had not been made. In connection with such election, within
sixty (60) days following the Closing Date, the Buyer and the Seller shall
act together in good faith to determine and agree upon the "deemed sale
price" to be allocated to each asset of the Company in accordance with
Treasury Regulation Section 1.338(h)(10)-1(f) and the other regulations under
Section 338 of the Code.
SECTION 4.6 LANDLORDS' CONSENTS. The Seller shall cause, on or
before the expiration of thirty (30) days after the Closing Date, the Company
to obtain from its landlords (to the extent required under the pertinent
premises leases) written consent to the assignment of said leases to the
Buyer which assignment is deemed to have resulted from the transactions
contemplated by this Agreement.
SECTION 4.7 AUDITED FINANCIAL STATEMENTS. The Seller shall furnish
to the Buyer, as soon as practical and at the Seller's expense, audited
financial statements of the Company for the three (3) fiscal years ending
December 31, 1997, 1996 and 1995.
SECTION 4.8 POST-CLOSING MATTERS. The Buyer agrees to use its best
efforts to cause Norwest Bank, North Dakota, N.A. to release the personal
guarantees of the Seller in connection with certain of the Company's debts
obligations on or before the expiration of sixty (60) days after the Closing
Date. The Seller agrees to cause employees ("North Country Participants") of
North Country Thermal Line, Inc. ("North Country") to cease to be
participants in the Leingang Siding and Window, Inc. 401(k) Profit Sharing
Plan (the "Leingang Plan") on or before December 31, 1998. The Seller agrees
to cause North Country to take all steps necessary and appropriate to
establish a successor 401(k) retirement plan for the North Country
20
<PAGE>
Participants and to transfer the account balances of the North Country
Participants from the Leingang Plan to such successor plan.
ARTICLE V. CONDITIONS TO THE BUYER'S OBLIGATIONS
The obligation of the Buyer to make deliveries to the Seller pursuant to
Section 1.2 hereof and to consummate the other transactions contemplated
hereby is subject to the satisfaction, on or before the Closing Date, of the
following conditions each of which may be waived by the Buyer in its sole
discretion:
SECTION 5.1 INTRA-COMPANY DEBT. All indebtedness of the Seller and
all other directors, officers and employees of the Company to the Company
shall have been repaid in full and the Seller shall have delivered to the
Buyer a certificate, dated the Closing Date, to such effect.
SECTION 5.2 CONSENTS. Except for the consents of the landlords
provided for in Section 4.6 above and except as set forth on SCHEDULE 5.2,
all requisite governmental approvals and consents of third parties identified
on such schedule or otherwise identified by the Seller as required to be
received to prevent any material license, permit or agreement relating to the
Business from terminating prior to its scheduled termination, as a result of
the consummation of the transactions contemplated hereby, shall have been
obtained.
SECTION 5.3 NON-COMPETITION AGREEMENT. The Seller shall have entered
into a Non-Competition Agreement with the Buyer in substantially the form
attached hereto as EXHIBIT B (the "Non-Competition Agreement").
SECTION 5.4 OPINION OF COUNSEL TO THE SELLER. The Buyer shall have
received from Kelsch Kelsch Ruff & Kranda, P.L.L.P., counsel to the Seller,
an opinion, dated as of the Closing Date, in form and substance reasonably
satisfactory to the Buyer, and to the following effect:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of North Dakota. The
Company is qualified to do business as a foreign corporation and is in good
standing in the states set forth on SCHEDULE 2.4. The nature of the Business
does not require the Company to be licensed or qualified in any other
jurisdiction. The Company has the corporate power and authority to own,
lease, operate and hold its properties and to carry on its business as now
conducted;
(b) The Seller has full legal power, capacity and authority to
execute and deliver this Agreement and the other Documents and to consummate
the transactions contemplated hereby and thereby, and this Agreement and the
other Documents have been duly
21
<PAGE>
and validly executed and delivered by the Seller and constitute the legal,
valid and binding obligation of the Seller, enforceable against the Seller in
accordance with their terms;
(c) The Company has authorized capital consisting of 25,000 shares
of common stock, with par value of $4.00 per share, of which 24,408 shares
are issued and outstanding and no shares are held as treasury stock. All of
the outstanding shares of the Company have been duly authorized and validly
issued and are fully paid and nonassessable. None of the outstanding shares
of the Company have been issued in violation of any preemptive right. There
are no outstanding options, warrants, rights, calls, commitments, conversion
rights, rights of exchange, plans or other agreements of any character
providing for the purchase, issuance or sale of any shares of capital stock
of the Company, other than as contemplated by this Agreement;
(d) The Company has no subsidiaries and does not own, directly or
indirectly, any capital stock or other equity or ownership or proprietary
interest in any other corporation, partnership, association, trust, joint
venture or other entity;
(e) No registration or filing with, or consent or approval of or
other action by, any Federal, state or other governmental agency or
instrumentality is or will be necessary for the valid execution, delivery and
performance by the Seller of this Agreement;
(f) There is no (i) action, suit, claim, proceeding or
investigation pending or, to the best knowledge of the Seller's counsel,
threatened against or affecting the Company (whether or not such Company is a
party or prospective party thereto), at law or in equity, or before or by any
Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, (ii)
arbitration proceeding pending relating to the Company or (iii) governmental
inquiry pending or threatened against or involving the Company, and, to the
best knowledge of the Seller's counsel, there is no basis for any of the
foregoing. The Company has not received any opinion or memorandum or legal
advice from legal counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage which may be material to the
business, prospects, financial condition, operations, property or affairs of
the Company. There are no outstanding orders, writs, judgments, injunctions
or decrees served upon the Company by any court, governmental agency or
arbitration tribunal against the Company. To the best knowledge of the
Seller's counsel, there are no facts or circumstances which may result in
institution of any action, suit, claim or legal, administrative or
arbitration proceeding or investigation against, involving or affecting the
Company or the transactions contemplated hereby. The Company is not in
default with respect to any order, writ, injunction or decree known to or
served upon it from any court or of any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. There is no action or suit by the
Company pending or threatened against others;
(g) The Non-Competition Agreement has been duly executed and
delivered by, and constitutes the legal, valid and binding obligation of the
Seller, enforceable against him in
22
<PAGE>
accordance with its terms; and
(h) The execution and delivery of this Agreement and the other
Documents, the consummation of the transactions contemplated hereby and
thereby, and the performance of the Agreement and such other agreements in
compliance with the terms and conditions hereof and thereof by the Seller
will not, to the best knowledge of counsel, (i) violate, conflict with or
result in any breach of any trust agreement, articles of incorporation,
bylaw, judgment, decree, order, statute or regulation applicable to the
Company, (ii) violate, conflict with or result in a breach, default or
termination or give rise to any right of termination, cancellation or
acceleration of the maturity of any payment date of any of the obligations of
the Company or increase or otherwise affect the obligations of the Company
under any law, rule, regulation or any judgment, decree, order, governmental
permit, license or order or any of the terms, conditions or provisions of any
mortgage, indenture, note, license, agreement or other instrument or
obligation related to the Company or to the Seller's ability to consummate
the transactions contemplated hereby or thereby, except for such defaults (or
rights of termination, cancellation or acceleration) as to which requisite
waivers or consents have been obtained in writing and provided to the Buyer,
or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Company.
SECTION 5.5 CLOSING DOCUMENTS. The Seller shall have delivered all
of the resolutions, certificates, documents and instruments required by this
Agreement.
SECTION 5.6 APPROVAL OF THE BUYER AND ITS COUNSEL. All actions,
proceedings, consents, instruments and documents required to be delivered by,
or at the behest or direction of, the Seller hereunder or incident to their
performance hereunder, and all other related matters, shall be reasonably
satisfactory as to form and substance to the Buyer and its counsel.
ARTICLE VI. CONDITIONS TO THE SELLER'S OBLIGATIONS
The obligation of the Seller to transfer the Common Stock to the Buyer
and to consummate the other transactions contemplated hereby is subject to
the satisfaction, on or before the Closing Date, of the following conditions,
each of which may be waived by the Seller in his sole discretion:
SECTION 6.1 OPINION OF STITES & HARBISON. The Seller shall have
received from Stites & Harbison, counsel to the Buyer, an opinion dated as of
the Closing Date, in form and substance reasonably satisfactory to the
Seller, and to the following effect:
(a) The Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and is duly
qualified to transact business as a foreign corporation in each jurisdiction
in which the failure to so qualify would have a material adverse impact on
the Buyer's ability to pay its obligations under this Agreement;
23
<PAGE>
(b) The Buyer has the corporate power and authority to execute,
deliver and perform the Agreement and the other Documents. The execution,
delivery and performance of the Agreement and the other Documents and the
consummation of the transactions contemplated hereby and thereby have been
duly and validly executed and delivered by the Buyer and constitute the
legal, valid and binding obligations of the Buyer enforceable against the
Buyer in accordance with their terms; and
(c) The execution and delivery of the Agreement and the other
Documents, the consummation of the transactions contemplated hereby and
thereby, and the performance of the Agreement and such other agreements in
compliance with the terms and conditions hereof and thereof by the Buyer will
not (i) violate, conflict with or result in any breach of any trust
agreement, certificate of incorporation, bylaw, judgment, decree, order,
statute or regulation applicable to the Buyer, (ii) violate, conflict with or
result in a breach of or default (or give rise to any right of termination,
cancellation or acceleration) under any law, rule or regulation or any
judgment, decree, order, governmental permit, license or order or any of the
terms, conditions or provisions of any mortgage, indenture, note, license,
agreement or other instrument to which the Buyer is a party, or (iii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable
to the Buyer.
SECTION 6.2 CLOSING DOCUMENTS. The Buyer shall have delivered all of
the resolutions, certificates, documents and instruments required by this
Agreement.
SECTION 6.3 APPROVAL OF THE SELLER AND HIS COUNSEL.
All actions, proceedings, consents, instruments and documents required
to be delivered by, or at the behest or direction of, the Buyer hereunder or
incident to its performance hereunder, and all other related matters, shall
be reasonably satisfactory as to form and substance to the Seller and his
counsel.
ARTICLE VII. THE CLOSING AND CERTAIN CLOSING DELIVERIES
SECTION 7.1 TIME AND PLACE OF CLOSING. Upon the terms and subject to
the satisfaction or waiver of the conditions contained in this Agreement, the
closing of the transactions contemplated by this Agreement (the "Closing")
shall take place at the offices of Kelsch Kelsch Ruff & Kranda, P.L.L.P.,
Collins Avenue and Main Street, Mandan, North Dakota on the date hereof (the
"Closing Date"). The transactions contemplated by this Agreement shall be
effective as of the close of business (the "Effective Time") on August 14,
1998 (the "Effective Date").
SECTION 7.2 DELIVERIES BY THE SELLER. At the Closing, the Seller
will deliver or cause the Company to deliver to the Buyer the following:
(a) Stock certificates representing all of the issued and outstanding
shares
24
<PAGE>
of Common Stock owned by the Seller, accompanied by stock powers duly
executed in favor of the Buyer or duly executed instruments of transfer and
any other documents that are necessary to transfer to the Buyer good and
marketable title to all issued and outstanding shares of Common Stock;
(b) The stock books, stock ledgers, minute books, and other
corporate records of the Company;
(c) Resignations dated the Closing Date of all of the directors
and officers of the Company as designated by the Buyer;
(d) All required consents of third parties to the sale conveyance,
transfer, assignment and delivery of the Common Stock or any assets of the
Company hereunder;
(e) A certificate of the Secretary of the Company certifying as of
the Closing Date (i) a true, correct, and complete copy of the Articles of
Incorporation of the Company and all amendments thereto as in effect on the
Closing Date; (ii) a true, correct, and complete copy of the bylaws of the
Company and all amendments thereto as in effect on the Closing Date; and
(iii) Certificates of Good Standing from the North Dakota and South Dakota
Secretaries of State;
(f) The affidavit of the Seller certifying as to his non-foreign
status in accordance with Section 1445(b)(2) of the Code;
(g) The Non-Competition Agreement required by Section 5.3 above;
(h) The Opinion of the Seller's Counsel required by Section 5.4
above;
(i) A General Release from the Seller which releases the Company
from any and all claims, known or unknown, contingent or direct, which he may
have against the Company as of the Closing Date, other than claims arising
under this Agreement and the other Documents and the transactions
contemplated hereby; and
(j) All other documents, instruments and writings required to be
delivered by the Seller at or prior to the Closing Date pursuant to this
Agreement or otherwise required in connection herewith.
SECTION 7.3 DELIVERIES BY THE BUYER. At the Closing, the Buyer will
deliver the following to or for the account of the Seller:
(a) The consideration required by Section 1.2 above;
(b) The Contingent Promissory Note required by Section 1.2 above;
25
<PAGE>
(c) The Opinion of the Buyer's Counsel required by Section 6.1
above;
(d) A certificate of an officer of the Buyer certifying as of the
Closing Date (i) a true, correct, and complete copy of the Certificate of
Incorporation of the Buyer and all amendments thereto as in effect on the
Closing Date; (ii) a true, correct, and complete copy of the bylaws of the
Buyer and all amendments thereto as in effect on the Closing Date; (iii) a
true, correct, and complete copy of the resolutions approved and adopted by
the Board of Directors of the Buyer authorizing the transactions contemplated
herein; (iv) Certificate of Good Standing from the Delaware Secretary of
State; and (v) the incumbency of the duly authorized officers of the Buyer;
and
(e) All other documents, instruments and writings required to be
delivered by the Buyer at or prior to the Closing Date pursuant to this
Agreement or otherwise required in connection herewith.
ARTICLE VIII. [INTENTIONALLY OMITTED]
ARTICLE IX. SURVIVAL; INDEMNIFICATION AND OFFSET
SECTION 9.1 SURVIVAL. All representations and warranties in this
Agreement and the other Documents shall survive the Closing of the purchase
of the Common Stock contemplated hereby and any investigation at any time
made by or on behalf of any party for a period of three years and all such
representations and warranties shall expire on the third anniversary of the
Closing Date, except that (a) claims, if any, asserted in writing prior to
such third anniversary identified as a claim for indemnification pursuant to
this Article IX shall survive until finally resolved and satisfied in full;
(b) any Year-2000 Indemnification Obligations (as hereinafter defined) shall
survive until February 1, 2003 and until finally resolved and satisfied in
full if asserted on or prior to February 1, 2003; and (c) tax or
environmental claims arising from a breach of Section 2.28 or Section 2.30,
respectively, shall survive for the full period of the applicable statute of
limitations, and until finally resolved and satisfied in full if asserted on
or prior to the expiration of any such period. The representations and
warranties shall not be affected or otherwise diminished by any investigation
at any time by or on behalf of the party for whose benefit such
representations and warranties were made.
SECTION 9.2 INDEMNIFICATION BY THE SELLER. Subject to the terms
herein, the Seller shall indemnify, defend, and hold the Company and the
Buyer and the respective officers, directors, and employees of the foregoing,
and their successors and assigns (the "Seller's Indemnitees") harmless from,
against and with respect to any claim, liability, obligation, loss, damage,
assessment, judgment, cost or expense of any kind or character, including
reasonable attorneys' fees (the "Damages"), arising out of or in any manner
26
<PAGE>
incident, relating or attributable to:
(a) Any inaccuracy in any representation or breach of any warranty
of the Seller contained in this Agreement;
(b) Any failure by the Seller to perform or observe, or to have
performed or observed, in full, any covenant, agreement or
condition to be performed or observed by him under this
Agreement;
(c) Reliance by the Buyer on any books or records of the Company
or written information furnished to the Buyer pursuant to this
Agreement by or on behalf of the Seller or the Company in the
event that such books and records or written information are
false or materially inaccurate; or
(d) Liabilities or obligations of, or claims against, the Company
or the Buyer (whether absolute, accrued, contingent or
otherwise) relating to, or arising out of, the operation of
the Business prior to the Closing Date or facts and
circumstances relating specifically to the Business, the
Leased Parcels, or the Company existing at or prior to the
Closing Date, including but not limited to matters set forth
on SCHEDULE 2.29, whether or not such liabilities, obligations
or claims were known on such date, excluding only liabilities
set forth in the Balance Sheet and liabilities and obligations
incurred since the date thereof in the ordinary course of
business and consistent with past practice.
(e) Damages relating to, or arising out of any and all corrections
of operational defects of the Leingang Plan.
Provided, however, the Seller's Indemnitees shall not be entitled to
indemnification or offset hereunder until Damages in total exceed $10,000 and
then only to the extent of aggregate Damages in excess of $10,000; provided
further, however, this limitation or "basket" shall not apply to any Damages
arising in connection with the representations and warranties as set forth in
Sections 2.1, 2.2, 2.28, 2.29, and 2.30 and 9.2(e) hereof, respectively.
SECTION 9.3 NOTICE TO THE SELLER, ETC. If any of the matters as to
which the Seller's Indemnitees are entitled to receive indemnification under
Section 9.2 should entail litigation with or claims asserted by parties other
than the Seller, the Seller shall be given prompt notice thereof and shall
have the right, at his expense, to control such claim or litigation upon
prompt notice to the Buyer of his election to do so. To the extent requested
by the Seller, the Buyer, at its expense, shall cooperate with and assist the
Seller, in connection with such claim or litigation. The Buyer shall have
the right to appoint, at its expense, single counsel to consult with and
remain advised by the Seller in connection with
27
<PAGE>
such claim or litigation. The Seller shall have final authority to determine
all matters in connection with such claim or litigation; PROVIDED, HOWEVER,
that the Seller shall not settle any third party claim without the consent of
the Buyer, which shall not be unreasonably denied or delayed.
SECTION 9.4 INDEMNIFICATION BY THE BUYER. The Buyer shall indemnify,
defend, and hold the Seller and his heirs, executors, and legal
representatives (the "Buyer's Indemnitees") harmless from, against and with
respect to any claim, liability, obligation, loss, damage, assessment,
judgment, cost or expense of any kind or character, including reasonable
attorneys' fees (the "Damages"), arising out of or in any manner incident,
relating or attributable to:
(a) Any inaccuracy in any representation or breach of warranty of
the Buyer contained in this Agreement;
(b) Any failure by the Buyer to perform or observe, or to have
performed or observed, in full, any covenant, agreement or
condition to be performed or observed by it under any of the
Documents;
(c) Reliance by the Seller on any books or records of the Buyer or
reliance by the Seller on any written information furnished to
the Seller pursuant to this Agreement by or on behalf of the
Buyer in the event that such books and records or written
information are false or inaccurate; or
(d) The operation of the Business subsequent to the Closing Date.
Provided, however, the Buyer's Indemnitees shall not be entitled to
indemnification hereunder until Damages in total exceed $10,000 and then only
to the extent of aggregate damages in excess of $10,000.
SECTION 9.5 NOTICE TO THE BUYER, ETC. If any of the matters as to
which the Buyer's Indemnitees are entitled to receive indemnification under
Section 9.4 should entail litigation with or claims asserted by parties other
than the Buyer, the Buyer shall be given prompt notice thereof and shall have
the right, at its expense, to control such claim or litigation upon prompt
notice to the Seller of its election to do so. To the extent requested by
the Buyer, the Seller, at his expense, shall cooperate with and assist the
Buyer, in connection with such claim or litigation. The Seller shall have
the right to appoint, at his expense, single counsel to consult with and
remain advised by the Buyer in connection with such claim or litigation. The
Buyer shall have final authority to determine all matters in connection with
such claim or litigation; PROVIDED, HOWEVER, that the Buyer shall not settle
any third party claim without the consent of the Seller, which shall not be
unreasonably denied or delayed.
28
<PAGE>
SECTION 9.6 SURVIVAL OF INDEMNIFICATION. The obligations to
indemnify and hold harmless pursuant to this Article IX shall survive the
Closing of the purchase of the Common Stock contemplated hereby for a period
of three years, notwithstanding any investigation at any time made by or on
behalf of any party, except that (a) claims, if any, asserted in writing
prior to such third anniversary identified as a claim for indemnification
pursuant to this Article IX shall survive until finally resolved and
satisfied in full; (b) any Year-2000 Indemnification Obligations (as
hereinafter defined) shall survive until February 1, 2003 and until finally
resolved and satisfied in full if asserted on or prior to February 1, 2003;
and (c) tax or environmental claims arising from a breach of Section 2.28 or
Section 2.30, respectively, shall survive for the full period of the
applicable statute of limitations, and until finally resolved and satisfied
in full if asserted on or prior to the expiration of any such period. As used
in this Article 9, the term "Year-2000 Indemnification Obligations" shall
mean the Seller's obligation to indemnify, defend, and hold the Seller's
Indemnitees harmless from, against and with respect to any Damages arising
out of or in any manner incident, relating or attributable to (i) any claim
or allegation that any Licensed System is not Year-2000 Compliant and (ii)
any claim arising from a breach of Section 2.33.
SECTION 9.7 OFFSET. The Seller acknowledges and agrees that the
Buyer shall be entitled to offset any indemnity claim under Section 9.2
against any payment due to such Seller under Sections 1.2 and 1.3 hereof, at
the Buyer's sole option.
ARTICLE X. MISCELLANEOUS
SECTION 10.1 KNOWLEDGE OF THE SELLER. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to
the best knowledge of the Seller, the Seller confirms that he has made due
and diligent inquiry of the Company's President and other officers as to the
matters that are the subject of such representations and warranties.
SECTION 10.2 KNOWLEDGE OF THE BUYER. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to
the best knowledge of the Buyer, the Buyer confirms that it has made due and
diligent inquiry of its President as to the matters that are the subject of
such representations and warranties.
SECTION 10.3 "PERSON" DEFINED. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or other department or agency
thereof.
SECTION 10.4 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) sent by recognized overnight courier, (iii) made by telecopy or
facsimile transmission, or (iv) sent by registered or
29
<PAGE>
certified mail, return receipt requested, postage prepaid.
If to the Buyer:
ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
Attn: Stephen A. Hoffmann, President
Fax No: (502) 412-0301
With a copy to:
Stites & Harbison
400 W. Market Street, Suite 1800
Louisville, Kentucky 40202
Attn: Ralston W. Steenrod, Esq.
Fax No: (502) 587-6391
If to the Seller:
Alvin W. Leingang
3208 River Drive, Box 565
Mandan, North Dakota 58554
Fax No:
---------------
With a copy to:
Kelsch Kelsch Ruff & Kranda, P.L.L.P.
Collins Avenue and Main Street
P.O. Box 785
Mandan, North Dakota 58554-0785
Attn: Arlen M. Ruff, Esq.
Fax No: (701) 663-9810
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof
to the receiving party at the address of such party set forth above, (ii) if
sent by overnight courier, on the next business day following the day such
notice is delivered to the courier service, (iii) if made by telecopy or
facsimile transmission, at the time that receipt thereof has been
acknowledged by electronic confirmation or otherwise, or (iv) if sent by
registered or certified mail, on the fifth business day following the day
such mailing is sent. The address of any party herein may be changed at any
time by written notice to the parties.
SECTION 10.5 ENTIRE AGREEMENT. This Agreement and the other Documents
30
<PAGE>
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in the other Documents shall affect, or be used to
interpret, change or restrict, the express terms and provisions of this
Agreement.
SECTION 10.6 MODIFICATIONS AND AMENDMENTS. The terms and provisions
of this Agreement may be modified or amended only by written agreement
executed by all parties hereto.
SECTION 10.7 ASSIGNMENT/BINDING EFFECT. Neither this Agreement, nor
any right hereunder, may be assigned by any of the parties hereto without the
prior written consent of the other parties. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
heirs, personal representatives, successors and permitted assigns.
SECTION 10.8 PARTIES IN INTEREST. Nothing in this Agreement, express
or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Nothing in this Agreement shall be construed to create any rights or
obligations except among the parties hereto, and no person or entity shall be
regarded as a third-party beneficiary of this Agreement.
SECTION 10.9 GOVERNING LAW. This Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with
and governed by the internal laws of the State of North Dakota without giving
effect to the conflict of law principles thereof.
SECTION 10.10 ARBITRATION. Any dispute or difference between the
parties hereto arising out of or relating to this Agreement shall be finally
settled by arbitration in accordance with the Commercial Rules of the
American Arbitration Association by a panel of three qualified arbitrators.
The Seller and the Buyer shall each choose an arbitrator and the third shall
be chosen by the two so chosen. If either the Seller or the Buyer fails to
choose an arbitrator within 30 days after notice of commencement of
arbitration or if the two arbitrators fail to choose a third arbitrator
within 30 days after their appointment, the American Arbitration Association
shall, upon the request of any party to the dispute or difference, appoint
the arbitrator or arbitrators to constitute or complete the panel as the case
may be. Arbitration proceedings hereunder may be initiated by either the
Seller, jointly, or the Buyer making a written request to the American
Arbitration Association, together with any appropriate filing fee, at the
office of the American Arbitration Association in Bismarck, North Dakota.
All arbitration proceedings shall be held in Bismarck, North Dakota. Any
order or determination of the arbitral tribunal shall be final and binding
upon the parties to the arbitration and may be entered in any court having
jurisdiction.
SECTION 10.11 SEVERABILITY. In the event that any arbitral tribunal of
competent
31
<PAGE>
jurisdiction shall finally determine that any provision, or any portion
thereof, contained in this Agreement shall be void or unenforceable in any
respect, then such provision shall be deemed limited to the extent that such
arbitral tribunal determines it enforceable, and as so limited shall remain
in full force and effect. In the event that such arbitral tribunal shall
determine any such provision, or portion thereof, wholly unenforceable, the
remaining provisions of this Agreement shall nevertheless remain in full
force and effect.
SECTION 10.12 INTERPRETATION. The parties hereto acknowledge and agree
that: (i) the rule of construction to the effect that any ambiguities are
resolved against the drafting party shall not be employed in the
interpretation of this Agreement, and (ii) the terms and provisions of this
Agreement shall be construed fairly as to all parties hereto and not in favor
of or against any party, regardless of which party was generally responsible
for the preparation of this Agreement.
SECTION 10.13 HEADINGS AND CAPTIONS. The headings and captions of the
various subdivisions of this Agreement are for convenience of reference only
and shall in no way modify, or affect, or be considered in construing or
interpreting the meaning or construction of any of the terms or provisions
hereof.
SECTION 10.14 RELIANCE. The parties hereto agree that, notwithstanding
any right of any party to this Agreement to investigate the affairs of any
other party to this Agreement, the party having such right to investigate
shall have the right to rely fully upon the representations and warranties of
the other party expressly contained herein.
SECTION 10.15 EXPENSES. Each party shall pay its own fees and expenses
(including the fees of any attorneys, accountants, appraisers or others
engaged by such party) incurred in connection with this Agreement and the
transactions contemplated hereby whether or not the transactions contemplated
hereby are consummated.
SECTION 10.16 GENDER. All pronouns and any variation thereof shall be
deemed to refer to the masculine, feminine, neuter, singular, or plural as
the identity of the person or entity or the context may require.
SECTION 10.17 PUBLICITY. Except by the mutual agreement between the
Seller and the Buyer, no party shall issue any press release or otherwise
make any public statement with respect to the execution of, or the
transactions contemplated by, this Agreement except as may be required by law.
SECTION 10.18 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by different parties hereto on separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
32
<PAGE>
IN WITNESS WHEREOF, the Buyer has caused this Agreement to be executed
by its duly authorized officer and the Seller has executed this Agreement all
as of the day and year first above written.
BUYER:
THERMOVIEW INDUSTRIES, INC.
By: /s/ Stephen A. Hoffmann
------------------------------------------
Stephen A. Hoffmann, President
SELLER:
/s/ Alvin W. Leingang
-----------------------------------------------
Alvin W. Leingang
33
<PAGE>
NET LEASE
LANDLORD: AL LEINGANG, 2601 TWIN CITY DR., BOX 579, MANDAN, ND 58554
TENANT: LEINGANG SIDING AND WINDOW, INC., 2601 TWIN CITY DR., BOX 579,
MANDAN, ND 58554
DATE OF LEASE: JANUARY 1, 1997
The landlord hereby leases to the tenant and tenant hereby leases from
the landlord, the premises described herein on the following terms and
conditions:
1. Premises: All equipment and vehicles as per the attached list known
as Exhibit "A" and approximately 6,000 sq. ft. of office space of the
buildings commonly known as the Leingang Siding Building, being a part of the
real property situated in the City of Mandan, County of Morton, State of
North Dakota, described as follows:
Lot 4, Block 1, Twin City Industrial Sites
2. Parking, Common Areas and Access: The tenant and his invitees
shall have the non-exclusive right to the use of the common areas, including
parking areas, sidewalks and such other areas and facilities as may from time
to time be designated by the landlord, all subject to the terms and
conditions of this lease and further subject to the rules and regulations for
the use thereof as from time to time prescribed by the landlord. The landlord
has the right, from time to time, to close any part of the common areas as
may be necessary to prevent a dedication thereof to the public or to prevent
the acquisition of any rights therein by any other person or for the purposes
of making improvements, performing maintenance or doing repairs. Except for
necessary interruptions in connection with construction, maintenance and
repair work or causes beyond the control of the landlord, the landlord will
at all times make available to the tenant and his invitees, reasonable access
to the lease premises and a reasonable number of car parking spaces which,
for the premises as a whole, will be to the best ability of the landlord in
conformity with the applicable regulations of the county and city. The
landlord reserves the right, however, to make some of the car parking space
available on contiguous properties. The tenant shall in no event have the
right to any specific parking spaces nor the right to exclude others from the
use of any parking spaces, but the landlord may, by regulation, designate
areas for tenant and employee parking.
3. Cleaning Common Areas: The tenant will cause the sidewalks, common
areas and parking lot to be maintained in good repair and in a clean,
sanitary and safe condition and will cause
1
<PAGE>
snow and ice to be removed, all according to the general standards of the
community.
4. Additional Construction: It is anticipated that additions to the
building may be built by the landlord on the described property and that the
building in which the leased premises are situated may be modified. The
landlord reserves the right to perform such construction, but does not assume
the obligation of doing so.
5. Term of Lease: This lease shall commence January 1, 1997 and shall
terminate on the last day of December, 1999.
6. Surrender on Termination: At the expiration of the term of this
lease, or of any renewal or extension thereof, or on the earlier termination
of this lease, the tenant will surrender the leased premises in a clean and
neat condition and in as good condition as when received, reasonable wear and
tear and damage by fire and casualty excepted. The tenant may remove his
trade fixtures and if the landlord so directs, shall remove his trade
fixtures and if such fixtures are removed, shall cause the leased premises to
be repaired or will pay to the landlord such reasonable sum as will defray
the cost of repair necessitated by such removal. Landlord shall have the
right to advertise and place for rent or for sale signs on the premises.
7. Holding Over: If the tenant shall hold over after the expiration
of this lease without a new lease having been entered into, then the tenant
shall be on a month-to-month tenancy, but otherwise on all of the same terms
and conditions as provided in this lease except that all rents, including the
base rent, and all additional charges, will be 20 per cent greater than they
would have been had this lease not expired.
8. Basic Rent: The tenant agrees to pay to the landlord as basic
rent: Seven Thousand One Hundred Fifty Dollars ($7,150.00) per month. The
rent shall be considered paid when received in good funds by landlord or his
authorized agent. All rent shall be paid in advance on the first business day
of each calendar month. The rent for any part month at the beginning or
ending of this lease shall be pro-rated on a daily basis. Any rent not paid
within 5 days of the due date shall be subject to a surcharge of $100, with
said surcharge to be paid at the same time the rent is paid. All rent paid
shall apply to the first rent coming due.
9. Governmental Fees: All fees, taxes and assessments including rent
tax, business tax, real estate tax, payable to the city, county, state and
USA during the life of this lease shall be paid by tenant within 15 days of
receiving notice of fees, assessments or taxes due.
10. Payment of Rent: All rents and other sums due to the landlord
under the provisions of this lease shall be paid to the landlord, Al
Leingang, 2601 Twin City Drive, Mandan, ND.
11. Tenant Deposit: NONE.
12. Interest on Delinquencies: Any delinquent rent or other charges
owed by the tenant to the landlord shall bear interest from the date due
until paid at a maximum rate allowed by law.
2
<PAGE>
13. Utilities: Tenant hereby covenants and agrees to pay all charges
for heat, lights, water and sewer and for all other public utilities which
shall be used in or charged against the leased premises during the full term
of this lease. Landlord shall not be liable for the failure of any such
services for any reason whatsoever. In the event the leased premises are a
part of a building or larger premises to which such charges are charged as a
whole, with the consent of the landlord, the tenant agrees to pay, upon
demand, a proper and fair share of said charges as determined by the
percentage of building space in the demised premises as compared with the
total building space included in said charge. Tenant shall make no charge for
utilities to other tenants of the same building, without the written consent
of the landlord.
14. Signs: The tenants may maintain such individual signs as are
consistent with the general design and decor of the area and are approved by
the landlord prior to their erection. If, with the landlord's approval, the
tenants' signs are integrated with the general identifying sign established
by the landlord, then each tenant will be responsible for the maintenance of
his own sign, but for that purpose must engage the sign company designated by
the landlord. Signing within the demised premises shall be subject to the
prior written consent of landlord prior to the installation of such signs.
15. Condition of Premises: The tenant accepts the premises in their
existing condition and relies upon his or her own inspection.
16. Use of Premises: The premises will be used by the tenant only for
the purpose of sales and manufacture of window related products.
17. Fire Risk: The tenant shall not do anything on the leased premises
which will increase the fire hazard nor engage in any activity nor store any
materials which are prohibited by law or the ruling of the fire district or
fire marshal or the reasonable regulations promulgated by the landlord. If,
with the consent of the landlord, the tenant lawfully maintains any material
or engages in any activity which increases the fire insurance rates or
otherwise increases the costs of maintaining the premises, the tenant shall
pay such increased cost to the landlord on demand.
18. Repairs and Maintenance: The tenant shall be responsible for the
maintenance and repair of the heating and air conditioning systems, roof,
walls, foundation and structural parts of the premises including all original
plumbing and wiring located within the roof, within the walls or beneath the
floor. The tenant shall, at his own expense, keep and maintain the interior
of the leased premises in a neat, clean condition and in good repair,
including promptly replacing any broken or cracked window glass including
glass located in both interior and exterior walls or partitions. Tenant shall
replace all necessary lighting ballasts, bulbs and tubes and furnace filters.
19. Tenant Repairs by Landlord: If the tenant fails or refuses to
perform any repair or maintenance required of him under this lease promptly
after written notice from the landlord,
3
<PAGE>
then the landlord may make or cause to be made such repairs or maintenance
and the tenant will promptly reimburse the landlord therefor.
20. Alterations: The tenant shall have the right to make alterations,
additions and improvements to the interior of the leased premises, according
to designs approved by the landlord in writing. No structural alterations may
be made by tenant without landlord's prior written consent, which consent
shall not be unreasonably withheld. Any alterations, additions and
improvements which may be made or installed by tenant shall remain upon the
leased premises and, at the termination of this lease, shall be surrendered
with the premises as a part thereof, provided, however, that all personal
property, fixtures and equipment placed on the leased premises by the tenant
may or shall be removed as herein provided. Any increase in real estate taxes
resulting from tenant alterations or improvements shall be paid by the tenant.
21. Liability Insurance: The tenant agrees to secure and maintain
property damage insurance and personal liability insurance with limits of at
least $100,000 property damages and $1,000,000 bodily injury, naming the
landlord and landlord's agent as an additional insured and providing the
landlord or his agent with a certificate of insurance in force including the
name of the insurance company, the effective date of the policy, coverage and
limits provided. Said insurance shall require 30 days notification to
landlord by the insurance company prior to cancellation. The tenant agrees to
indemnify and save the landlord and landlord's agent harmless from and
against any and all claims of any nature whatsoever arising from any act,
omission or negligence of the tenant or the tenant's contractors, licensees,
agents, servants, employees or invitees or arising from any accident, injury
or damage caused to any person or property occurring in or about the leased
premises or elsewhere in the above described property if such accident,
damage or injury is claimed to have resulted from an act for which the tenant
is allegedly responsible. This indemnity and hold harmless agreement includes
costs, expenses and costs of defense.
22. Fire Insurance: Tenant shall, at tenant's sole cost and expense,
keep all buildings and improvements erected upon the demised premises and the
fixtures, other than trade fixtures of tenant or its sublessees, insured for
the benefit of landlord and tenant against loss or damage by fire, with
extended coverage protection, with replacement cost type of insurance, in a
total amount equal to the replacement value of said improvements.
Certificates of such insurance coverage shall be furnished to said landlord
stating that coverage will not be cancelled without ten (10) days prior
written notice to said landlord, and name the landlord as the insured.
23. Plate Glass: Tenant shall also, at tenant's cost and expense,
maintain all plate glass against any and all damage and breakage.
24. Tenant Risk: The tenant will use and occupy the leased premises
and the common areas with respect to which he has a right of use at his own
risk and agrees that the landlord shall
4
<PAGE>
have no responsibility or liability for any loss or damage sustained by the
tenant including loss or damage of or to his fixtures or his personal
property.
25. Waiver of Subrogation: Each party hereto waives any and every
claim which arises or may arise in its favor and against the other party
hereto during the term of this lease or any renewal or extension thereof for
any and all loss of, or damage to, any of its property located within or
upon, or constituting a part of, the premises leased to tenant hereunder,
which loss or damage is covered by valid and collectible fire and extended
coverage insurance policies, to the extent that such loss or damage is
recoverable under said insurance policies. Said mutual waivers shall be in
addition to, and not in limitation or derogation of, any other waiver or
release contained in this lease with respect to any loss of, or damage to,
property of the parties hereto. Inasmuch as the above mutual waivers preclude
the assignment of any aforesaid claim by way of subrogation (or otherwise) to
an insurance company (or any other person), each party hereto hereby agrees
immediately to give each insurance company which has issued to it policies of
fire and extended coverage insurance, written notice of the terms of said
mutual waivers, and to have said insurance policies endorsed, if necessary,
to prevent the invalidation of said insurance coverages by reason of said
waivers.
26. Assignment and Subletting: The tenant shall not assign or sublet
the whole or any part of the leased premises without the prior written
consent of the landlord, which consent shall not be unreasonably withheld,
and in giving or withholding consent, the landlord will take into
consideration the effect of such assignment or subletting on the entire
property described above. In the event that consent is given to an assignment
or subletting, the tenant shall nevertheless remain liable to the landlord
for the full amount of rent due according to the terms of this lease and the
tenant's liability shall continue despite any modification in this lease
which shall be made at the request of, or by agreement with, any assignee or
sub-tenant. A fee of 25% of one month's rent shall be paid by tenant to
landlord at the time of any assignment for landlord's documentation in
connection therewith.
27. Landlord's Right of Entry: The landlord and its authorized agent
shall have the right to enter the demised premises during normal business
hours for the purpose of inspecting the general condition and state of repair
of the premises and for the purpose of making any repairs required of the
landlord and for showing of the premises to any prospective tenant. In the
event of an emergency the landlord and its authorized agents or public
authorities shall have the right to enter the leased premises at any time to
prevent damage to the leased premises or other parts of the above described
property or to preserve the public peace. Landlord shall have a key to the
premises; if the tenant changes locks, tenant shall provide landlord with new
keys.
28. Default by the Tenant: The following events shall constitute events
of default by the tenant:
5
<PAGE>
(a) The failure of the tenant to pay any installment of rent or
any other sums which are due from the tenant to the landlord in accordance
with any provisions of this lease within 5 days after written notice from the
landlord;
(b) The failure of the tenant to comply with any term, condition
or covenant of this lease if the same is not remedied within 30 days after
written notice from the landlord, or, if such failure cannot reasonably be
remedied within 30 days, if the tenant shall not have commenced remedial
action with diligence and dispatch;
(c) If the tenant shall become insolvent or shall make a
transfer in fraud of creditors or shall make a general assignment for the
benefit of creditors or commit any act of bankruptcy;
(d) If the tenant shall file a petition under any section or
chapter of the bankruptcy laws of the USA or shall be adjudged bankrupt or
insolvent in any proceedings filed by or against the tenant;
(e) If a receiver shall be appointed for the tenant or for all or
substantially all of the assets of the tenant.
29. Remedies of the Landlord: Upon the occurrence of any such event of
default by the tenant, the landlord shall have the option to pursue any one
of the following remedies without further notice or demand:
(a) Terminate all rights of the tenant under this lease, in which
event the tenant shall immediately surrender the premises to the landlord and
if the tenant fails to do so the landlord may, without prejudice to any other
remedy, enter upon the premises by any lawful means and remove the tenant and
his property therefrom or retain the property asserting whatever lien for
rent the landlord may have upon such property, and the tenant agrees to pay
to the landlord upon demand the amount of all loss or damage which the
landlord may suffer by reason of such termination whether through inability
to relet the premises on the same or more favorable terms to the landlord or
otherwise;
(b) The landlord may enter upon the premises and do or perform
whatever the tenant was obligated to do under the terms of the lease and the
tenant shall forthwith reimburse the landlord the cost thereof and the
landlord shall, in such event, endure no liability to the tenant for any such
action, whether caused by the negligence of the landlord or otherwise.
30. Attorney Fees: In pursuing any of its remedies including the
giving of notices of default the landlord shall be entitled to recover from
the tenant all of its costs and expenses incurred, including reasonable
attorney fees, through and including appeal and the pursuit of any remedy
provided by this lease shall not limit or preclude any other remedies
provided by law.
31. Rents after Default: If this lease shall be terminated as herein
provided, the tenant shall nevertheless remain liable for all rents due the
landlord and agrees to pay the same on the dates that the same are due,
together with all other sums due the landlord.
6
<PAGE>
32. Successor Landlord: Any covenants and agreements binding upon the
landlord as provided in this lease shall be binding upon the landlord only
with respect to and during his ownership of the premises, and if the
ownership of the premises shall be transferred, then from and after the
effective date of the transfer all obligations of the landlord shall be the
sole obligation of the successor landlord.
33. Mortgages: The landlord has full authority to subordinate the
interest of the tenant to any mortgage, deed of trust or other lien placed
upon the demised premises and the tenant will, upon request, execute any
subordination instruments as may be appropriate to carry out this
subparagraph provided that in such subordination this lease shall be
recognized by the mortgagee or beneficiary under a deed of trust, and the
rights of the tenant shall remain in full force and effect during the term of
this lease so long as the tenant shall continue to perform all of his
agreements under this lease.
34. Waiver of Default: No waiver by the parties hereto of any default
or breach of any term, condition or covenant of this lease.
35. Default by Landlord: Landlord shall in no event be in default in
the performance of any of its obligations under this lease unless it has
received written notice from the tenant and has failed to perform such
obligation within 30 days after receipt of such notice or such additional
time as is reasonably necessary to perform the same.
36. Applicable Law: This lease shall be construed and enforced
according to the laws of the State of North Dakota and the venue of any
action brought with respect to this lease may be laid in Morton County, North
Dakota.
37. Force Majeure: Landlord or tenant shall not be required to perform
any term, condition or covenant in this lease so long as such performance is
delayed or prevented by force majeure, which shall mean Acts of God, strikes,
lockouts, material or labor restrictions by any governmental authority, civil
riot, floods and any other cause not reasonably within the control of
landlord or tenant and which, by the exercise of due diligence, landlord or
tenant is unable, wholly or in part, to prevent or overcome.
38. Exhibits: All exhibits, attachments, annexed instruments and
addenda referred to herein shall be considered a part hereof for all purposes
with the same force and effect as if copied at full length herein.
39. Successors: The terms, conditions and covenants contained in this
lease, shall apply to, inure to the benefit of, and be binding upon the
parties hereto and their respective successors interest and legal
representatives except as otherwise herein expressly provided. All rights,
powers, privileges, immunities and duties of landlord under this lease,
including but not limited to any notices required or permitted to be
delivered by landlord to tenant hereunder, may, at landlord's option, be
exercised or performed by landlord's agent or attorney.
40. Notices: Any notice or document required or permitted to be
delivered pursuant to this lease shall be deemed to have
7
<PAGE>
been delivered, whether actually received or not, when the same is deposited
in the U.S. Mail, first class, postage paid, registered or certified mail,
return receipt requested, addressed to the landlord or tenant at the address
stated above or at such other address as may have been specified by notice
given as herein provided. Notice given in any other manner shall be effective
only if given in the manner in which legal process may be served as provided
by or if receipt thereof is acknowledged in writing.
41. Telephone Service: Tenant shall, at own expense, install and
maintain telephone service.
42. Estoppels: If requested by landlord, tenant shall execute estoppel
certificates stating the status of this lease.
43. Riders: See attached Exhibit "A".
This lease was on the date thereof executed at Mandan, North Dakota by
the landlord and the tenant. The riders and exhibits referred to herein are
incorporated into this document by this reference.
<TABLE>
<CAPTION>
LANDLORD: TENANT:
<S> <C>
/s/ Al Leingang /s/ Al Leingang
- ---------------------------- ------------------------------
</TABLE>
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
(ACKNOWLEDGMENT FOR INDIVIDUAL)
STATE OF NORTH DAKOTA )
) SS.
COUNTY OF MORTON )
On this _____ day of ____________, 199___, before me personally appeared Al
Leingang, known to me to be the landlord and person who is described in and
who executed the within instrument, and acknowledged to me that he executed
the same.
Witness my hand hereto affixed the day and year first written above.
(NOTARY SEAL REQUIRED)
______________________________
Notary Public
Commission Expires ___________
- --------------------------------------------------------------------------
8
<PAGE>
(ACKNOWLEDGMENT FOR CORPORATION)
STATE OF NORTH DAKOTA )
) SS.
COUNTY OF MORTON )
On this _____ day of __________, 199___, before me personally appeared Al
Leingang, known to me to be the President of Leingang Siding and Window,
Inc., the corporation that executed the foregoing instrument as tenant, and
acknowledged the said instrument and to be the free and voluntary act and
deed of said corporation, for the uses and purposes therein mentioned, and on
oath state that he is authorized to execute the said instrument and that the
seal affixed is the corporate seal of said corporation.
Witness my hand hereto affixed the day and year first written above.
(NOTARY SEAL REQUIRED)
______________________________
Notary Public
Commission Expires ___________
9
<PAGE>
FIRST AMENDMENT TO LEASE
THE FIRST AMENDMENT TO LEASE (the "FIRST AMENDMENT") is made and entered
into as of the 14th day of August, 1998, by and between AL LEINGANG (hereinafter
referred to as the "LANDLORD") and LEINGANG SIDING AND WINDOW, INC. (hereinafter
referred to as the "TENANT").
RECITALS:
A. Landlord and Tenant have entered into a Net Lease dated January 1,
1997 (the "Lease") for certain premises (the "Premises") located in Mandan,
North Dakota, as more particularly set forth therein.
2. Landlord and Tenant desire to amend the Lease as set forth below.
NOW, THEREFORE, for valuable consideration, receipt and sufficiency of
which is hereby acknowledged, it is agreed between the parties as follows:
1. The first sentence of Paragraph 1 on Page 1 of the Lease shall be
revised to read as follows:
"All equipment and vehicles as per the attached list known as Exhibit
"A;" the portion of the building located at 2605 Twin City Drive
indicated on Exhibit "B;" 2 storage buildings on the east half of Lot
9 at 2609 Twin City Drive and approximately 6,000 sq. ft. of office
space of the buildings commonly known as the Leingang Siding Building,
being a part of the real property situated in the City of Mandan,
County of Morton, State of North Dakota, described as follows:
Lot 4, Block 1, Twin City Industrial Sites
2. The following shall be deleted from the first sentence of Paragraph
2 on Page 1 of the Lease:
"and further subject to the rules and regulations for the use thereof
as from time to time prescribed by Landlord."
3. The following shall be inserted as the second sentence of Paragraph
5 on Page 2 of the Lease:
"Landlord grants to Tenant an option to extend the term for two
additional terms of five years each, on the same terms and conditions
as herein set forth. Should tenant elect to exercise such option, it
shall do
1
<PAGE>
so by written notice to Landlord at least 120 days prior to the
expiration of the term."
4. The first sentence of Paragraph 8 on Page 2 of the Lease shall be
revised to read as follows:
"The tenant agrees to pay to the Landlord as basic rent: Five Thousand
Five Hundred Fifty-Seven Dollars ($5,557.00) per month."
5. The following shall be inserted after the first sentence of
Paragraph 9 on Page 2 of the Lease:
"Tenant shall have the right at its own expense to challenge any tax
or assessment; such challenge will not, however, relieve Tenant=s
obligation to pay such taxes promptly when due. If such challenge
results in a reduction of taxes or assessments, Tenant shall be
entitled to a refund of such reduction within fourteen (14) days of
the date such refund amount is received by Landlord. If the challenge
results in reduction of a bill prior to payment by Landlord, Tenant
shall not be entitled to a refund, but shall have its bill
appropriately reduced."
6. Paragraph 16 on Page 3 of the Lease shall be deleted in its entirety
and the following shall be inserted:
"The premises will be used by Tenant for any lawful purpose."
7. The following shall be added after the last sentence of Paragraph 20
on Page 4 of the Lease:
"Tenant shall have the right at its own expense to challenge any such
tax increase; such challenge will not, however, relieve Tenant's
obligation to pay such taxes promptly when due. If such challenge
results in a reduction of taxes, Tenant shall be entitled to a refund
of such reduction within fourteen (14) days of the date such refund
amount is received by Landlord. If the challenge results in reduction
of a bill prior to payment by Landlord, Tenant shall not be entitled
to a refund, but shall have its bill appropriately reduced."
8. The third sentence of Paragraph 21 on Page 4 of the Lease shall be
revised to read as follows:
"Tenant and Landlord each agree to indemnify and save the other party
harmless from and against any and all claims of any nature whatsoever
2
<PAGE>
arising from any act, omission or negligence of the party or the
party=s contractors, licensees, agents, servants, employees or
invitees or arising from any accident, injury or damage caused to any
person or property occurring in or about the leased premises or
elsewhere in the above described property if such accident, damage or
injury is claimed to have resulted from an act for which such party is
allegedly responsible."
9. The following shall be inserted at the end of the first sentenced of
Paragraph 25 on Page 5 of the Lease:
"except for intentional or grossly negligent acts of the parties, it
being the intent of the parties that in the event of loss caused by
ordinary negligence, the parties agree to look solely to the proceeds
of insurance policies."
10. The following shall be inserted after the last sentence of Paragraph
29 on Page 6 of the Lease:
"If Landlord shall fail to promptly keep and perform any of its
representations and warranties strictly in accordance with the terms
of this Lease and shall continue in default for a period of thirty
(30) days after written notice thereof to Landlord, then Tenant may,
at its sole option and discretion, exercise any or all of the
following remedies:
(A) declare this Lease ended and vacate the premises without
incurring additional rent or other costs associated with the lease of
the premises; or
(B) remain in the premises and withhold rent and other costs due
Landlord until such time as Landlord cures such default; or
(C) perform any Landlord obligation, and all expenses (including
without limitation, reasonable attorney fees) incurred by Tenant in
performing such obligation shall be deemed an obligation of Landlord
to Tenant and shall be paid to Tenant on demand."
11. Paragraph 30 on Page 6 of the Lease shall be revised to read as
follows:
"In pursuing any of its remedies including the giving of notices of
default Landlord and Tenant shall be entitled to recover from the
other party all of their costs and expenses incurred, including
reasonable attorney fees, through and including appeal and the pursuit
of any
3
<PAGE>
remedy provided by this lease shall not limit or preclude any other
remedies provided by law."
12. All other terms and conditions of the Lease shall remain the same,
except as expressly modified herein.
IN WITNESS WHEREOF, the parties hereto have hereunto executed this First
Amendment to Lease as of the date set forth above.
LANDLORD:
/s/ Al Leingang
----------------------------------------------
AL LEINGANG
TENANT:
LEINGANG SIDING AND WINDOW, INC.
BY: /s/ Stephen A. Hoffman
----------------------------------------------
STEPHEN A. HOFFMANN, PRESIDENT
4
<PAGE>
LEASE
THIS AGREEMENT, made and entered into this 16TH day of August, 1995, by
and between Wayne Kluck, of 3748 Heartland Dr., Bismarck, ND 58501, hereinafter
called the Owner, and Leingang Siding and Window, Inc., of 2601 Twin City Drive,
P.O. Box 579, Mandan, ND 58554, hereinafter called the Renter;
WITNESSETH: The owner hereby demises, leases and lets unto the renter
and the renter hereby leases from the owner, the following described real
estate, to-wit:
A Showroom of the approximate size of 42' x 70' and a Storage
space of the approximate size of 15' x 70' and a Restroom
facility, and the use of the parking lot, located in a
building and on a lot, known as Parcel No. 24F, lying in the
NW1/4 of Section 36, Township 155 North, Range 83 West, 5th
P.M., Ward County, State of North Dakota (Said parcel lying
north of Lots 10 and 11 of Block 2, of the replat of Norton's
Addition to Minot, North Dakota),
for the full term of five (5) years beginning on February 1, 1996, and ending on
January 31, 2001, and for a rental in cash of One Hundred Twenty Thousand and
No\100th Dollars ($120,000) ($24,000 per year) and paid in the following manner:
$1,000 upon the signing of this agreement, receipt thereof is hereby
acknowledged by the Owner, then on or before February 1, 1996, $1,000, then
$2,000 on or before the first day of each and every month thereafter during the
term of this lease.
And as a further part of the consideration of this lease, the owner and
renter hereby covenant and agree to the following conditions:
1. That this lease is contingent upon the approval of the building
construction loan to the owner by Town and Country Credit Union and in the event
that it is not approved the $1,000 paid upon the signing of this agreement will
be returned to the renter and this lease agreement will be canceled.
2. That in the construction of the building, the renter agrees to
install siding, soffit, fascia and windows on the exterior of the North and East
side of the building. The cost of materials used by the renter on the North and
East side of the building will be paid by the owner. Such improvements will
belong to the owner.
3. During the construction of the building the renter will be
responsible for all wall and floor coverings in the rental area described above.
Such improvements will belong to the renter and may be removed upon the
termination of this lease, as long as such removal does not destroy the walls or
floor of the building.
4. That the owner will provide the necessary lights and fixtures that
the renter needs in such rented areas and provide access to electrical power in
the ceiling for connection of track
<PAGE>
lighting which will remain the property of the renter. All other lights and
fixtures provided by the owner will remain the property of the owner.
5. That the renter will be responsible for interior remodeling and
improvements of the rented space, except that any permanent improvements (walls,
doors, etc.) will be approved by the owner with such approval not being
unreasonably withheld. The owner hereby approves installation and construction
of displays in the rental area, which will remain the property of the renter.
6. That in the building there will be a common hallway and restrooms to
be used by the renter and other tenants of the building. The renter will have
the responsibility of cleaning and maintaining such common area including
repairs that do not exceed $100 per occurrence. Cost of repairs that exceed $100
per occurrence would be paid by the owner. Because the renter will have the
responsibility for the cleaning and maintaining of the common area, they will
have control over such common area, subject to the right of the other tenants to
access the facilities under the tenant's supervision.
7. That the renter will have the responsibility for the utilities,
including heat, electricity and garbage removal connected with the use of the
rented areas. The owner is responsible for the hearing and electricity in the
common areas. The renter will be responsible for any and all snow removal
surrounding the building, including the total parking lot. There will be a
designated area for the movement and piling of the snow. The owner will be
responsible for the hauling away of any snow deemed in excess of the capacity of
the designated area for storage of snow removed from the parking lot, etc.
8. That the renter will be responsible for the insurance covering
public liability and property damage insuring against any and all claims for
injury to or death of persons and loss of or damage to property occurring upon,
in or about the rental area or parking lot with liability limits of not less
than $500,000 combined single limit and will indemnify the owner against any
losses and all claims brought against him for any reason. If requested, the
renter will provide the owner with proof of insurance.
9. That the renter will be responsible for the insuring of their
property or the property of others located on the rented property and the owner
will not be responsible in any manner for such contents.
10. That in the event the rental space is rendered untenantable in
whole or in part by fire, the elements or other casualty, unless the renter and
owner otherwise agree, the owner will promptly restore or rebuild such damage to
the extent of available insurance proceeds and this lease will not terminate.
During the period that the rental space is not tenantable, rent will abate in
the same ratio as the portion of the rented space rendered untenantable bears to
the whole rental space.
11. That this lease may be renewed for an additional three years for
Seventy Nine Thousand Two Hundred and No/100th Dollars ($79,200.00), ($26,400.00
per year, $2,200.00 paid on or before the first day of each and every month of
the renewal term), upon six months
<PAGE>
written notice by the renter to the owner of the renter's intention to renew
the lease for the additional term. That if the renter does not renew this
lease, the owner will have the right to show such rented space at any
reasonable time to prospective renters. Upon the termination of this lease,
or any renewal thereof, the renter is responsible for repairing any and all
damages caused by the removal of its equipment, appliances, fixtures and
displays and return the rental area to its original condition at the
beginning of the lease, subject to normal wear and tear.
12. That the owner will have the right to enter upon the premises and
the land at any time for any reason, after reasonable notice to the renter.
13. That this lease may not be sublet or assigned without the written
consent of the owner, which consent may not be withheld without good reason.
14. That this lease is exclusive and anything not specifically
mentioned herein must be mutually agreed upon by the parties.
IN TESTIMONY WHEREOF, the parties hereto have set their hands the day
and year first above written.
/s/ Wayne D. Kluck
--------------------------------------
Wayne Kluck, Owner
/s/ Al Leingang
--------------------------------------
Al Leingang, Tenant
(CORPORATE SEAL) Pres. Leingang Siding and Window, Inc.
- ------------------------------------------------------------------------------
(ACKNOWLEDGMENT FOR INDIVIDUAL)
STATE OF NORTH DAKOTA )
) SS.
COUNTY OF MORTON )
On this 17TH day of August, 1995, before me personally appeared Wayne Kluck,
known to me to be the Owner and person who is described in and executed the
within instrument, and acknowledged to me that he executed the same.
Witness my hand hereto affixed the day and year first written above.
(NOTARY SEAL REQUIRED) ______________________________________
Notary Public
Commission Expires ___________________
<PAGE>
- ------------------------------------------------------------------------------
(ACKNOWLEDGMENT FOR CORPORATION)
STATE OF NORTH DAKOTA )
) SS.
COUNTY OF MORTON )
On this 16TH day of August, 1995, before me personally appeared Al Leingang,
known to me to be the President of Leingang Siding and Window, Inc., the
corporation that executed the foregoing instrument as tenant, and acknowledged
the said instrument and to be the free and voluntary act and deed of said
corporation, for the uses and purposes therein mentioned, and on oath states
that he is authorized to execute the said instrument and that the seal affixed
is the corporate seal of said corporation.
Witness my hand and official seal hereto affixed the day and year first written
above.
(NOTARY SEAL REQUIRED) ______________________________________
Notary Public
Commission Expires ___________________
<PAGE>
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (the "First Amendment") is made and
entered into as of the 14th day of August, 1998, by and between ALVIN W.
LEINGANG, as successor in interest to Wayne Kluck (hereinafter referred to as
the "Owner") and LEINGANG SIDING AND WINDOWS, INC. (hereinafter referred to
as the "Renter").
RECITALS:
A. Wayne Kluck ("Kluck") and Renter entered into a Lease dated August 16,
1995 (the "Lease") for certain premises (the "Premises") located in Minot, North
Dakota, as more particularly set forth therein.
B. Owner purchased the Premises from Kluck on May 15, 1998.
C. Owner and Renter desire to amend the Lease as set forth below.
NOW, THEREFORE, for valuable consideration, receipt and sufficiency of
which is hereby acknowledged, it is agreed between the parties as follows:
1. The first sentence of Paragraph 11 on Page 2 of the Lease shall be
revised to read as follows:
"That this lease may be renewed for two additional terms, the first
for 3 years and the second term for 5 years, for Seventy Nine Thousand Two
Hundred and No/100ths Dollars ($79,200.00), ($26,400.00 per year, $2,200.00
paid on or before the first day of each and every month of the renewal term),
upon six months written notice by the renter to the owner of the renter's
intention to renew the lease for the additional term."
2. Paragraph 8 on Page 2 of the Lease shall be amended to include the
following at the end of such Paragraph:
"The insurance policies kept and maintained by the parties shall be
endorsed to provide for or shall otherwise contain a waiver of subrogation by
the insurance company or companies except for intentional or grossly negligent
acts of the parties, it being the intent of the parties that in the event of
loss caused by ordinary negligence, the parties agree to look solely to the
proceeds of insurance policies."
In addition, in Paragraph 8 on Page 2 of the Lease, the following
shall be added to the first sentence in such Paragraph, following "property
damage:"
"(including fire with extended coverage)"
In addition, in Paragraph 8 on Page 2 of the Lease, the following
shall be deleted from the first sentence in such Paragraph:
<PAGE>
"and will indemnify the owner against any losses and all claims
brought against him for any reason."
3. Paragraph 10 on Page 2 of the Lease shall be deleted in its entirety
and the following shall be inserted as Paragraph 10:
"If the Premises are destroyed or damaged by fire, explosion,
earthquake, windstorm, flood, casualty, or other cause to such extent that
Renter cannot continue its normal business therein, or if, in Renter's
reasonable opinion, the Premises are rendered untenantable or unfit for
occupancy, Renter shall have the option within a period of fifteen (15) days
thereafter to declare the Lease terminated as of the date of such damage or
destruction by giving Owner written notice to such effect, and the rent shall be
apportioned as of such date and all prepaid rent shall forthwith be repaid. If
Renter does not exercise this option, Owner shall at its own expense, perform as
rapidly as circumstances permit such rebuilding and repairs as may be necessary
to restore the Premises to their former condition. From the date of such damage
until such restoration is completed there shall be no pro rata abatement of rent
to the extent that and for the period that the Premises are untenantable.
Unreasonable delay on Owner's part in commencing or carrying out repairs
following destruction or damage shall entitle Renter to terminate this Lease as
of the date of such destruction or damage."
4. A new Paragraph 15 shall be added to read as follows:
"All fees, taxes and assessments including rent, tax, business tax,
real estate tax, payable to the city, county, state and USA during the life of
this Lease shall be paid by Renter within fifteen (15) days of receiving notice
of fees, assessments or taxes due."
5. All other terms and conditions of the Lease shall remain the same,
except as expressly modified herein.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto executed this First
Amendment to Lease as of the date set forth above.
OWNER:
/s/ Alvin W. Leingang
--------------------------------
ALVIN W. LEINGANG
RENTER:
LEINGANG SIDING AND WINDOW, INC.
By: /s/ Stephen A. Hoffmann
-----------------------------
Stephen A. Hoffmann, President
3
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into on this 14th day of August, 1998 by and among ALVIN W. LEINGANG AND
STEVEN B. HOYT (each hereafter a "Seller" and collectively the "Sellers") and
THERMOVIEW INDUSTRIES, INC., a Delaware corporation (the "Buyer").
PRELIMINARY STATEMENTS
Collectively, the Sellers own all of the issued and outstanding shares
of the voting common stock, with par value of $1.00 per share and the
non-voting common stock, with par value of $1.00 per share ("Ice Common
Stock"), of Ice, Inc., a North Dakota corporation (the "Ice"), and all of the
issued and outstanding shares of the no par value voting common stock and no
par value non-voting common stock (the "Blizzard Common Stock," which
together with the Ice Common Stock is collectively referred to as the "Common
Stock") of Blizzard Enterprises, Inc., a Minnesota corporation ("Blizzard")
(Ice and Blizzard are sometimes collectively referred to as the "Companies"
and individually as a "Company").
Together, the Companies own all of the general partnership interests of
Thermal Line Windows, L.L.P., a Minnesota registered limited liability
partnership (the "Partnership") which is engaged in designing, manufacturing,
selling and installing state of the art custom vinyl new and replacement
thermal paned windows for residential and commercial applications (the
"Business").
The Buyer desires to purchase and the Sellers desire to sell all of the
outstanding shares of Common Stock of the Companies, upon the terms and
subject to the conditions set forth in this Agreement.
In consideration of these preliminary statements and the mutual
covenants, representations, warranties and agreements hereinafter set forth,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereby agree as follows:
ARTICLE I. PURCHASE AND SALE OF STOCK
SECTION 1.1 SALE OF STOCK. Upon the terms and subject to the
conditions set forth in this Agreement, on the Closing Date the Sellers agree
to sell, assign, transfer and deliver to the Buyer, and the Buyer agrees to
purchase the number of shares of Common Stock of the Companies set forth
opposite each Seller's name on SCHEDULE 1.1 hereto, such shares representing
all of the issued and outstanding shares of Common Stock of the Companies.
The certificates representing the Common Stock shall be duly endorsed in
blank, or accompanied by a stock power duly executed in blank, by each Seller.
1
<PAGE>
SECTION 1.2 CONSIDERATION. Upon the terms and subject to
satisfaction of the conditions set forth in this Agreement, in consideration
of the aforesaid sale, assignment, transfer and delivery of all of the issued
and outstanding shares of Common Stock, the Buyer will pay to the Sellers
consideration as follows:
(a) A closing payment of $3,959,430 (the "Closing Payment") shall
be made to the Sellers in cash on the Closing Date (defined below) by
certified check, wire transfer or other means of immediately available funds.
(b) The Sellers shall also be entitled to receive post-closing
earn-out payments (the "Earn Out Payments", which together with the Closing
Payment is collectively referred to as the "Purchase Price") as set forth on
SCHEDULE 1.2, partially represented by a contingent promissory note in
substantially the form of EXHIBIT A (the "Contingent Promissory Note") hereto
as described in SCHEDULE 1.2.
(c) Each Seller shall be entitled to receive a percentage of the
Purchase Price equal to the percentages set forth on SCHEDULE 1.1.
SECTION 1.3 PURCHASE PRICE ADJUSTMENT. As soon as practicable but
within thirty (30) days after the Closing Date, the Sellers, at their own
expense, shall cause Rodney W. Melby, an independent certified public
accountant, to prepare combined balance sheets of the Companies immediately
prior to the Effective Time (the "Effective Time Balance Sheet") setting
forth the tangible net worth of the Companies using accrual accounting and in
conformance with generally accepted accounting principles (the "Tangible Net
Worth"). A copy of the Effective Time Balance Sheet shall be promptly
furnished to the Buyer. If the Buyer disagrees with the Tangible Net Worth,
the Buyer shall engage an independent public accounting firm, at its expense,
to audit the Effective Time Balance Sheet and deliver a certified written
report to the Seller confirming the Tangible Net Worth ("Audited Tangible Net
Worth"). If the Seller fails to notify the Buyer within fifteen (15) days
after receiving the report from the accounting firm selected by the Buyer,
such report shall be deemed accepted for purposes of calculating Tangible Net
Worth. If the Seller should so notify the Buyer of a dispute concerning
Audited Tangible Net Worth, the Buyer shall then engage another big-five
independent accounting firm that is mutually acceptable to the Buyer and the
Seller to resolve such dispute and such firm shall notify the Buyer and the
Seller of its resolution of such dispute within two weeks of its engagement
by the Buyer. The cost of services provided by such big-five accounting firm
shall be borne equally by the Buyer and the Seller. Any such resolution
shall be final and binding on all parties hereto for the purposes of
calculating Tangible Net Worth. In the event the Tangible Net Worth is less
than $1,705,000, the Sellers shall pay such deficit portion to the Buyer
within thirty (30) days following the later of its determination of the
Tangible Net Worth, the Buyer's audit or the resolution of any dispute by
such big-five accounting firm on a dollar-for-dollar basis. In the event the
Tangible Net Worth is greater than $1,705,000, the Buyer shall pay the excess
amount, on a dollar-for-dollar basis, to the Sellers within thirty (30) days
following the later of either Rodney W. Melby's determination of the Tangible
Net Worth or the determination
2
<PAGE>
of Audited Tangible Net Worth. For purposes of this Section 1.3, "Tangible
Net Worth" shall mean the net book value of the Companies at the Effective
Time determined in accordance with generally accepted accounting principles
applied on a consistent basis. Net book value shall be calculated by
subtracting the book value of all of the liabilities of the Companies from
the book value of all tangible assets of the Companies.
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE SELLERS
As an inducement to the Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, the Sellers represent and
warrant to the Buyer as follows:
SECTION 2.1 OWNERSHIP OF STOCK. Each Seller individually represents and
warrants as to himself (a) that he owns the shares of Common Stock listed
opposite his name on SCHEDULE 1.1 hereto, free and clear of all pledges,
security interests, liens, charges, encumbrances, equities, claims, options or
limitations of every kind ("Claims"), and (b) that the delivery to the Buyer of
the Common Stock by such Seller pursuant to the provisions of this Agreement
will transfer to the Buyer valid title thereto, free and clear of all Claims.
SECTION 2.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each Seller
individually represents and warrants as to himself that he has full legal power,
capacity and authority to execute, deliver and perform this Agreement and the
Exhibits and to deliver the Schedules hereto, and the other documents and
instruments contemplated hereby (collectively, this Agreement, the Exhibits and
Schedules hereto, and the other documents and instruments contemplated hereby
shall constitute the "Documents") and to consummate the transactions
contemplated hereby and thereby. This Agreement and the other Documents have
been duly and validly executed and delivered by such Seller and constitute valid
and binding obligations of such Seller, enforceable against such Seller in
accordance with their terms.
SECTION 2.3 FOREIGN PERSON. Each Seller individually represents and
warrants that he is not a foreign person as that term is defined in Section
1445(f)(3) of the Code and applicable regulations.
SECTION 2.4 ORGANIZATION, QUALIFICATION AND CORPORATE POWER.
Ice is a corporation duly organized, validly existing and in good standing
under the laws of the State of North Dakota. Blizzard is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota. Each Company is qualified to do business as a foreign corporation in
the states set forth on SCHEDULE 2.4. The Partnership is a registered limited
liability partnership duly organized, validly existing and in good standing
under the laws of the State of Minnesota. The Partnership is qualified to do
business as a foreign limited liability partnership and is in good standing in
the states set forth on SCHEDULE 2.4. The nature of the Business does not
require either of the Companies or the Partnership to be licensed or qualified
in any other jurisdiction. The Sellers have
3
<PAGE>
made available to the Buyer complete and correct copies of the Articles of
Incorporation and Bylaws of each Company as currently in effect and the
partnership agreement of the Partnership as amended and currently in effect.
Each Company has the corporate power and authority to own, lease, operate and
hold its properties and to carry on its business as now conducted. The
Partnership has the necessary power and authority to own, lease, operate and
hold its properties and to carry on its business as now conducted, including
the right to use the name "Thermal Line Windows" or any derivative thereof.
Collectively, the Companies own all of the partnership interests of the
Partnership free and clear of all Claims and the transfer of the Common Stock
to the Buyer pursuant to the provisions of this Agreement will transfer to
the Buyer through its ownership of the Companies all partnership interests of
the Partnership free and clear of all Claims.
SECTION 2.5 CAPITALIZATION. Ice has authorized capital consisting of
2,500 shares of voting common stock, with par value of $1.00 per share, of
which 1,000 shares are issued and outstanding and no shares are held as
treasury stock and 47,500 shares of non-voting common stock with par value of
$1.00 per share, of which no shares are issued and outstanding and no shares
are held as treasury stock. Blizzard has authorized capital consisting of
5,000 shares of no par value voting common stock of which 500 shares are
issued and outstanding and no shares are held as treasury stock and 95,000
shares of no par value, non-voting common stock, of which 9,500 shares are
issued and outstanding and no shares are held as treasury stock. All of the
outstanding shares of each Company have been duly authorized and validly
issued and are fully paid and nonassessable. None of the outstanding shares
of either Company has been issued in violation of any preemptive right.
There are no outstanding options, warrants, rights, calls, commitments,
conversion rights, rights of exchange, plans or other agreements of any
character providing for the purchase, issuance or sale of any shares of
capital stock of either Company, other than as contemplated by this Agreement.
SECTION 2.6 SUBSIDIARIES AND INVESTMENTS. Other than the
Partnership, neither Company has any subsidiaries nor owns, directly or
indirectly, any capital stock or other equity or ownership or proprietary
interest in any other corporation, partnership, association, trust, joint
venture or other entity.
SECTION 2.7 BOOKS AND RECORDS. The minute books of each Company,
which have been and will be made available to the Buyer and its
representatives, contain accurate records of all meetings of and corporate
actions or written consents by the shareholders and Board of Directors of
each Company set forth in such minute books. None of the Companies or the
Partnership has any of its records, systems, controls, data or information
recorded, stored, maintained, operated or otherwise wholly or partly
dependent upon or held by any means (including any electronic, mechanical or
photographic process, whether computerized or not) which (including all means
of access thereto and therefrom) are not under the exclusive ownership and
direct control of either Company or the Partnership.
4
<PAGE>
SECTION 2.8 FINANCIAL STATEMENTS. The Sellers have previously furnished
to the Buyer, and attached hereto as SCHEDULE 2.8 are, the audited balance
sheets of the Partnership as of December 31, 1997 and 1996, and the related
audited statements of income, partnership equity, and cash flows for the years
then ended and the unaudited balance sheet of the Partnership (the "Partnership
Balance Sheet") as at June 30, 1998 (the "Balance Sheet Date") and the related
statement of income for the six (6) months then ended. All such financial
statements (the "Partnership Financial Statements") have been prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied and were prepared from the books and records of the Partnership. Such
books and records are complete and correct in all material respects, accurately
reflect all transactions of the Business, and have been made available to the
Buyer for examination. The Partnership Financial Statements fairly present the
financial position of the Partnership as of the dates thereof. The Partnership
Financial Statements reflect reserves appropriate and adequate for all known
material liabilities and reasonably anticipated losses as required by GAAP.
The Sellers have previously furnished to the Buyer, and attached hereto as
SCHEDULE 2.8 are, the unaudited balance sheets of Ice as at December 31, 1997
and 1996 and the related statements of income for the calendar years then ended
and the unaudited balance sheet of Ice (the "Ice Balance Sheet") as at June 30,
1998 and the related statement of income for the six months then ended. All
such financial statements (the "Ice Financial Statements") have been prepared in
accordance with GAAP consistently applied and were prepared from the books and
records of Ice. Such books and records are complete and correct in all material
respects, accurately reflect all transactions of Ice, and have been made
available to the Buyer for examination. The Ice Financial Statements fairly
present the financial position of Ice as of the dates thereof. The Ice
Financial Statements reflect reserves appropriate and adequate for all known
material liabilities and reasonably anticipated losses as required by GAAP.
The Sellers have previously furnished to the Buyer, and attached hereto as
SCHEDULE 2.8 are, the unaudited balance sheets of Blizzard as at December 31,
1997 and 1996 and the related statements of income for the calendar years then
ended and the audited balance sheet of Blizzard (the "Blizzard Balance Sheet,"
which together with the Partnership Balance Sheet and the Ice Balance Sheet is
collectively referred to as the "Balance Sheets") as at June 30, 1998 and the
related statement of income for the six months then ended. All such financial
statements (the "Blizzard Financial Statements," which together with the
Partnership Financial Statements and the Ice Financial Statements are
collectively referred to as the "Financial Statements") have been prepared in
accordance with GAAP consistently applied and were prepared from the books and
records of Blizzard. Such books and records are complete and correct in all
material respects, accurately reflect all transactions of Blizzard, and have
been made available to the Buyer for examination. The Blizzard Financial
Statements fairly present the financial position of Blizzard as of the dates
thereof. The Blizzard Financial Statements reflect reserves appropriate and
adequate for all known material liabilities and reasonably anticipated looses as
required by GAAP. Since the Balance Sheet Date, (i) there has been no change in
the assets, liabilities or financial
5
<PAGE>
condition of either Company or the Partnership from that reflected in the
Balance Sheets except for changes in the ordinary course of business
consistent with past practice and which have not been materially adverse, and
(ii) none of the business, prospects, financial condition, operations,
property or affairs of the Partnership has been materially adversely affected
by any occurrence or development, individually or in the aggregate, whether
or not insured against. The Sellers have disclosed to the Buyer all material
facts relating to the preparation of the Financial Statements.
SECTION 2.9 EMPLOYMENT AND LABOR MATTERS.
(a) SCHEDULE 2.9 lists all employees, leased employees, independent
contractors and officers of the Companies and the Partnership on the date
hereof, along with the amount of the current annual salaries and total
compensation paid or due for services to each employee, leased employee,
independent contractor or officer for the most recent fiscal year end and the
year to date, and a full and complete description of any commitments to such
employees, leased employees, independent contractors and officers with respect
to compensation payable thereafter. To the best knowledge of the Sellers, (1)
no key employee or group of employees has any plans to terminate employment with
either Company or the Partnership and (2) no independent contractor has any
plans to terminate its services to either Company or the Partnership and none of
the Companies or the Partnership have plans to terminate its relationship with
any of its independent contractors.
(b) Except as set forth on SCHEDULE 2.9, none of the Companies or
the Partnership is a party to or bound by any collective bargaining agreement
with any labor organization, group or association covering any of its employees,
and the Sellers have no knowledge of any attempt to organize the Partnership's
or either Company's employees by any Person, unit or group seeking to act as
their bargaining agent. There are no pending or threatened charges (by
employees, their representatives or governmental authorities) of unfair labor
practices or of employment discrimination or of any other wrongful action with
respect to any aspect of employment of any person employed or formerly employed
by either Company or the Partnership. No union representation election relating
to employees of either Company or the Partnership has been scheduled by any
governmental agency or authority, no organizational effort is being made with
respect to any of such employees, and there is no investigation of either
Company's or the Partnership's employment policies or practices by any
governmental agency or authority pending or threatened. Except as set forth on
SCHEDULE 2.9, none of the Companies or the Partnership is currently, nor have
they been, involved in labor negotiations with any unit or group seeking to
become the bargaining unit for any employees of the Partnership or either
Company. None of the Companies or the Partnership has experienced any material
work stoppages, and to the best knowledge of the Sellers, no work stoppage is
planned.
SECTION 2.10 REAL PROPERTY. None of the Companies or the Partnership owns
real property.
6
<PAGE>
SECTION 2.11 POWERS OF ATTORNEY; ABSENCE OF LIMITATIONS ON COMPETITION;
GUARANTEES.
Except as set forth in SCHEDULE 2.11, (i) no power of attorney or similar
authorization given by either Company or the Partnership presently is in effect
or outstanding; (ii) no contract or agreement to which either Company or the
Partnership is a party or is bound or to which either Company's or the
Partnership's properties or assets are subject limits the freedom of either
Company or the Partnership to compete in any line of business or with any
Person; and (iii) none of the Companies or the Partnership is a party to or
bound by any guarantee of any debt or obligation of any other Person.
SECTION 2.12 SIGNIFICANT SUPPLIERS. Set forth on SCHEDULE 2.12 is a true
and correct list of the Partnership's ten largest suppliers for the most recent
twelve (12) month period ending December 31, 1997, and most recent six and
three-quarter (63/4) month period ending July 23, 1998 together with the amount
attributable to such suppliers expressed in dollars and as a percentage of total
supplies purchased. None of the suppliers identified on SCHEDULE 2.12 has
terminated, materially reduced or threatened to terminate or materially reduce
its supply of products or services to the Partnership during the period covered
by such schedule.
SECTION 2.13 GOVERNMENTAL APPROVALS. Except as set forth on SCHEDULE
2.13, no registration or filing with, or consent or approval of or other action
by, any Federal, state or other governmental agency or instrumentality is or
will be necessary for the valid execution, delivery and performance by the
Sellers of this Agreement.
SECTION 2.14 VALIDITY, ETC. Except as set forth on SCHEDULE 2.14,
neither the execution and delivery of this Agreement or the other Documents, the
consummation of the transactions contemplated hereby or thereby, nor the
performance of this Agreement or the other Documents in compliance with the
terms and conditions hereof and thereof by the Sellers will (i) violate,
conflict with or result in any breach of any trust agreement, Articles of
Incorporation, bylaw, partnership agreement, judgment, decree, order, statute or
regulation applicable to either Company or the Partnership, (ii) violate,
conflict with or result in a breach, default or termination or give rise to any
right of termination, cancellation or acceleration of the maturity of any
payment date of any of the obligations of either Company or the Partnership or
increase or otherwise affect the obligations of either Company or the
Partnership under any law, rule, regulation or any judgment, decree, order,
governmental permit, license or order or any of the terms, conditions or
provisions of any mortgage, indenture, note, license, agreement or other
instrument or obligation related to either Company or the Partnership or to the
Sellers' ability to consummate the transactions contemplated hereby or thereby,
except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained in
writing and provided to the Buyer, or (iii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to either Company or the
Partnership.
7
<PAGE>
SECTION 2.15 ABSENCE OF ADVERSE CHANGE; CONDUCT OF BUSINESS.
During the period from the Balance Sheet Date to and including the date of
this Agreement, except as set forth on SCHEDULE 2.15, none of the Companies or
the Partnership has (i) borrowed or agreed to borrow any material amount of
funds or incurred any liability or obligation of any nature (whether accrued,
absolute, contingent or otherwise), or guaranteed or agreed to guarantee any
obligations of others, (ii) canceled any indebtedness owing to it or any claims
that it might have possessed, waived any material rights of substantial value or
sold, leased, encumbered, transferred or otherwise disposed of, or agreed to
sell, lease, encumber, or otherwise dispose of its assets or permitted any of
its assets to be subjected to any mortgage, pledge, lien, security interest,
encumbrance, restriction or charge of any kind, (iii) made any capital
expenditure or commitment therefor, (iv) declared or paid any dividend or made
any distribution on any shares of its capital stock, or redeemed, purchased or
otherwise acquired any shares of its capital stock or any option, warrant or
other right to purchase or acquire any such shares, (v) increased its
indebtedness for borrowed money, or made any loan to any Person, (vi) written
off as uncollectible any notes or accounts receivable, except write-offs in the
ordinary course of business charged to applicable reserves, (vii) made any
material change in any method of accounting or auditing practice, (viii)
otherwise conducted its business or entered into any transaction, except in the
usual and ordinary manner, or (ix) agreed, whether or not in writing, to do any
of the foregoing.
SECTION 2.16 CERTAIN PRACTICES. None of the Sellers, the Companies, the
Partnership, the Companies' directors or officers, the Partnership's managers,
or to the best knowledge of the Sellers, the Companies' or the Partnership's
employees has, directly or indirectly, used any funds of either Company or the
Partnership for unlawful contributions, gifts, entertainment, or other unlawful
expenses relating to political activity; made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic political
parties or campaigns from corporate funds; violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended; established or maintained any
unlawful or unrecorded fund of corporate monies or other assets; made any false
or fictitious entry on the books or records of either Company, the Partnership
or any subsidiary of either Company or the Partnership; made any bribe, rebate,
payoff, influence payment, kickback, or other unlawful payment; given any favor
or gift which is not deductible for federal income tax purposes; or made any
bribe, kickback, or other payment of a similar or comparable nature, whether
lawful or not, to any person or entity, private or public, regardless of form,
whether in money, business or to obtain special concessions, or to pay for
favorable treatment for business secured or for special concessions already
obtained.
SECTION 2.17 COMPLIANCE WITH LAW; LICENSES AND PERMITS.
Except as set forth on SCHEDULE 2.17, the Companies and the Partnership
have complied in all material respects with all laws, ordinances, legal
requirements, rules, regulations and orders applicable to it, its operations,
properties, assets, products and
8
<PAGE>
services. Except as set forth on SCHEDULE 2.17, there is no existing law,
rule, regulation or order, and the Sellers are not aware of any proposed law,
rule, regulation or order, whether Federal, state or local, which would
prohibit or materially restrict the Buyer from, or otherwise materially
adversely affect the Buyer in, conducting the Business in the manner
heretofore conducted by the Companies and the Partnership in any jurisdiction
in which the Business is now conducted. The Companies and the Partnership
possess all franchises, permits, licenses, certificates and consents required
from any governmental or regulatory authority in order for the Companies and
the Partnership to carry on their businesses as currently conducted and to
own and operate their properties and assets as now owned and operated and all
of such licenses and permits are set forth on SCHEDULE 2.17.
SECTION 2.18 EMPLOYEE BENEFITS.
(a) Set forth on SCHEDULE 2.18 is a list of all pension, profit
sharing, retirement, deferred compensation, stock purchase, stock option,
incentive, bonus, vacation, severance, disability, hospitalization, medical
insurance, life insurance, fringe benefit, welfare and other employee benefit
plans, programs or arrangements pursuant to which any of the Companies, the
Partnership or their ERISA Affiliates provide (directly or indirectly,
individually or jointly through others) benefits or compensation to or on behalf
of employees or independent contractors or former employees or former
independent contractors of the Companies, the Partnership or their ERISA
Affiliates, whether formal or informal, whether or not written ("Employee
Plan"). On request by the Buyer, the Sellers shall furnish a copy of each
Employee Plan and a copy of any related materials. The Companies and the
Partnership will maintain the benefits listed on SCHEDULE 2.18 in full force and
effect through the Effective Date. Except as set forth on SCHEDULE 2.18, the
Buyer shall not have any obligation or liability of any kind or nature for any
compensation or benefits of any kind or nature to the employees or consultants
of either Company or the Partnership for services rendered prior to the
Effective Date.
(b) Each Employee Plan covering any present or former employee of
either Company or the Partnership which is subject to the continuation health
coverage requirements of Section 4980B of the Code or Section 601 of ERISA or
any applicable state law has complied with all such requirements for
continuation coverage.
(c) There are no actions, suits or claims pending (other than
routine claims for benefits) or threatened against or with respect to any
Employee Plan or the assets of any Employee Plan.
(d) Each Employee Plan (and the related trust or funding vehicle,
if any) has been administered and maintained in accordance with its terms and
with applicable law. Except as set forth on SCHEDULE 2.18(d), each Employee
Plan which is intended to be qualified under Section 401 of the Code and each
amendment to such plan is subject to a favorable determination letter from the
Internal Revenue Service and each such plan has at all times been maintained, by
its terms and in operation, in accordance with Section 401 of
9
<PAGE>
the Code. The assets of each Employee Plan which is not funded through the
general assets of either Company or the Partnership are at least equal to the
liabilities under such Employee Plan, and all assets of each Employee Plan
are shown on the books and records of such Employee Plan at fair market
value. No Employee Plan has unfunded liabilities that as of the Closing Date
are not accurately and fully reflected on the Partnership Balance Sheet.
(e) Except as set forth on SCHEDULE 2.18(e), none of the
Companies, the Partnership, or any of their ERISA Affiliates is or has been a
participant in, or is or has been obligated to maintain or to make
contributions to, a multi-employer plan (within the meaning of ERISA Section
3(37) and ERISA Section 4001(a)(3)) or an Employee Plan which is subject to
Title IV of ERISA. None of the Companies, the Partnership, or any ERISA
Affiliate has sponsored, contributed to or been obligated under Title I or IV
of ERISA to contribute to a "defined benefit plan" (as defined in ERISA
Section 3(35)). None of the Companies or the Partnership is obligated to
provide post-retirement medical benefits or any other unfunded
post-retirement welfare benefits to or on behalf of any persons whatsoever
(except the benefits pursuant to the continuation health coverage
requirements under Section 4980B of the Code, ERISA Section 601, or
applicable state law).
(f) None of the Companies, the Partnership, or their ERISA
Affiliates is subject to and, to the best knowledge of the Sellers, no facts
exist which could subject either Company, the Partnership or any of their ERISA
Affiliates to, any liability whatsoever which is directly or indirectly related
to any Employee Plan, including, but not limited to, liability for benefit
payments or related claims, any liability for any tax or related penalty under
the Code, or liability for any damages or penalties arising under Title I or
Title IV of ERISA. No reportable event under Section 4043 of ERISA has occurred
or, to the best knowledge of the Sellers, will occur with respect to such
Employee Plan.
(g) Termination of or withdrawal from any Employee Plan immediately
after the Closing Date would not subject the Buyer to any liability, tax or
penalty whatsoever.
(h) The execution or performance of the transactions contemplated
by this Agreement will not create, accelerate or increase any obligations under
the Employee Plans, including any obligation to make any payment which would not
be deductible as an excess golden parachute payment under Section 280G of the
Code.
(i) All contributions to or under each Employee Plan and all
expenses of each Employee Plan are fully deductible for income tax purposes for
the taxable year for which such contributions are made or such expenses are
paid. All contributions to or under each Employee Plan have been made when due
under the terms of such Employee Plan in accordance with applicable law.
(j) For purposes of this Section 2.18, the term "ERISA" shall mean
the Employee Retirement Income Security Act of 1974, as amended, and the term
"ERISA
10
<PAGE>
Affiliate" shall mean each trade or business (whether or not incorporated)
which together with the Company is treated as a single employer under
Section 414(b), (c), (m), (o) or (t) of the Code.
SECTION 2.19 FIXED ASSETS. SCHEDULE 2.19 contains a true and complete
list of all of the Companies' and the Partnership's fixed assets with a net book
value of greater than $1,000.00, whether owned or leased. Except as shown on
SCHEDULE 2.19, the Companies and the Partnership have good and marketable title
to all of their respective fixed assets, free and clear of all claims, liens,
mortgages, charges and encumbrances except as disclosed in the Balance Sheets.
All of the Companies' and the Partnership's fixed assets, whether owned or
leased, are adequate and usable for the purposes for which they are currently
used, are in good operating condition and repair and have been properly
maintained.
SECTION 2.20 INSURANCE. Each Company and the Partnership are, and will
be through the Effective Date, insured with insurers in respect of its
properties, assets and businesses as set forth on the attached SCHEDULE 2.20.
SCHEDULE 2.20 lists the insurance coverage carried by each Company and the
Partnership, which insurance will remain in full force and effect with respect
to all events occurring prior to the Effective Date. Except as set forth on
SCHEDULE 2.20, none of the Companies or the Partnership (i) has failed to give
any notice or present any claim under any such policy or binder in due and
timely fashion, (ii) has received notice of cancellation or non-renewal of any
such policy or binder, (iii) is aware of any threatened or proposed cancellation
or non-renewal of any such policy or binder, (iv) has received notice of any
insurance premium which will be materially increased in the future, or (v) is
aware of any insurance premium which will be materially increased in the future.
There are no outstanding claims under any such policy which have gone unpaid for
more than 45 days, or as to which the insurer has disclaimed liability.
SECTION 2.21 ACCOUNTS RECEIVABLE; SELLER NOTES. The accounts receivable
and other debts due or recorded in the respective records and books of account
of each Company and the Partnership as being due to either Company or the
Partnership as of the Effective Date, all of which are set forth on SCHEDULE
2.21, arose in the ordinary course of business of either Company of the
Partnership, are not subject to any counterclaim or set-off and are fully
collectible within 90 days after the Effective Date without resort to litigation
and without offset or counterclaim. All notes payable to the Sellers by either
Company or the Partnership and all notes receivable to the Company or the
Partnership from any of the Sellers have been paid in full.
SECTION 2.22 OUTSTANDING CONTRACTS. SCHEDULE 2.22 sets forth a
description of all existing contracts, agreements, leases, commitments,
licenses and franchises, which involve obligations or commitments by either
Company or the Partnership of $10,000 or more and are not cancelable by
either Company or the Partnership without penalty within 30 days
(collectively "Contracts"), whether written or oral, relating to either
Company or the Partnership. The Sellers have delivered or made available to
the Buyer true, correct and complete copies of all of the Contracts specified
on SCHEDULE 2.22 which are in writing, and
11
<PAGE>
such schedule sets forth a complete description of all Contracts which are
not in writing. All of the Contracts are in full force and effect and
enforceable in accordance with their terms, except to the extent that the
enforceability thereof may be subject to or affected by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium, or other laws
relating to or affecting the rights of creditors generally. Except as set forth
on SCHEDULE 2.22, each Company and the Partnership and, to the best knowledge of
the Sellers, each other party thereto has materially performed all the
obligations required to be performed by it, has received no notice of default
and is not in default (with due notice or lapse of time or both) under any of
the Contracts. None of the Companies or the Partnership has any present
expectation or intention of not fully performing all its obligations under each
of the Contracts, and the Sellers have no knowledge of any breach or anticipated
breach by the other party to any of the Contracts to which either Company or the
Partnership is a party. Except as set forth on SCHEDULE 2.22, none of the
Contracts has been terminated; no notice has been given by any party thereto of
any alleged default by any party thereunder; and the Sellers are not aware of
any intention or right of any party to declare another party to any of the
Contracts to be in default. Except as set forth on SCHEDULE 2.22, there exists
no actual or, to the best knowledge of the Sellers, threatened termination,
cancellation or limitation of the business relationship of either Company or the
Partnership by any party to any of the Contracts.
SECTION 2.23 OUTSTANDING LEASES. Neither Company owns or leases any
real property. SCHEDULE 2.23 sets forth a description of each agreement by
which the Partnership leases each parcel of real property (the "Leased
Parcels") used in connection with the Business (collectively, the "Leases").
The Sellers have delivered or made available to the Buyer true, correct and
complete copies of all of the Leases specified on SCHEDULE 2.23. All rents
due under the Leases have been paid. All of the Leases are in full force and
effect and enforceable in accordance with their terms, except to the extent
that the enforceability thereof may be subject to or affected by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, or
other laws relating to or affecting the rights of creditors generally.
Except as set forth on SCHEDULE 2.23, the Partnership and, to the best
knowledge of the Sellers, each other party thereto has performed all the
obligations required to be performed by it, has received no notice of default
and is not in default (with due notice or lapse of time or both) under any of
the Leases. The Partnership has no present expectation or intention of not
fully performing all its obligations under each of the Leases, and the
Sellers have no knowledge of any breach or anticipated breach by the other
party to any of the Leases. Except as set forth on SCHEDULE 2.23, none of
the Leases has been terminated; no notice has been given by any party thereto
of any alleged default by any party thereunder; and the Sellers are not aware
of any intention or right of any party to declare another party to any of the
Leases to be in default. There exists no actual or, to the best knowledge of
the Sellers, threatened termination, cancellation or limitation of the
business relationship of the Partnership with any party to any of the Leases.
SECTION 2.24 INTELLECTUAL PROPERTIES. SCHEDULE 2.24 contains an accurate
and complete list of all domestic and foreign letters patent, patents, patent
applications, patent
12
<PAGE>
licenses, software licenses and know-how licenses, trade names, trademarks,
copyrights, unpatented inventions, service marks, trademark registrations and
applications, service mark registrations and applications and copyright
registrations and applications, trade secrets or other confidential
proprietary information owned or used by either Company or the Partnership in
the operation of the Business (collectively the "Intellectual Property").
Except as set forth on SCHEDULE 2.24 and except for commercial software
licensed for use on personal computers, the Partnership owns the entire
right, title and interest in and to the Intellectual Property, trade secrets
and technology used in the operation of the Business and each item
constituting part of the Intellectual Property and trade secrets and
technology which is owned by the Partnership has been, to the extent
indicated in SCHEDULE 2.24, duly registered with, filed in or issued by, as
the case may be, the United States Patent and Trademark office or such other
government entities, domestic or foreign, as are indicated in SCHEDULE 2.24
and such registrations, filings and issuances remain in full force and
effect. There have been and are no pending or, to the best knowledge of the
Sellers, threatened proceedings or litigation or other adverse claims
affecting or with respect to the Intellectual Property. There is, to the
best knowledge of the Sellers, no reasonable basis upon which a claim may be
asserted against either Company or the Partnership for infringement of any
domestic or foreign letters patent, patents, patent applications, patent
licenses and know-how licenses, trade names, trademark registrations and
applications, common law trademarks, service marks, service mark
registrations or applications, copyrights, copyright registrations or
applications, trade secrets or other confidential proprietary information.
To the best knowledge of the Sellers, no Person is infringing upon the
Intellectual Property.
SECTION 2.25 PROPRIETARY INFORMATION OF THIRD PARTIES.
Except as disclosed on SCHEDULE 2.25, no third party has claimed or, to
the best knowledge of the Sellers, has reason to claim that any Person
employed by or consulting with either Company or the Partnership ("Related
Person") has (i) violated or may be violating any of the terms or conditions
of such person's employment, non-competition or non-disclosure agreement with
such third party, (ii) disclosed or may be disclosing or utilized or may be
utilizing any trade secret or proprietary information or documentation of
such third party, or (iii) interfered or may be interfering in the employment
relationship between such third party and any of its present or former
employees. No third party has requested information from either Company or
the Partnership which suggests that such a claim might be contemplated.
Except as disclosed on SCHEDULE 2.25, to the best knowledge of the Sellers,
no Related Person has employed or proposes to employ any trade secret or any
information or documentation proprietary to any former employer and no
Related Person has violated any confidential relationship which such person
may have had with any third party, in connection with the development or sale
of any product or service of either Company or the Partnership, and the
Sellers have no reason to believe there will be any such employment or
violation.
SECTION 2.26 TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 2.26, to the best knowledge of each Seller, no (i) director, officer or
shareholder of either
13
<PAGE>
Company (ii) partner or manager of the Partnership, or (iii) member of the
family of any such person, or any corporation, partnership, trust or other
entity in which any such person, or any member of the family of any such
person, has a beneficial interest greater than 5% or is an officer, director,
trustee, partner or holder of any equity interest greater than 5%, is a party
to any transaction with either Company or the Partnership, including any
contract, agreement or other arrangement providing for the employment of,
furnishing of services by, rental of real or personal property from or
otherwise requiring payments or involving other obligations to any such
person or firm.
SECTION 2.27 ABSENCE OF UNDISCLOSED LIABILITIES.
(a) Except as and to the extent of the amounts specifically
reflected or reserved against in the Balance Sheets, or except as set forth on
SCHEDULE 2.27, none of the Companies or the Partnership has any liabilities or
obligations of any nature whatsoever due or to become due, accrued, absolute,
contingent or otherwise, except for liabilities and obligations incurred since
the date thereof in the ordinary course of business and consistent with past
practice. The Sellers do not know of, and have no reason to know of, any basis
for the assertion against either Company or the Partnership of any liability or
obligation not fully reflected or reserved against in the Balance Sheet.
(b) None of the Companies or the Partnership is bound by any
agreement, or subject to any charter or other corporate restriction or any legal
requirement, which has, or in the future can reasonably be expected to have, a
material adverse effect on the business or prospects of either Company or the
Partnership.
SECTION 2.28 TAXES. Each Company has timely filed a valid election to be
treated as an S corporation in accordance with the provisions of Section 1361 of
the Code, effective for its tax year beginning January 2, 1996 and ending
December 31, 1996, and has qualified and shall continue to qualify as an S
corporation for all years and periods thereafter until the Effective Time.
SCHEDULE 2.28 lists all the states and localities with respect to which either
Company is required to file any corporate income and/or franchise tax return and
sets forth whether each Company is treated as the equivalent of an S corporation
by or with respect to each such state or locality. Neither Company has engaged
in any activity which would disqualify its treatment as an S corporation for
those tax purposes. Except as set forth on SCHEDULE 2.28, all federal, state,
local and foreign tax returns and tax reports required to be filed by each
Company on or before the date hereof have been timely filed with the appropriate
governmental agencies in all jurisdictions in which such returns and reports are
required to be filed and all amounts shown as owing thereon have been paid. All
taxes (including, without limitation, income, accumulated earnings, property,
sales, use, franchise, excise, license, value added, fuel, employees' income
withholding and social security taxes) which have become due or payable or are
required to be collected by either Company or are otherwise attributable to any
periods ending on or before the Effective Time and all interest and penalties
thereon, whether disputed or not, have been paid or will be paid in full on or
prior to the Closing Date or are adequately reflected on the Balance Sheet of
14
<PAGE>
such Company or such Company's books and records prepared in accordance with
GAAP. Except as set forth on SCHEDULE 2.28, all deposits required by law to be
made by either Company with respect to employees' withholding taxes have been
duly made, and as of the Effective Time all such deposits due will have been
made. Except as set forth on SCHEDULE 2.28, each Company has delivered to the
Buyer true and complete copies of such Company's federal and state income tax
returns for the fiscal periods ended December 31, 1997 and 1996 and all reports
and results of income tax audits, if any, related thereto. Except as set forth
on SCHEDULE 2.28, no examination of any tax return of either Company is
currently in progress. There are no outstanding agreements or waivers extending
the statutory period of limitations applicable to any such tax return.
The Partnership has been treated as a partnership for federal, state and
local tax purposes throughout the term of its existence. SCHEDULE 2.28 lists
all the states and localities with respect to which the Partnership is required
to file any tax return or tax report. Except as set forth on SCHEDULE 2.28, all
federal, state, local and foreign tax returns and tax reports required to be
filed by the Partnership on or before the date hereof have been timely filed
with the appropriate governmental agencies and all amounts shown as owing
thereon have been paid. All taxes that have become due or payable or are
required to be collected by the Partnership or are otherwise attributable to any
period ending on or before the Effective Time and all interest and penalties
thereon, whether disputed or not, have been paid or will be paid in full on or
prior to the Closing Date or are adequately reflected on the Balance Sheet of
the Partnership or on the Partnership's books and records prepared in accordance
with generally accepted accounting principles. Except as set forth on SCHEDULE
2.28, all deposits required by law to be made by the Partnership with respect to
employees' withholding taxes have been duly made, and as of the Effective Time
all such deposits due will have been made. The Partnership has delivered to the
Buyer true and complete copies of the Partnership's federal and state income tax
returns for the fiscal periods ended December 31, 1997 and 1996 and all reports
and results of income tax audits, if any, related thereto. Except as set forth
on SCHEDULE 2.28, no examination of any tax return of the Partnership is
currently in progress. There are no outstanding agreements or waivers extending
the statutory period of limitations applicable to any such tax return.
SECTION 2.29 LITIGATION. Except as set forth on SCHEDULE 2.29, there is
no (i) action, suit, claim, proceeding or investigation pending or, to the best
knowledge of the Sellers, threatened against or affecting either Company or the
Partnership (whether or not any of the Companies or the Partnership is a party
or prospective party thereto), at law or in equity, or before or by any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, (ii) arbitration proceeding
pending relating to either Company or the Partnership or (iii) governmental
inquiry pending or threatened against or involving either Company or the
Partnership, and there is no basis for any of the foregoing. None of the
Companies or the Partnership has received any opinion or memorandum or legal
advice from legal counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage which may be material to the
business, prospects, financial condition, operations, property or affairs of
either Company
15
<PAGE>
or the Partnership. There are no outstanding orders, writs, judgments,
injunctions or decrees served upon either Company or the Partnership by any
court, governmental agency or arbitration tribunal against either Company or
the Partnership. There are no facts or circumstances which may result in
institution of any action, suit, claim or legal, administrative or
arbitration proceeding or investigation against, involving or affecting
either Company or the Partnership or the transactions contemplated hereby.
None of the Companies or the Partnership is in default with respect to any
order, writ, injunction or decree known to or served upon it from any court
or of any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign.
Except as disclosed on SCHEDULE 2.29, there is no action or suit by either
Company or the Partnership pending or threatened against others.
SECTION 2.30 ENVIRONMENTAL MATTERS.
(a) COMPLIANCE. Each Company, the Partnership and all Leased
Parcels are in compliance with all applicable laws, rules, regulations,
orders, ordinances, judgments and decrees of all governmental authorities
with respect to all environmental statutes, rules and regulations. Except as
set forth on SCHEDULE 2.30, none of the Companies or the Partnership has
received notice of, nor do the Sellers have knowledge of, any past, present
or future events, conditions, circumstances, activities, practices,
incidents, actions or plans of either Company, the Partnership or their
respective predecessors, either collectively, individually or severally,
which may interfere with or prevent continued compliance with, or which may
give rise to any common law or legal liability or otherwise form the basis of
any claim, action, suit, proceeding, hearing, or investigation, based on or
related to the disposal, storage, handling, manufacture, processing,
distribution, use, treatment or transport, or the emission, discharge,
release or threatened release into the environment, of any Substance. As
used in this Section 2.30, the term "Substance" or "Substances" shall mean
any pollutant, contaminant, hazardous substance, hazardous material,
hazardous waste or toxic waste, as defined in any presently enacted federal,
state or local statute or any regulation that has been promulgated pursuant
thereto. No part of any of the Leased Parcels has been listed or proposed
for listing on the National Priorities List established by the United States
Environmental Protection Agency, or any other corresponding list by any state
or local authorities.
(b) ENVIRONMENTAL SUBSTANCE LIABILITY. No event has occurred or
condition exists or operating practice is being employed that could give rise to
liability on the part of either Company or the Partnership, either at the
present time or in the future, for any losses, liabilities, damages (whether
consequential or otherwise), settlements, penalties, interest, expenses and
costs of responses, including any such liability on account of the right of any
governmental or private entity or person, and including closure expenses, costs
of assessment, containment, removal, or response (other than monitoring or
transportation or disposal of materials required to be transported or disposed
of in the ordinary course of business consistent with past practice) arising
under any rule or federal, state, or local statute, or any regulation that has
been promulgated pursuant thereto, or common law, as a
16
<PAGE>
result of or in connection with, or alleged to be as a result of or in
connection with, the following (collectively the "Hazardous Activities"):
(A) the handling, storage, use, transportation or disposal of
any Substances in or near or from the Leased Parcels;
(B) the handling, storage, use, transportation or disposal of
any Substances by either Company, the Partnership or
their respective predecessors which Substances were a
product, by-product or otherwise resulted from the
operations conducted by or on behalf of either Company,
the Partnership or their respective predecessors;
(C) any intentional or unintentional emission, discharge or
release of any Substances in or near or from facilities
into or upon the air, surface water, ground water or land
or any disposal, handling, manufacturing, processing,
distribution, use, treatment, or transport of such
Substances in or near or from facilities by or on behalf
of either Company, the Partnership or their respective
predecessors; or
(D) the presence of any toxic or hazardous building materials
(including but not limited to friable asbestos or similar
substances) in any facilities of either Company or the
Partnership, including but not limited to the inclusion
of such materials in the exterior and interior walls,
floors, ceilings, tile, insulation or any other portion
of building structures.
(c) ENVIRONMENTAL PERMITS. Each Company and the Partnership have
obtained and hold all registrations, permits, licenses, and approvals issued by
or on behalf of any federal, state or local governmental body or agency if any
("Environmental Permits") that are required in connection with the operation by
either Company or the Partnership of the Leased Parcels, the discharge or
emission of Substances by either Company or the Partnership from the Leased
Parcels or the generation, treatment, storage, transportation, or disposal of
any such Substances by either Company or the Partnership. Such Environmental
Permits, which are described on SCHEDULE 2.30, are currently effective and
sufficient for the operation of the Leased Parcels and the business of each
Company and the Partnership as currently conducted and intended to be conducted.
Each Company and the Partnership are in compliance with all terms and conditions
of the Environmental Permits, and are also in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables contained in those laws or provisions or
contained in any regulation, code, plan, order, decree, judgment, notice or
demand letter issued, entered, promulgated or approved thereunder and applicable
to either Company or the Partnership.
17
<PAGE>
(d) DELIVERIES. The Sellers have delivered to the Buyer true and
complete copies and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by the Sellers pertaining to Substances or
Hazardous Activities in, on, or under the Leased Parcels or concerning
compliance by the Sellers or any other Person for whose conduct they are or may
be held responsible, with environmental statutes, rules and regulations.
SECTION 2.31 BROKER'S OR FINDER'S FEES. No agent, broker, person or
firm acting on behalf of the Sellers, either Company or the Partnership is, or
will be, entitled to any commission or broker's or finder's fees from the
Sellers, either Company or the Partnership, or from any person controlling,
controlled by or under common control with the Sellers, either Company or the
Partnership, in connection with any of the transactions contemplated herein.
SECTION 2.32 INVENTORY. Neither Company has any inventory. All
inventory of the Partnership, whether or not reflected in the Financial
Statements or Balance Sheets, consists of a quality and quantity usable and
salable in the ordinary course of business, except for obsolete items and items
of below-standard quality, all of which have been written off or written down to
net realizable value in the Financial Statements or the Balance Sheets, as the
case may be. All inventories not written off have been priced at the lower of
cost or market on a first in, first out basis. The quantities of each item of
inventory (whether raw materials, work-in-process, or finished goods) are not
excessive, but are reasonable in the present circumstances of the Partnership.
SECTION 2.33 YEAR-2000 COMPLIANCE.
(a) SCHEDULE 2.33 contains a true and complete list of all Systems (as
hereinafter defined), and each System is Year-2000 Compliant (as hereinafter
defined) to the extent indicated on SCHEDULE 2.33.
(b) As used throughout this Agreement, the following definitions shall
have the following meanings:
(1) "External Systems" shall mean all services which are provided
to either Company or the Partnership by third parties and
which are dependent on information technology, including, but
not limited to, any external payroll, accounting, or tax filing
services or any checking, savings, or other financial services.
(2) "Internal Systems" shall mean all technology products and
systems generally operated or controlled in-house by either
Company or the Partnership, or their respective employees,
agents, or independent contractors including, but not limited
to, computers, computer networks, telephone systems, voicemail
systems, intercom systems, pager systems, and software
applications.
18
<PAGE>
(3) "Licensed Systems" shall mean all products and systems
developed by or for either Company or the Partnership which are
licensed, sold, distributed, or otherwise transferred by either
Company or the Partnership to third parties.
(4) "System" or "Systems" shall mean any, all, or any combination
of any Internal System, External System, or Licensed System.
(5) "Year-2000 Compliant" shall mean, with respect to each System,
that such System is designed to be used before, during, and
after the calendar year 2000 A.D. and will accurately accept
date input and process, store, and output date data and date-
related data, including, without limitation, calculating,
comparing, sorting, and sequencing such data and calculating
leap years before, during, and after the calendar year 2000
A.D. without any manual intervention.
SECTION 2.34 SIGNIFICANT CUSTOMERS. Set forth on SCHEDULE 2.34 is a
true and correct list of the Partnership's ten largest customers for the
calendar year 1997 and most recent six (6) month period ending June 30, 1998,
together with the amount attributable to such customers expressed in dollars and
as a percentage of total sales. Except as set forth on SCHEDULE 2.34, none of
the customers identified on SCHEDULE 2.34 has terminated, materially reduced or
threatened to terminate or materially reduce its purchases from the Partnership
during the period covered by such schedule.
SECTION 2.35 PURCHASE FOR INVESTMENT; RESTRICTED SECURITIES. Each
Seller individually represents and warrants as to himself (a) that such Seller
is acquiring shares of Buyer Common Stock, as hereinafter defined, for
investment and not with a present view toward, or for sale in connection with,
any distribution thereof, nor with any present intention of distributing or
selling the shares of Buyer Common Stock so acquired; (b) that such Seller has
no present plan or intention to sell, exchange or otherwise dispose of any of
the shares of Buyer Common Stock that may be received in connection with the
Earn Out Payments; and (c) such Seller acknowledges that (i) the shares of Buyer
Common Stock are not and will not be registered under the Securities Act of
1933, as amended (the "1933 Act"), and (ii) that Buyer does not file periodic
reports with the Securities and Exchange Commission pursuant to the requirements
of Section 12 or 15(d) of the Securities Exchange Act of 1934, as amended.
SECTION 2.36 DISCLOSURE. All Documents delivered or to be delivered
by or on behalf of the Sellers, either Company or the Partnership in connection
with this Agreement and the transactions contemplated hereby are true, complete
and correct. Neither this Agreement, nor any of the other Documents contains
any untrue statement of a material fact or omits a material fact necessary to
make the statements made by the Sellers, either Company or the Partnership
herein or therein, in light of the circumstances in which made, not misleading.
There is no fact known to the Sellers which materially and adversely affects
19
<PAGE>
the business, prospects or financial condition of either Company, the
Partnership or their properties or assets, which has not been set forth in
the Documents.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE BUYER
As an inducement to the Sellers to enter into this Agreement and to
consummate the transactions contemplated hereby, the Buyer represents and
warrants to the Sellers as follows:
SECTION 3.1 ORGANIZATION. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is duly qualified to transact business as a foreign corporation in each
jurisdiction in which the failure to so qualify would have a material adverse
impact on the Buyer's ability to purchase the Common Stock pursuant to this
Agreement and perform its obligations under this Agreement.
SECTION 3.2 CORPORATE POWER AND AUTHORITY. The Buyer has the
corporate power and authority to execute, deliver and perform this Agreement and
the other Documents. The execution, delivery and performance of the Documents
contemplated hereby and the consummation of the transactions contemplated hereby
and thereby have been duly authorized and approved by all necessary corporate
action of the Buyer. The Documents to be executed and delivered by the Buyer
have been duly executed and delivered by, and constitute the legal, valid and
binding obligation of the Buyer enforceable against the Buyer in accordance with
their terms.
SECTION 3.3 VALIDITY, ETC. Neither the execution and delivery by the
Buyer of this Agreement and the other Documents, the consummation by the Buyer
of the transactions contemplated hereby or thereby, nor the performance by the
Buyer of this Agreement and such other agreements in compliance with the terms
and conditions hereof and thereof will (i) violate, conflict with or result in
any breach of any trust agreement, articles of incorporation, bylaw, judgment,
decree, order, statute or regulation applicable to the Buyer, (ii) violate,
conflict with or result in a breach of or default (or give rise to any right of
termination, cancellation or acceleration) under any law, rule or regulation or
any judgment, decree, order, governmental permit, license or order or any of the
terms, conditions or provisions of any mortgage, indenture, note, license,
agreement or other instrument to which the Buyer is a party, or (iii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
the Buyer.
SECTION 3.4 CAPITAL STOCK. The authorized capital stock of the Buyer
consists of (a) 100,000,000 shares of $.001 par value common stock ("Buyer
Common Stock"), of which 13,464,918 shares were issued and outstanding as of
August 4, 1998 and (b) 50,000,000 shares of $.001 par value preferred stock
("Buyer Preferred Stock"), of which 1,701,000 shares were issued and outstanding
as of August 6, 1998 (collectively, Buyer Common Stock and Buyer Preferred Stock
are referred to as "Buyer Capital Stock").
20
<PAGE>
All of the issued and outstanding shares of Buyer Capital Stock are, and all
of the shares of Buyer Common Stock to be issued pursuant to SCHEDULE 1.2,
when issued in accordance with the terms of this Agreement, will be, duly and
validly issued and outstanding and fully paid and nonassessable. None of the
outstanding shares of Buyer Capital Stock has been, and none of the shares of
Buyer Common Stock to be issued in connection with this transaction will be,
issued in violation of any preemptive rights of the current or past
shareholders of the Buyer.
SECTION 3.5 DISCLOSURE STATEMENT. The Buyer's Disclosure Statement,
dated June 25, 1998, which has been previously delivered to the Seller is true,
complete and correct in all material respects.
SECTION 3.6 ACQUISITION OF STOCK FOR INVESTMENT. The Buyer is
acquiring the shares of Common Stock for investment and not with a view toward,
or for sale in connection with, any distribution thereof, nor with any present
intention of distributing or selling such shares of Common Stock. The Buyer
agrees that such shares of Common Stock may not be sold, transferred, offered
for sale, pledged, hypothecated or otherwise disposed of without registration
under the Securities Act of 1933, as amended, except pursuant to an exemption
from registration available under such Act. The Buyer will not sell, offer to
sell or solicit offers to buy any of the shares of Common Stock in violation of
the Securities Act of 1933 or the securities law of any state. The Buyer
understands that the shares of Common Stock have not been registered under
federal or any state's securities laws.
SECTION 3.7 BROKER'S OR FINDER'S FEES. No agent, broker, person or
firm acting on behalf of the Buyer is, or will be, entitled to any commission or
broker's or finder's fees from the Buyer, or from any person controlling,
controlled by or under common control with the Buyer, in connection with any of
the transactions contemplated herein.
SECTION 3.8 GOVERNMENTAL APPROVALS. No registration or filing with,
or consent or approval of or other action by, any Federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Buyer of this Agreement.
SECTION 3.9 DISCLOSURE. All Documents delivered or to be delivered
by or on behalf of the Buyer in connection with this Agreement and the
transactions contemplated hereby are true, complete and correct. Neither this
Agreement, nor any of the other Documents contains any untrue statement of a
material fact or omits a material fact necessary to make the statements made by
the Buyer herein or therein, in light of the circumstances in which made, not
misleading. There is no fact known to the Buyer which may have a material
adverse effect on the Buyer's ability to pay its obligations under this
Agreement, which has not been set forth in the Documents.
21
<PAGE>
ARTICLE IV. COVENANTS AND AGREEMENTS
SECTION 4.1 BEST EFFORTS. The Sellers and the Buyer shall each use
their best efforts to procure upon reasonable terms and conditions all consents
and approvals, completion of all filings, all registrations and certificates,
and satisfaction of all other requirements prescribed by law which are necessary
for the consummation of the transactions contemplated by this Agreement and the
Buyer's ownership and operation of the Partnership's Business after the Closing
Date. Prior to the Closing Date, the Sellers will use their best efforts to
preserve the Partnership's and each Company's relationships with its employees,
customers and others having business relationships with the Companies or the
Partnership.
SECTION 4.2 TAX RETURNS. The Sellers shall cause each Company and
the Partnership to prepare and timely file, at the Sellers' sole expense, each
Company's and the Partnership's required tax returns for all periods ending on
or prior to the Effective Date. The Seller shall be responsible for the payment
of, and will indemnify, defend and hold the Buyer harmless against all taxes due
or assessed which relate to the operations of each Company and the Partnership
for all periods ending on or prior to the Effective Date.
SECTION 4.3 INVESTIGATIONS. The Sellers shall give the Buyer and its
employees, accountants, attorneys and other authorized representatives full
access during all reasonable times to all the premises, properties, books and
records, and furnish the Buyer with such financial and operating data, analyses
and other information of any kind respecting each Company's and the
Partnership's business and properties as the Buyer shall from time to time
request. Any investigation shall be conducted in a manner which does not
unreasonably interfere with business operations.
SECTION 4.4 PRESERVATION OF BUSINESS. The Sellers shall cause each
Company and the Partnership to use their best efforts to preserve the possession
and control of all of their assets and the Business, to preserve the goodwill of
their customers and others with whom they have business relations, and to do
nothing to impair their ability to keep and preserve the Business as it exists
on the date of this Agreement.
SECTION 4.5 SECTION 338(h)(10) ELECTION. The Buyer and the Sellers
shall make a simultaneous joint election (the "Election") under Section
338(h)(10) of the Code for each Company on Internal Revenue Service Form 8023 in
accordance with the instructions to the form and any similar state law
provisions in all applicable states, with respect to the sale and purchase of
each Company's shares of Common Stock pursuant to this Agreement, and each party
shall provide to the others all necessary information to permit such election to
be made. Such election shall be made not later than the 15th day of the ninth
month beginning after the month in which the Closing Date occurs. The Buyer and
the Sellers shall, as promptly as practicable following the Closing Date, take
all actions necessary and appropriate (including filing such forms, returns,
schedules and other documents as may be
22
<PAGE>
required) to effect and preserve a timely election. All taxes attributable
to the election made pursuant to this Section 4.5 shall be the liability of
the Sellers; provided, however, that the Buyer shall pay each Seller on or
before April 15, 1999 the amount that such Seller's Federal income tax due in
connection with the sale of the Common Stock and the Election is greater than
the amount of Federal Income tax that would have been due in connection with
the sale of the Common Stock if the Election had not been made. In
connection with such election, within sixty (60) days following the Closing
Date, the Buyer and the Sellers shall act together in good faith to determine
and agree upon the "deemed sale price" to be allocated to each asset of the
Company in accordance with Treasury Regulation Section 1.338(h)(10)-1(f) and
the other regulations under Section 338 of the Code.
SECTION 4.6 LANDLORDS' CONSENTS. The Sellers shall cause, on or
before the expiration of thirty (30) days after the Closing Date, the Companies
and the Partnership to obtain from their respective landlords (to the extent
required under the pertinent premises leases) written consent to the assignment
of said leases to the Buyer which assignment is deemed to have resulted from the
transactions contemplated by this Agreement.
SECTION 4.7 AUDITED FINANCIAL STATEMENTS. The Sellers shall furnish
to the Buyer, as soon as practical and at Sellers' expense, audited financial
statements of each Company and the Partnership for the two (2) fiscal years
ending December 31, 1997 and 1996.
SECTION 4.8 POST-CLOSING MATTERS. The Buyer agrees to use its best
efforts to cause Norwest Bank, North Dakota, N.A. to release the personal
guarantees of the Sellers in connection with certain of the Company's debt
obligations on or before the expiration of sixty (60) days after the Closing
Date. The Sellers agree to cause employees ("North Country Participants") of
North Country Thermal Line, Inc.("North Country") to cease to be participants in
the Leingang Siding and Window, Inc. 401(k) Profit Sharing Plan (the "Leingang
Plan") on or before December 31, 1998. The Sellers agree to cause North Country
to take all steps necessary and appropriate to establish a successor 401(k)
retirement plan for the North Country Participants and to transfer the account
balances of the North Country Participants from the Leingang Plan to such
successor plan.
ARTICLE V. CONDITIONS TO THE BUYER'S OBLIGATIONS
The obligation of the Buyer to make deliveries to the Sellers pursuant to
Section 1.2 hereof and to consummate the other transactions contemplated hereby
is subject to the satisfaction, on or before the Closing Date, of the following
conditions each of which may be waived by the Buyer in its sole discretion:
SECTION 5.1 INTRA-COMPANY DEBT. All indebtedness of the Sellers and
all other directors, officers, partners, managers and employees of either
Company or the
23
<PAGE>
Partnership to the Company or the Partnership shall have been repaid in full
and the Sellers shall have delivered to the Buyer a certificate, dated the
Closing Date, to such effect.
SECTION 5.2 CONSENTS. Except for the consents of the landlords
provided for in Section 4.6 above and except as set forth on SCHEDULE 5.2, all
requisite governmental approvals and consents of third parties identified on
such schedule or otherwise identified by the Sellers as required to be received
to prevent any material license, permit or agreement relating to the Business
from terminating prior to its scheduled termination, as a result of the
consummation of the transactions contemplated hereby, shall have been obtained.
SECTION 5.3 EMPLOYMENT AGREEMENT. Alvin W. Leingang shall have
entered into an Employment Agreement with the Partnership, in substantially the
form attached hereto as EXHIBIT B (the "Employment Agreement").
SECTION 5.4 NON-COMPETITION AGREEMENT. The Sellers shall have
entered into Noncompetition Agreements with the Buyer in substantially the form
attached hereto as EXHIBIT C (the "Noncompetition Agreement").
SECTION 5.5 OPINION OF COUNSEL TO THE SELLERS. The Buyer shall have
received from Kelsch Kelsch Ruff & Kranda, P.L.L.P., counsel to the Sellers, an
opinion, dated as of the Closing Date, in form and substance reasonably
satisfactory to the Buyer, and to the following effect:
(a) Ice is a corporation duly organized, validly existing and in
good standing under the laws of the State of North Dakota. Blizzard is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Minnesota. The Partnership is a registered limited liability
partnership duly organized, validly existing and in good standing under the laws
of the State of Minnesota. Each of the Companies and the Partnership is
qualified to do business as a foreign corporation or foreign limited liability
partnership, as the case may be, and is in good standing in the states set forth
on SCHEDULE 2.4. The nature of the Business does not require either Company or
the Partnership to be licensed or qualified in any other jurisdiction. The
Companies have the corporate power and authority to own, lease, operate and hold
their respective properties and to carry on their respective businesses as now
conducted. The Partnership has the necessary power and authority to own, lease,
operate and hold its properties and to carry on its business as now conducted.
Collectively, the Companies own all of the partnership interests of the
Partnership free and clear of all Claims and the transfer of the Common Stock to
the Buyer pursuant to the provisions of this Agreement will transfer to the
Buyer through its ownership of the Companies all partnership interests of the
Partnership free and clear of all Claims;
(b) Each Seller has full legal power, capacity and authority to
execute and deliver this Agreement and the other Documents and to consummate the
transactions contemplated hereby and thereby, and this Agreement and the other
Documents have been duly and validly executed and delivered by such Seller and
constitute the legal, valid and
24
<PAGE>
binding obligation of such Seller, enforceable against such Seller in
accordance with their terms;
(c) Ice has authorized capital consisting of 2,500 shares of voting
common stock, with par value of $1.00 per share, of which 1,000 shares are
issued and outstanding and no shares are held as treasury stock and 47,500
shares of non-voting common stock with par value of $1.00 per share, of which no
shares are issued and outstanding and no shares are held as treasury stock.
Blizzard has authorized capital consisting of 5,000 shares of no par value
voting common stock of which 500 shares are issued and outstanding and no shares
are held as treasury stock and 95,000 shares of no par value, non-voting common
stock of which 9,500 shares are issued and outstanding and no shares are held as
treasury stock. All of the outstanding shares of each Company have been duly
authorized and validly issued and are fully paid and nonassessable. None of the
outstanding shares of either Company has been issued in violation of any
preemptive right. There are no outstanding options, warrants, rights, calls,
commitments, conversion rights, rights of exchange, plans or other agreements of
any character providing for the purchase, issuance or sale of any shares of
capital stock of either Company, other than as contemplated by this Agreement;
(d) Other than the Partnership, neither Company has any
subsidiaries or owns, directly or indirectly, any capital stock or other equity
or ownership or proprietary interest in any other corporation, partnership,
association, trust, joint venture or other entity;
(e) Except as set forth on SCHEDULE 2.12, no registration or filing
with, or consent or approval of or other action by, any Federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Sellers of this Agreement;
(f) There is no (i) action, suit, claim, proceeding or
investigation pending or, to the best knowledge of the Seller's counsel,
threatened against or affecting either Company or the Partnership (whether or
not any of the Companies or the Partnership is a party or prospective party
thereto), at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceeding pending
relating to either Company or the Partnership or (iii) governmental inquiry
pending or threatened against or involving either Company or the Partnership,
and, to the best knowledge of the Seller's counsel, there is no basis for any of
the foregoing. None of the Companies or the Partnership has received any
opinion or memorandum or legal advice from legal counsel to the effect that it
is exposed, from a legal standpoint, to any liability or disadvantage which may
be material to the business, prospects, financial condition, operations,
property or affairs of either Company or the Partnership. There are no
outstanding orders, writs, judgments, injunctions or decrees served upon either
Company or the Partnership by any court, governmental agency or arbitration
tribunal against either Company or Partnership. To the best knowledge of the
Seller's counsel, there are no facts or circumstances which may result in
institution of any action, suit, claim or legal, administrative or arbitration
25
<PAGE>
proceeding or investigation against, involving or affecting either Company or
the Partnership or the transactions contemplated hereby. None of the
Companies or the Partnership is in default with respect to any order, writ,
injunction or decree known to or served upon it from any court or of any
Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign. Except as set
forth on SCHEDULE 2.29, there is no action or suit by either Company or the
Partnership pending or threatened against others;
(g) The Employment Agreement has been duly executed and delivered
by, and constitutes the legal, valid and binding obligation of Alvin W.
Leingang, enforceable against him in accordance with its terms;
(h) The Noncompetition Agreements have been duly executed and
delivered by, and constitute the legal, valid and binding obligation of each
Seller, enforceable against him in accordance with its terms; and
(i) Except as set forth on SCHEDULE 2.14, neither the execution and
delivery of this Agreement and the other Documents, the consummation of the
transactions contemplated hereby and thereby, nor the performance of the
Agreement and such other agreements in compliance with the terms and conditions
hereof and thereof by the Sellers will, to the best knowledge of counsel, (i)
violate, conflict with or result in any breach of any trust agreement, articles
of incorporation, bylaw, partnership agreement, judgment, decree, order, statute
or regulation applicable to either Company or Partnership, (ii) violate,
conflict with or result in a breach, default or termination or give rise to any
right of termination, cancellation or acceleration of the maturity of any
payment date of any of the obligations of either Company or the Partnership or
increase or otherwise affect the obligations of either Company or the
Partnership under any law, rule, regulation or any judgment, decree, order,
governmental permit, license or order or any of the terms, conditions or
provisions of any mortgage, indenture, note, license, agreement or other
instrument or obligation related to either Company or the Partnership or to the
Sellers' ability to consummate the transactions contemplated hereby or thereby,
except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained in
writing and provided to the Buyer, or (iii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to either Company or the
Partnership.
SECTION 5.6 REQUIREMENTS CONTRACT. The Partnership and North Country
Thermal Line, Inc., a North Dakota corporation d/b/a North Country Glass ("North
Country") shall have entered into a Requirements Contract acceptable to Buyer
wherein North Country has agreed to supply Thermal Line with its requirements
for "Heat Mirror" thermal glass units through December 31, 2001 on terms no less
favorable that those offered to any other customer of North Country.
26
<PAGE>
SECTION 5.7 ROCKET SCREEN ROLLER PATENT. North Country shall have
assigned to Thermal Line all of its right, title and interest in and to the
U.S. Patent Nos. 5,052,093 and 5,127,143, issued on October 1, 1991 and July
7, 1992, respectively, for the device known as the Rocket Screen Roller (the
"Rocket Screen Roller Patent") in a form acceptable to Buyer.
SECTION 5.8 CLOSING DOCUMENTS. The Sellers shall have delivered all
of the resolutions, certificates, documents and instruments required by this
Agreement.
SECTION 5.9 APPROVAL OF THE BUYER AND ITS COUNSEL. All actions,
proceedings, consents, instruments and documents required to be delivered by, or
at the behest or direction of, the Sellers hereunder or incident to their
performance hereunder, and all other related matters, shall be reasonably
satisfactory as to form and substance to the Buyer and its counsel.
ARTICLE VI. CONDITIONS TO THE SELLER'S OBLIGATIONS
The obligation of the Sellers to transfer the Common Stock to the Buyer and
to consummate the other transactions contemplated hereby is subject to the
satisfaction, on or before the Closing Date, of the following conditions, each
of which may be waived by the Sellers in their sole discretion:
SECTION 6.1 EMPLOYMENT AGREEMENT. The Partnership shall have entered
into the Employment Agreement.
SECTION 6.2 OPINION OF STITES & HARBISON. The Sellers shall have
received from Stites & Harbison, counsel to the Buyer, an opinion dated as of
the Closing Date, in form and substance reasonably satisfactory to the Sellers,
and to the following effect:
(a) The Buyer is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and is duly qualified
to transact business as a foreign corporation in each jurisdiction in which the
failure to so qualify would have a material adverse impact on the Buyer's
ability to pay its obligations under this Agreement;
(b) The Buyer has the corporate power and authority to execute,
deliver and perform the Agreement and the other Documents. The execution,
delivery and performance of the Agreement and the other Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly executed and delivered by the Buyer and constitute the legal, valid
and binding obligations of the Buyer enforceable against the Buyer in accordance
with their terms; and
(c) The execution and delivery of the Agreement and the other
Documents, the consummation of the transactions contemplated hereby and thereby,
and the performance
27
<PAGE>
of the Agreement and such other agreements in compliance with the terms and
conditions hereof and thereof by the Buyer will not (i) violate, conflict
with or result in any breach of any trust agreement, articles of
incorporation, bylaw, judgment, decree, order, statute or regulation
applicable to the Buyer, (ii) violate, conflict with or result in a breach of
or default (or give rise to any right of termination, cancellation or
acceleration) under any law, rule or regulation or any judgment, decree,
order, governmental permit, license or order or any of the terms, conditions
or provisions of any mortgage, indenture, note, license, agreement or other
instrument to which the Buyer is a party, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Buyer.
SECTION 6.3 CLOSING DOCUMENTS. The Buyer shall have delivered all of
the resolutions, certificates, documents and instruments required by this
Agreement.
SECTION 6.4 APPROVAL OF THE SELLERS AND THEIR COUNSEL.
All actions, proceedings, consents, instruments and documents required to
be delivered by, or at the behest or direction of, the Buyer hereunder or
incident to its performance hereunder, and all other related matters, shall be
reasonably satisfactory as to form and substance to the Sellers and their
counsel.
ARTICLE VII. THE CLOSING AND CERTAIN CLOSING DELIVERIES
SECTION 7.1 TIME AND PLACE OF CLOSING. Upon the terms and subject to
the satisfaction or waiver of the conditions contained in this Agreement, the
closing of the transactions contemplated by this Agreement (the "Closing") shall
take place at the offices of Kelsch Kelsch Ruff & Kranda, P.L.L.P., Collins
Avenue and Main Street, Mandan, North Dakota on the date hereof (the "Closing
Date"). The transactions contemplated by this Agreement shall be effective as
of the close of business (the "Effective Time") on August 14, 1998 (the
"Effective Date").
SECTION 7.2 DELIVERIES BY THE SELLER. At the Closing, the Sellers
will deliver or cause the Company to deliver to the Buyer the following:
(a) Stock certificates representing all of the issued and
outstanding shares of Common Stock owned by each of the Sellers, accompanied by
stock powers duly executed in favor of the Buyer or duly executed instruments of
transfer and any other documents that are necessary to transfer to the Buyer
good and marketable title to all issued and outstanding shares of Common Stock;
(b) The stock books, stock ledgers, minute books, and other
corporate records of the Companies;
28
<PAGE>
(c) Resignations dated the Closing Date of all of the directors and
officers of the Companies and Joint Management Committee members of the
Partnership as designated by the Buyer;
(d) All required consents of third parties to the sale conveyance,
transfer, assignment and delivery of the Common Stock or any assets of the
Companies hereunder;
(e) A certificate of the Secretary of each Company certifying as of
the Closing Date (i) a true, correct, and complete copy of the Articles of
Incorporation of the Company and all amendments thereto as in effect on the
Closing Date; (ii) a true, correct, and complete copy of the bylaws of the
Company and all amendments thereto as in effect on the Closing Date; and (iii) a
Certificate of Good Standing from the respective Secretary of State of the
jurisdiction of its incorporation and any state in which it is qualified to
transact business as a foreign corporation;
(f) The affidavit of each Seller certifying as to his non-foreign
status in accordance with Section 1445(b)(2) of the Code;
(g) The Employment Agreement required by Section 5.3 above;
(h) The Noncompetition Agreements required by Section 5.4 above;
(i) The Opinion of the Sellers' Counsel required by Section 5.5
above;
(j) A General Release from each Seller which releases each Company
and the Partnership from any and all claims, known or unknown, contingent or
direct, which he may have against either Company or the Partnership as of the
Closing Date, other than claims arising under this Agreement and the other
Documents and the transactions contemplated hereby;
(k) The Requirements Contract required by Section 5.6 above;
(l) The Rocket Screen Roller Patent assignment required by Section
5.7 above; and
(m) All other documents, instruments and writings required to be
delivered by the Sellers at or prior to the Closing Date pursuant to this
Agreement or otherwise required in connection herewith.
SECTION 7.3 DELIVERIES BY THE BUYER. At the Closing, the Buyer will
deliver the following to or for the account of the Sellers:
(a) The consideration required by Section 1.2 above;
29
<PAGE>
(b) The Contingent Promissory Note required by Section 1.2 above;
(c) The Employment Agreement required by Section 6.1 above;
(d) The Opinion of the Buyer's Counsel required by Section 6.2
above;
(e) A certificate of an officer of the Buyer certifying as of the
Closing Date (i) a true, correct, and complete copy of the Certificate of
Incorporation of the Buyer and all amendments thereto as in effect on the
Closing Date; (ii) a true, correct, and complete copy of the bylaws of the Buyer
and all amendments thereto as in effect on the Closing Date; (iii) a true,
correct, and complete copy of the resolutions approved and adopted by the Board
of Directors of the Buyer authorizing the transactions contemplated herein;
(iv) Certificate of Good Standing from the Delaware Secretary of State; and (v)
the incumbency of the duly authorized officers of the Buyer; and
(f) All other documents, instruments and writings required to be
delivered by the Buyer at or prior to the Closing Date pursuant to this
Agreement or otherwise required in connection herewith.
ARTICLE VIII. [INTENTIONALLY OMITTED]
ARTICLE IX. SURVIVAL; INDEMNIFICATION AND OFFSET
SECTION 9.1 SURVIVAL. All representations and warranties in this
Agreement and the other Documents shall survive the Closing of the purchase of
the Common Stock contemplated hereby and any investigation at any time made by
or on behalf of any party for a period of three years and all such
representations and warranties shall expire on the third anniversary of the
Closing Date, except that (a) claims, if any, asserted in writing prior to such
third anniversary identified as a claim for indemnification pursuant to this
Article IX shall survive until finally resolved and satisfied in full; (b) any
Year-2000 Indemnification Obligations (as hereinafter defined) shall survive
until February 1, 2003 and until finally resolved and satisfied in full if
asserted on or prior to February 1, 2003; and (c) tax or environmental claims
arising from a breach of Section 2.28 or Section 2.30, respectively, shall
survive for the full period of the applicable statute of limitations, and until
finally resolved and satisfied in full if asserted on or prior to the expiration
of any such period. The representations and warranties shall not be affected or
otherwise diminished by any investigation at any time by or on behalf of the
party for whose benefit such representations and warranties were made.
SECTION 9.2 INDEMNIFICATION BY THE SELLERS. Subject to the terms
herein, the Sellers shall indemnify, defend, and hold the Companies, the
Partnership and the Buyer and the respective officers, directors, managers and
employees of the foregoing, and their
30
<PAGE>
successors and assigns (the "Sellers' Indemnitees") harmless from, against
and with respect to any claim, liability, obligation, loss, damage,
assessment, judgment, cost or expense of any kind or character, including
reasonable attorneys' fees (the "Damages"), arising out of or in any manner
incident, relating or attributable to:
(a) Any inaccuracy in any representation or breach of any warranty
of the Sellers contained in this Agreement;
(b) Any failure by the Sellers to perform or observe, or to have
performed or observed, in full, any covenant, agreement or
condition to be performed or observed by any of them under this
Agreement;
(c) Reliance by the Buyer on any books or records of either Company
or the Partnership or written information furnished to the
Buyer pursuant to this Agreement by or on behalf of the
Sellers, the Companies or the Partnership in the event that
such books and records or written information are false or
materially inaccurate; or
(d) Liabilities or obligations of, or claims against, either
Company, the Partnership or the Buyer (whether absolute,
accrued, contingent or otherwise) relating to, or arising out
of, the operation of the Business prior to the Closing Date or
facts and circumstances relating specifically to the Business,
the Leased Parcels, the Companies or the Partnership existing
at or prior to the Closing Date, including but not limited to
matters set forth on SCHEDULE 2.29, whether or not such
liabilities, obligations or claims were known on such date,
excluding only liabilities set forth in the Balance Sheet and
liabilities and obligations incurred since the date thereof in
the ordinary course of business and consistent with past
practice.
(e) Damages relating to, or arising out of any and all corrections
of operational defects of the Leingang Plan.
Provided, however, the Sellers' Indemnitees shall not be entitled to
indemnification or offset hereunder until Damages in total exceed $10,000 and
then only to the extent of aggregate Damages in excess of $10,000; provided
further, however, this limitation or "basket" shall not apply to any Damages
arising in connection with the representations and warranties as set forth in
Sections 2.1, 2.2, 2.28, 2.29, 2.30, and 9.2(e) hereof, respectively.
SECTION 9.3 NOTICE TO THE SELLERS, ETC. If any of the matters as to
which the Sellers' Indemnitees are entitled to receive indemnification under
Section 9.2 should entail litigation with or claims asserted by parties other
than the Sellers, the Sellers shall be given prompt notice thereof and shall
have the right, at their expense, to control such claim or litigation upon
prompt notice to the Buyer of their election to do so. To the extent requested
31
<PAGE>
by the Sellers, the Buyer, at its expense, shall cooperate with and assist the
Sellers, in connection with such claim or litigation. The Buyer shall have the
right to appoint, at its expense, single counsel to consult with and remain
advised by the Sellers in connection with such claim or litigation. The Sellers
shall have final authority to determine all matters in connection with such
claim or litigation; PROVIDED, HOWEVER, that the Sellers shall not settle any
third party claim without the consent of the Buyer, which shall not be
unreasonably denied or delayed.
SECTION 9.4 INDEMNIFICATION BY THE BUYER. The Buyer shall indemnify,
defend, and hold the Sellers and their heirs, executors, and legal
representatives (the "Buyer's Indemnitees") harmless from, against and with
respect to any claim, liability, obligation, loss, damage, assessment, judgment,
cost or expense of any kind or character, including reasonable attorneys' fees
(the "Damages"), arising out of or in any manner incident, relating or
attributable to:
(a) Any inaccuracy in any representation or breach of warranty of
the Buyer contained in this Agreement;
(b) Any failure by the Buyer to perform or observe, or to have
performed or observed, in full, any covenant, agreement or
condition to be performed or observed by it under any of the
Documents;
(c) Reliance by the Sellers on any books or records of the Buyer or
reliance by the Sellers on any written information furnished to
the Seller pursuant to this Agreement by or on behalf of the
Buyer in the event that such books and records or written
information are false or inaccurate; or
(d) The operation of the Business subsequent to the Closing Date.
Provided, however, the Buyer's Indemnitees shall not be entitled to
indemnification hereunder until Damages in total exceed $10,000 and then only to
the extent of aggregate damages in excess of $10,000.
SECTION 9.5 NOTICE TO THE BUYER, ETC. If any of the matters as to
which the Buyer's Indemnitees are entitled to receive indemnification under
Section 9.4 should entail litigation with or claims asserted by parties other
than the Buyer, the Buyer shall be given prompt notice thereof and shall have
the right, at its expense, to control such claim or litigation upon prompt
notice to the Sellers of its election to do so. To the extent requested by the
Buyer, the Sellers, at their expense, shall cooperate with and assist the Buyer,
in connection with such claim or litigation. The Sellers shall have the right
to appoint, at their expense, single counsel to consult with and remain advised
by the Buyer in connection with such claim or litigation. The Buyer shall have
final authority to determine all matters in connection with such claim or
litigation; PROVIDED, HOWEVER, that the Buyer shall not settle
32
<PAGE>
any third party claim without the consent of the Sellers, which shall not be
unreasonably denied or delayed.
SECTION 9.6 SURVIVAL OF INDEMNIFICATION. The obligations to
indemnify and hold harmless pursuant to this Article IX shall survive the
Closing of the purchase of the Common Stock contemplated hereby for a period of
three years, notwithstanding any investigation at any time made by or on behalf
of any party, except that (a) claims, if any, asserted in writing prior to such
third anniversary identified as a claim for indemnification pursuant to this
Article IX shall survive until finally resolved and satisfied in full; (b) any
Year-2000 Indemnification Obligations (as hereinafter defined) shall survive
until February 1, 2003 and until finally resolved and satisfied in full if
asserted on or prior to February 1, 2003; and (c) tax or environmental claims
arising from a breach of Section 2.28 or Section 2.30, respectively, shall
survive for the full period of the applicable statute of limitations, and until
finally resolved and satisfied in full if asserted on or prior to the expiration
of any such period. As used in this Article 9, the term "Year-2000
Indemnification Obligations" shall mean the Sellers' obligation to indemnify,
defend, and hold the Sellers' Indemnitees harmless from, against and with
respect to any Damages arising out of or in any manner incident, relating or
attributable to (i) any claim or allegation that any Licensed System is not
Year-2000 Compliant and (ii) any claim arising from a breach of Section 2.33.
SECTION 9.7 OFFSET. Each Seller acknowledges and agrees that the
Buyer shall be entitled to offset any indemnity claim under Section 9.2 against
any payment due to such Seller under Sections 1.2 and 1.3 hereof, at the Buyer's
sole option.
ARTICLE X. MISCELLANEOUS
SECTION 10.1 KNOWLEDGE OF THE SELLERS. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to the
best knowledge of the Sellers, the Sellers confirm that they have made due and
diligent inquiry of each Company's President and other officers and the
Partnership's managers as to the matters that are the subject of such
representations and warranties.
SECTION 10.2 KNOWLEDGE OF THE BUYER. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to the
best knowledge of the Buyer, the Buyer confirms that it has made due and
diligent inquiry of its President as to the matters that are the subject of such
representations and warranties.
SECTION 10.3 "PERSON" DEFINED. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or other department or agency
thereof.
SECTION 10.4 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's
33
<PAGE>
address set forth below or to such other address as a party may designate by
notice hereunder, and shall be either (i) delivered by hand, (ii) sent by
recognized overnight courier, (iii) made by telecopy or facsimile
transmission, or (iv) sent by registered or certified mail, return receipt
requested, postage prepaid.
If to the Buyer:
ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
Attn: Stephen A. Hoffmann, President
Fax No: (502) 412-0301
With a copy to:
Stites & Harbison
400 W. Market Street, Suite 1800
Louisville, Kentucky 40202
Attn: Ralston W. Steenrod, Esq.
Fax No: (502) 587-6391
If to the Sellers:
Alvin W. Leingang, Sellers' Agent
3208 River Drive, Box 565
Mandan, North Dakota 58554
With a copy to:
Kelsch Kelsch Ruff & Kranda, P.L.L.P.
Collins Avenue and Main Street
P.O. Box 785
Mandan, North Dakota 58554-0785
Attn: Arlen M. Ruff
Fax No: (701) 663-9810
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof to
the receiving party at the address of such party set forth above, (ii) if sent
by overnight courier, on the next business day following the day such notice is
delivered to the courier service, (iii) if made by telecopy or facsimile
transmission, at the time that receipt thereof has been acknowledged by
electronic confirmation or otherwise, or (iv) if sent by registered or certified
mail, on the fifth business day following the day such mailing is sent. The
address of any party herein may be changed at any time by written notice to the
parties.
34
<PAGE>
SECTION 10.5 ENTIRE AGREEMENT. This Agreement and the other Documents
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in the other Documents shall affect, or be used to
interpret, change or restrict, the express terms and provisions of this
Agreement.
SECTION 10.6 THE SELLERS' AGENT. Each Seller hereby constitutes and
appoints Alvin W. Leingang (the "Sellers' Agent") as his attorney-in-fact with
full authority to act for such Seller for the purposes of giving and receiving
notices, requests, consents and other communications pursuant to Section 10.4.
Each Seller agrees to be conclusively bound by any action taken by the Sellers'
Agent, in connection with the agency and power of attorney conferred hereunder.
The Sellers' Agent shall have no liability to any such Seller for any act,
omission or judgment (except in the case of wilful misconduct or gross
negligence). This agency and power of attorney may be revoked at any time by
any Seller. The Buyer shall be entitled, in the absence of such notice of
revocation, to rely upon any notice, request, consent, or other communication
from the Sellers' Agent as a duly authorized act on behalf of all the Sellers.
SECTION 10.7 MODIFICATIONS AND AMENDMENTS. The terms and provisions
of this Agreement may be modified or amended only by written agreement executed
by all parties hereto.
SECTION 10.8 ASSIGNMENT/BINDING EFFECT. Neither this Agreement, nor
any right hereunder, may be assigned by any of the parties hereto without the
prior written consent of the other parties. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
heirs, personal representatives, successors and permitted assigns.
SECTION 10.9 PARTIES IN INTEREST. Nothing in this Agreement, express
or implied, is intended to confer upon any other person any rights or remedies
of any nature whatsoever under or by reason of this Agreement. Nothing in this
Agreement shall be construed to create any rights or obligations except among
the parties hereto, and no person or entity shall be regarded as a third-party
beneficiary of this Agreement.
SECTION 10.10 GOVERNING LAW. This Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with and
governed by the internal laws of the State of North Dakota without giving effect
to the conflict of law principles thereof.
SECTION 10.11 ARBITRATION. Any dispute or difference between the
parties hereto arising out of or relating to this Agreement shall be finally
settled by arbitration in accordance with the Commercial Rules of the American
Arbitration Association by a panel of three qualified arbitrators. The Seller
and the Buyer shall each choose an arbitrator and the
35
<PAGE>
third shall be chosen by the two so chosen. If either the Seller or the
Buyer fails to choose an arbitrator within 30 days after notice of
commencement of arbitration or if the two arbitrators fail to choose a third
arbitrator within 30 days after their appointment, the American Arbitration
Association shall, upon the request of any party to the dispute or
difference, appoint the arbitrator or arbitrators to constitute or complete
the panel as the case may be. Arbitration proceedings hereunder may be
initiated by either the Seller, jointly, or the Buyer making a written
request to the American Arbitration Association, together with any
appropriate filing fee, at the office of the American Arbitration Association
in Bismarck, North Dakota. All arbitration proceedings shall be held in
Bismarck, North Dakota. Any order or determination of the arbitral tribunal
shall be final and binding upon the parties to the arbitration and may be
entered in any court having jurisdiction.
SECTION 10.12 SEVERABILITY. In the event that any arbitral tribunal of
competent jurisdiction shall finally determine that any provision, or any
portion thereof, contained in this Agreement shall be void or unenforceable in
any respect, then such provision shall be deemed limited to the extent that such
arbitral tribunal determines it enforceable, and as so limited shall remain in
full force and effect. In the event that such arbitral tribunal shall determine
any such provision, or portion thereof, wholly unenforceable, the remaining
provisions of this Agreement shall nevertheless remain in full force and effect.
SECTION 10.13 INTERPRETATION. The parties hereto acknowledge and agree
that: (i) the rule of construction to the effect that any ambiguities are
resolved against the drafting party shall not be employed in the interpretation
of this Agreement, and (ii) the terms and provisions of this Agreement shall be
construed fairly as to all parties hereto and not in favor of or against any
party, regardless of which party was generally responsible for the preparation
of this Agreement.
SECTION 10.14 HEADINGS AND CAPTIONS. The headings and captions of the
various subdivisions of this Agreement are for convenience of reference only and
shall in no way modify, or affect, or be considered in construing or
interpreting the meaning or construction of any of the terms or provisions
hereof.
SECTION 10.15 RELIANCE. The parties hereto agree that, notwithstanding
any right of any party to this Agreement to investigate the affairs of any other
party to this Agreement, the party having such right to investigate shall have
the right to rely fully upon the representations and warranties of the other
party expressly contained herein.
SECTION 10.16 EXPENSES. Each party shall pay its own fees and expenses
(including the fees of any attorneys, accountants, appraisers or others engaged
by such party) incurred in connection with this Agreement and the transactions
contemplated hereby whether or not the transactions contemplated hereby are
consummated.
36
<PAGE>
SECTION 10.17 GENDER. All pronouns and any variation thereof shall be
deemed to refer to the masculine, feminine, neuter, singular, or plural as the
identity of the person or entity or the context may require.
SECTION 10.18 PUBLICITY. Except by the mutual agreement between the
Seller and the Buyer, no party shall issue any press release or otherwise make
any public statement with respect to the execution of, or the transactions
contemplated by, this Agreement except as may be required by law.
SECTION 10.19 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by different parties hereto on separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Buyer has caused this Agreement to be executed by
its duly authorized officer and the Sellers have executed this Agreement all as
of the day and year first above written.
BUYER:
THERMOVIEW INDUSTRIES, INC.
By: /s/ Stephen A. Hoffmann
---------------------------------------
Stephen A. Hoffmann, President
SELLERS:
/s/ Alvin W. Leingang
-------------------------------------------
ALVIN W. LEINGANG
/s/ Steven B. Hoyt
-------------------------------------------
STEVEN B. HOYT
37
<PAGE>
Exhibit 10.58
STANDARD COMMERCIAL LEASE
ARTICLE 1. BASIC LEASE TERMS
1.1 Parties. This lease agreement ("Lease") is entered into this 2nd
day of January, 1996 by and between Alvin W. Leingang, an individual
("Landlord") and Thermal Line Windows, L.L.P, a Minnesota limited liability
partnership ("Tenant").
1.2 Premises. In consideration of the rents, terms, provisions and
covenants of this Lease, Landlord hereby leases, lets and demises to Tenant
the following described premises ("Premises") as illustrated on Exhibit A
attached hereto, approximately 24,750 sq. ft. of warehouse space and -0- sq.
ft. of finished tech space and -0- sq. ft. of office space (24,750 total sq.
ft.) located at 3601 30th Ave., NW, Mandan, ND 58554 ("Building") which
consists of approximately 49,500 sq. ft. in Mandan, ND, Minnesota, as legally
described on Exhibit B attached hereto.
1.3 Term. Subject to the conditions set forth herein, the term of
this Lease shall commence on January 2, 1996 (the "Commencement Date") and
shall terminate Sixty (60) months thereafter on December 31, 2000, unless
sooner terminated as hereinafter provided.
1.4 Base Rent. Base rent is:
MONTH MONTHLY BASE RENT
----- -----------------
1-60 $ 6,187.50 for first 6 months
$12,375.00, thereafter.
1.5 Addresses.
LANDLORD'S ADDRESS: TENANT'S BUILDING ADDRESS:
------------------- --------------------------
Alvin W. Leingang 3601 30th Ave., NW
Box 579 Mandan, ND 58554
Mandan, ND 58554
TENANT'S ADDRESS FOR NOTICES:
-----------------------------
Same
1.6. Permitted Use. Manufacturing, assembly and warehouse.
1.7 Security Deposit. $ -0-
<PAGE>
1.8 Pro-Rata Share. 50% subject to adjustment as provided in
Section 2.2 hereof.
ARTICLE 2. RENT
2.1 Base Rent. Tenant agrees to pay monthly as base rent during the
term of this lease the sum of money set forth in Section 1.4 of this Lease,
which amount shall be payable to Landlord at the address shown above. One
monthly installment of rent shall be due and payable on the date of execution
of this Lease by Tenant for the first month's rent and a like monthly
installment shall be due and payable on or before the first day of each
calendar month succeeding the Commencement Date during the term of this
Lease; provided, if the Commencement Date should be a date other than the
first day of a calendar month, the monthly rental set forth above shall be
prorated to the end of that calendar month, and all succeeding installments
of rent shall be payable on or before the first day of each succeeding
calendar month during the term of this Lease. Tenant shall pay, as additional
rent, all other sums due under this Lease. Notwithstanding anything in this
Lease to the contrary, if Landlord, for any reason whatsoever (other than
Tenant's default), cannot deliver possession of the Premises to the Tenant on
the Commencement Date, this Lease shall not be void or voidable, nor shall
Landlord be liable to Tenant for any loss or damage resulting therefrom, nor
shall the expiration of the term be extended, but all rent shall be abated
until Landlord delivers possession. All base rent, additional rent and other
sums payable by Tenant pursuant to this Lease are payable without demand and
without any reduction, abatement, counterclaims or setoff.
2.2 Operating Expenses. Tenant shall also pay as additional rent
Tenant's pro rata share of the operating expenses of Landlord for the
Building and/or project of which the Premises are a part. Landlord may
invoice Tenant monthly for Tenant's pro rata share of the estimated
operating expenses for each calendar year, which amount shall be adjusted
from time-to-time by Landlord based upon anticipated operating expenses.
Within nine(9) months following the close of each calendar year, Landlord
shall provide Tenant an accounting showing in reasonable detail all
computations of additional rent due under this Section. In the event the
accounting shows that the total of the monthly payments made by Tenant
exceeds the amount of additional rent due by Tenant under this Section, the
accounting shall be accompanied by evidence of a credit to Tenant's account.
In the event the accounting shows that the total of the monthly payments made
by Tenant is less than the amount of additional rent due by Tenant under this
Section, the accounting shall be accompanied by an invoice for the additional
rent. Notwithstanding any other provision in this Lease, during the year in
which the Lease terminates, Landlord, prior to the termination date, shall
have the option to invoice Tenant for Tenant's pro rata share of the
operating expenses based upon the previous year's operating expenses. If this
Lease shall terminate on a day other than the last day of a calendar year,
the amount of any additional rent payable by Tenant applicable to the year in
which the termination shall occur, shall be pro rated on the ratio that the
number of days from the commencement of the calendar year to and including
such termination date bears to 355. Tenant agrees to pay any additional rent
due under this Section within ten (10) days following receipt of the invoice
or accounting showing additional rent due. Tenant's pro rata share set forth
in Section 1.8 shall be equal to a
<PAGE>
percentage based upon a fraction the numerator of which is the total area of
the Premises as set forth in Article 1 and the denominator of which shall be
the net rentable area of the Building.
2.3 Definition of Operating Expenses. The term "operating expenses"
includes all expenses incurred by Landlord with respect to the maintenance
and operation of the Building of which the Premises are a part, including,
but not limited to, the following: maintenance, repair and replacement costs;
electricity, fuel, water, sewer, gas and other common Building utility
charges; signage; equipment used for maintenance and operation of the
Building; security charges; security, window washing and janitorial services;
trash and snow removal; landscaping and pest control; all services, supplies,
repairs, replacements or other expenses for maintaining and operating the
Building or project including parking and common areas; improvements made to
the Building which are required under any governmental law or regulation that
was not applicable to the Building at the time it was constructed;
installation of any device or other equipment which improves the operating
efficiency of any system within the Premises and thereby reduces operating
expenses; all other expenses which would generally be regarded as operating,
repair, replacement and maintenance expenses; all real property taxes and
installments of special assessments, including dues and assessments by means
of deed restrictions and/or owners' associations which accrue against the
Building during the term of this Lease and legal fees incurred in connection
with actions to reduce the same; and all insurance premiums Landlord is
required to pay or deems necessary to pay, including fire and extended
coverage, rent loss and public liability insurance, with respect to the
Building.
2.4 Late Payment Charge. If the monthly rental payment or any other
payment due from Tenant to Landlord is not received by Landlord on or before
the due date thereof, Landlord shall be entitled to exercise any remedy for
nonpayment provided in this Lease and, in addition, if such payment is not
received on or before five (5) days after the due date, a late payment charge
of five percent (5%) of such past due amount shall become due and payable by
Tenant in addition to such amounts owed under this Lease.
2.5 Increase in Insurance Premiums. If an increase in any insurance
premiums paid by Landlord for the Building is caused by Tenant's use of the
Premises or if Tenant vacates the Premises and causes an increase in such
premiums, then Tenant shall pay as additional rent the amount of such
increase to Landlord.
2.6 Security Deposit. The security deposit set forth in Section 1.7
shall be held by Landlord for the performance of Tenant's covenants and
obligations under this Lease, it being expressly understood that the security
deposit shall not be considered an advance payment of rental or a measure of
Landlord's damage in case of default by Tenant. Upon the occurrence of any
event of default by Tenant or breach by Tenant of Tenant's covenants under
this Lease, Landlord may, from time to time, without prejudice to any other
remedy, use the security deposit to the extend necessary to make good any
arrears of rent, or to repair any damage or injury, or pay any expense or
liability incurred by Landlord as a result of the event of default or breach
of covenant, and any remaining balance of the security deposit shall be
returned by Landlord to Tenant upon termination of this Lease. If any portion
of the security deposit is so used or
<PAGE>
applied, Tenant shall upon ten (10) days written notice from Landlord,
deposit with Landlord by cash or cashier's check an amount sufficient to
restore the security deposit to its original amount.
2.7 Holding Over. In the event that tenant does not vacate the
Premises upon the expiration or termination of this Lease, Tenant shall be a
tenant at will for the holdover period and all of the terms and provisions of
this Lease shall be applicable during that period, except that Tenant shall
pay Landlord as base rental for the period of such holdover an amount equal
to two (2) times the base rent which would have been payable by Tenant had
the holdover period been a part of the original term of this Lease, together
with all additional rent as provided in this Lease. Tenant agrees to vacate
and deliver the Premises to Landlord upon Tenant's receipt of notice from
Landlord to vacate. The rental payable during the holdover period shall be
payable to Landlord on demand. No holding over by Tenant, whether with or
without the consent of Landlord, shall operate to extend the term of this
Lease.
ARTICLE 3. OCCUPANCY AND USE
3.1 Use. Tenant warrants and represents to Landlord that the
Premises shall be used and occupied only for the purpose as set forth I
Section 1.6. Tenant shall occupy the Premises, conduct its business and
control its agents, employees, invitees and visitors in such a manner as is
lawful, reputable and will not create a nuisance. Tenant shall not permit any
operation which emits any odor or matter which intrudes into other portions
of the Building, use any apparatus or machine which makes undue noise or
causes vibration in any portion of the Building or otherwise interfere with,
annoy or disturb any other leisure in its normal business operations or
Landlord in its management of the Building. Tenant shall neither permit any
waste on the Premises nor allow the Premises to be used in any way which
would in the opinion of Landlord, be extra hazardous on account of fire or
which would in any way increase or render void the fire insurance on the
Building.
3.2 Signs. No sign of any type or description shall be erected,
placed or painted in or about the Premises or project except those signs
submitted to Landlord in writing and approved by Landlord in writing, and
which signs are in conformance with Landlord's sign criteria, established for
the project, attached hereto as Exhibit E.
3.3 Compliance with Laws, Rules and Regulations. Tenant, at Tenant's
sole cost and expense, shall comply with all laws, ordinances, orders, rules
and regulations of state, federal, municipal or other agencies or bodies
having jurisdiction over the use, condition or occupancy of the Premises.
Tenant will comply with the rules and regulations of the Building adopted by
Landlord, including those attached hereto as Exhibit F. Landlord shall have
the right at all times to change and amend the rules and regulations in any
reasonable manner as may be deemed advisable for the safety, care,
cleanliness, preservation of good order and operation or use of the Building
or the Premises. All changes and amendments to the rules and regulations of
the Building will be sent by Landlord to Tenant in writing and shall
thereafter be carried out and observed by Tenant.
<PAGE>
3.4 Warranty of Possession. Landlord warrants that it has the right
and authority to execute this Lease, and Tenant, upon payment of the required
rents and subject to the terms, conditions, covenants and agreements
contained in this Lease, shall have possession of the Premises during the
full term of this Lease as well as any extension or renewal thereof. Landlord
shall not be responsible for the acts or omissions of any other lessee, other
than Homeworks Supply, Inc., or third party that may interfere with Tenant's
use and enjoyment of the Premises.
3.5 Right of Access. Landlord or its authorized agents shall at any
and all reasonable times have the right to enter the Premises to inspect the
same, to show the Premises to perspective purchasers or lessees, and to
alter, improve or repair the Premises or any other portion of the Building.
Tenant hereby waives any claim for damages for injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or use of the
Premises, and any other loss occasioned thereby. Landlord shall at all times
have and retain a key with which to unlock all of the doors in, upon and
about the Premises. Tenant shall not change Landlord's lock system or in any
other manner prohibit Landlord from entering the Premises. Landlord shall
have the right to use any and all means which Landlord may deem proper to
open any door in an emergency without liability therefor. Tenant shall permit
Landlord to erect, use, maintain and repair pipes, cables, conduits,
plumbing, vents and wires in, to and through the Premises as often and to the
extent that Landlord may, now or hereafter deem to be necessary or
appropriate for the proper use, operation and maintenance of the Building.
3.6 Acceptance. The commencement by Tenant of any business in the
Premises shall constitute an acknowledgement that the Premises are in the
condition called for in this Lease and that Landlord has performed all of
Landlord's work.
ARTICLE 4. UTILITIES AND SERVICE
4.1 Building Services. Tenant shall pay when due, all charges for
utilities furnished to or for the use or benefit of Tenant or the Premises.
Tenant shall have no claim for rebate of rent on account of any interruption
in service.
4.2 Theft or Burglary. Landlord shall not be liable to Tenant for
losses to Tenant's property or personal injury caused by criminal acts or
entry by unauthorized persons into the Premises or the Building.
ARTICLE 5. REPAIRS AND MAINTENANCE
5.1 Landlord Repairs. Landlord shall not be required to make any
improvements, replacements or repairs of any kind or character to the
Premises or the Building during the term of this Lease except as are set
forth in this Section. Landlord shall maintain only the roof, foundation,
parking and common areas, the structural soundness of the exterior walls,
doors, corridors, and other structures serving the Premises, provided, that
Landlord's cost of maintaining, replacing and repairing the items set forth
in this Section are operating expenses subject to the addition rent
provisions in Section 2.2 and 2.3. Landlord shall not be liable to Tenant,
except as expressly provided in this Lease, for any damage or inconvenience,
and Tenant
<PAGE>
shall not be entitled to any abatement or reduction of rent by reason of any
repairs, alterations or additions made by Landlord under this Lease.
5.2 Tenant Repairs. Tenant shall, at all times throughout the term
of this Lease, including renewals and extensions, and at its sole expense,
keep and maintain the Premises in a clean, safe, sanitary and first class
condition and in compliance with all applicable laws, codes, ordinances,
rules and regulations. Tenant's obligations hereunder shall include, but not
be limited to, the maintenance, repair and replacement, if necessary, of all
heating, ventilation, air conditioning, lighting and plumbing fixtures and
equipment, fixtures, motors and machinery, all interior walls, partitions,
doors and windows, including the regular painting thereof, all exterior
entrances, windows, doors and docks and the replacement of all broken glass.
When used in this provision, the term "repairs" shall include replacements or
renewals when necessary, and all such repairs made by the Tenant shall be
equal in quality and class to the original work. The Tenant shall keep and
maintain all portions of the Premises and the sidewalk and areas adjoining
the same in a clean and orderly condition, free of accumulation of dirt,
rubbish, snow and ice. If Tenant fails, refuses or neglects to maintain or
repair the Premises as required in this Lease after notice shall have been
given Tenant, in accordance with this Lease, Landlord may make such repairs
without liability to Tenant for any loss or damage that may accrue to
Tenant's merchandise, fixtures or other property or to Tenant's business by
reason thereof, and upon completion thereof, Tenant shall pay to Landlord all
costs plus fifteen percent (15%) for overhead incurred by Landlord in making
such repairs upon presentation to Tenant of bill therefor.
5.3 Tenant Damages. Tenant shall not allow any damage to be
committed on any portion of the Premises or Building or common areas, and at
the termination of this Lease, by lapse of time or otherwise, Tenant shall
deliver the Premises to Landlord in as good condition as existed at the
Commencement Date of this Lease, ordinary wear and tear excepted. The cost
and expense of any repairs necessary to restore the condition of the Premises
shall be borne by the Tenant.
ARTICLE 6. ALTERATIONS AND IMPROVEMENTS
6.1 Landlord Improvements. If construction to the Premises is to be
performed by Landlord prior to or during Tenant's occupancy, Landlord will
complete the construction of the improvements to the Premises in accordance
with plans and specifications agreed to by Landlord and Tenant, which plans
and specifications are made a part of this Lease by reference. Within seven
(7) days of receipt of plans and specifications, Tenant shall execute a copy
of the plans and specifications and, if applicable, change orders setting
forth the amount of any costs to be borne by Tenant. In the event Tenant
fails to execute the plans and specifications and change order within the
seven (7) day period, Landlord may, at its sole option, declare this Lease
cancelled or notify Tenant that the base rent shall commence on the
completion date even though the improvements to be constructed by Landlord
may not be complete. Any changes or modification to the approved plans and
specifications shall be made and accepted by written change order or
agreement signed by Landlord and Tenant and shall constitute an amendment to
this Lease.
<PAGE>
6.2 Tenant Improvements. Tenant shall not make or allow to be made
any alterations or physical additions in or to the Premises without first
obtaining the written consent of Landlord, which consent may in the sole and
absolute discretion of Landlord be denied. Any alterations, physical
additions or improvements to the Premises made by Tenant shall at once become
the property of Landlord and shall be surrendered to Landlord upon the
termination of this Lease; provided, however, Landlord, at its option, may
require Tenant to remove any physical additions and/or repair any alterations
in order to restore the Premises to the condition existing at the time Tenant
took possession, all costs of removal and/or alterations to be borne by
Tenant. This clause shall not apply to moveable equipment or furniture owned
by Tenant, which may be removed by Tenant at the end of the term of this
Lease if Tenant is not then in default and if such equipment and furniture
are not then subject to any other rights, liens and interests of Landlord.
ARTICLE 7. CASUALTY AND INSURANCE
7.1 Substantial Destruction. If all or a substantial portion of the
Premises or the Building should be totally destroyed by fire or other
casualty, or if the Premises or the Building should be damaged so that
rebuilding cannot reasonably be completed within one hundred eighty (180)
working days after the date of written notification by Tenant to Landlord of
the destruction, or if insurance proceeds are not made available to Landlord,
or are inadequate, for restoration, this Lease shall terminate at the option
of Landlord by written notice to Tenant within sixty (60) days following the
occurrence, and the rent shall be abated for the unexpired portion of the
Lease, effective as of the date of the written notification.
7.2 Partial Destruction. If the premises should be partially damaged
by fire or other casualty, and rebuilding or repairs can reasonably be
completed within one hundred eighty (180) working days from the date of
written notification by Tenant to Landlord of the destruction, and insurance
proceeds are adequate and available to Landlord for restoration, this Lease
shall not terminate, and Landlord shall at its sole risk and expense proceed
with reasonable diligence to rebuild or repair the Building or other
improvements to substantially the same condition in which they existed prior
to the damage. If the Premises are to be rebuilt or repaired and are
untenantable in whole or in part following the damage, and the damage or
destruction was not caused or contributed to by act or negligence of Tenant,
its agents, employees, invitees or those for whom Tenant is responsible, the
rent payable under this Lease during the period for which the Premises are
untenantable shall be adjusted to such an extent as may be fair and
reasonable under the circumstances. In the event that Landlord fails to
complete the necessary repairs or rebuilding within one hundred eighty (180)
working days from the date of written notification by Tenant to Landlord of
the destruction, Tenant may at its option terminate this Lease by delivering
written notice of termination to Landlord, whereupon all rights and
obligations under this Lease shall cease to exist.
7.3 Property Insurance. Landlord shall not be obligated in any way
or manner to insure any personal property (including, but not limited to, any
furniture, machinery, goods or supplies) of Tenant upon or within the
Premises, any fixtures installed or paid for by Tenant upon or within the
Premises, or any improvements which Tenant may construct on the Premises.
<PAGE>
Tenant shall maintain property insurance on its personal property and shall
also maintain plate glass insurance. Tenant shall have no right in or claim
to the proceeds of any policy of insurance maintained by Landlord even if the
cost of such insurance is borne by Tenant as set forth in Article 2.
7.4 Waiver of Subrogation. Anything in this Lease to the contrary
notwithstanding, Landlord and Tenant hereby waive and release each other of
and from any and all right of recovery, claim, action or cause of action,
against each other, their agents, officers and employees, for any loss or
damage that may occur to the Premises, the improvements of the Building or
personal property within the Building, by reason of fire or the elements,
regardless of cause or origin, including negligence of Landlord or Tenant and
their agents, officers and employees. Landlord and Tenant agree immediately
to give their respective insurance companies which have issued policies of
insurance covering all risk of direct physical loss, written notice of the
terms of the mutual waivers contained in this Section.
7.5 Hold Harmless. Landlord shall not be liable to Tenant's
employees, agents, invitees, licensees or visitors, or to any other person,
for an injury to person or damage to property on or about the Premises caused
by any act or omission of Tenant, its agents, servants or employees, or of
any other person entering upon the Premises under express or implied
invitation by Tenant, or caused by the improvements located on the Premises
becoming out of repair, the failure of cessation of any service provided by
Landlord (including security service and devices), or caused by leakage of
gas, oil, water or stream or by electricity emanating from the Premises.
Tenant agrees to indemnify and hold harmless Landlord of and from any loss,
attorney's fees, expenses or claims arising out of any such damage or injury.
7.6 Public Liability Insurance. Tenant shall during the term hereof
keep in full force and effect at its expense a policy or policies of public
liability insurance with respect to the Premises and the business of Tenant,
on terms and with companies approved in writing by Landlord, in which both
Tenant and Landlord shall be covered by being named as insured parties under
reasonable limits of liability not less than $1,000,000, or such greater
coverage as Landlord may reasonably require, combined single limit coverage
for injury or death. Such policy or policies shall provide that thirty (30)
days written notice must be given to Landlord prior to cancellation thereof.
Tenant shall furnish evidence satisfactory to Landlord at the time this Lease
is executed that such coverage is in full force and effect.
ARTICLE 8. CONDEMNATION
8.1 Substantial Taking. If all or a substantial part of the Premises
are taken for any public or quasi-public use under any governmental law,
ordinance or regulation, or by right of eminent domain or by purchase in lieu
thereof, and the taking would prevent or materially interfere with the use of
the Premises for the purpose for which it is then being used, this Lease
shall terminate and the rent shall be abated during the unexpired portion of
this Lease effective on the date physical possession is taken by the
condemning authority. Tenant shall have no claim to the condemnation award or
proceeds in lieu thereof, except that Tenant shall be entitled to a separate
award for the cost of removing and moving its personal property.
<PAGE>
8.2 Partial Taking. If a portion of the Premises shall be taken for
any public or quasi-public use, under any governmental law, ordinance or
regulation, or by right of eminent domain or by purchase in lieu thereof, and
this Lease is not terminated as provided in Section 8.1 above, the rent
payable under this Lease during the unexpired portion of the term shall be
adjusted to such an extent as may be fair and reasonable under the
circumstances. Tenant shall have no claim to the condemnation award or
proceeds in lieu thereof, except that Tenant shall be entitled to a separate
award for the cost of removing and moving its personal property.
ARTICLE 9. ASSIGNMENT OR SUBLEASE
9.1 Landlord Assignment. Landlord shall have the right to sell,
transfer or assign, in whole or in part, its rights and obligations under
this Lease and in the Building. Any such sale, transfer or assignment shall
not operate to release Landlord from any and all liabilities under this Lease
arising after the date of such sale, assignment or transfer.
9.2 Tenant Assignment. Tenant may assign, in whole or in part, this
Lease, or allow it to be assigned, in whole or in part, by operation of law
or otherwise (including without limitation by transfer of a majority interest
of stock, merger, or dissolution, which transfer of majority interest of
stock, merger or dissolution shall be deemed an assignment) or mortgage or
pledge the same, or sublet the Premises, in whole or in part, without the
prior written consent of Landlord. In no event shall such assignment or
sublease ever release Tenant or any guarantor from any obligation or
liability hereunder. No assignee or sublessee of the Premises or any portion
thereof may assign or sublet the Premises or any portion thereof.
9.3 Conditions of Assignment. If Tenant desires to assign or sublet
all or any part of the Premises, it shall so notify Landlord at least thirty
(30) days in advance of the date on which Tenant desires ot make such
assignment or sublease. Tenant shall provide Landlord with a copy of the
proposed assignment or sublease and such information as Landlord might
request concerning the proposed sublessee or assignee to allow Landlord to
make informed judgments as to the financial condition reputation, operations
and general desirability of the proposed sublessee or assignee. Within
fifteen (15) days after Landlord's receipt of Tenant's proposed assignment or
sublease and all required information concerning the proposed sublessee or
assignee, Landlord shall have the following options: (1) cancel this Lease as
to the Premises or portion thereof proposed to be assigned or sublet; (2)
consent to the proposed assignment or sublease (or a combination of the rent
payable under such assignment or sublease plus any bonus or any other
consideration or any payment incident thereto) exceeds the rent payable under
this Lease for such space, Tenant shall pay to Landlord all such excess rent
and other excess consideration within ten (10) days following receipt thereof
by Tenant or (3) refuse, in its sole and absolute discretion and judgment, to
consent to the proposed assignment or sublease, which refusal shall be deemed
to have been exercised unless Landlord gives Tenant written notice providing
otherwise. Upon the occurrence of an event of default, if all or any part of
the Premises are then assigned or sublet, Landlord, in addition to any other
remedies provided by this Lease or provided by law, may, at its option,
collect directly from the assignee or sublessee all rents becoming due to
Tenant by reason of the assignment of sublease, and Landlord shall
<PAGE>
have a security interest in all properties on the Premises ot secure payment
of such sums. Any collection directly by Landlord from the assignee or
sublessee shall not be construed to constitute a novation or a release of
Tenant or any guarantor from the further performance of its obligations under
this Lease.
9.4 Rights of Mortgage. Tenant accepts this Lease subject and
subordinate to any recorded mortgage presently existing or hereafter created
upon the Building and to all existing recorded restrictions, convenants,
easements and agreements with respect to the Building. Landlord is hereby
irrevocably vested with full power and authority to subordinate Tenant's
interest under this Lease to any first mortgage lien hereafter placed on the
Premises and Tenant agrees upon demand to execute additional instruments
subordinating this Lease as Landlord may require. If the interests of
Landlord under this Lease shall be transferred by reason of foreclosure or
other proceedings for enforcement of any first mortgage or deed or trust on
the Premises, Tenant shall be bound to the transferee (sometimes called the
"Purchaser") at the option of the Purchaser, under the terms, covenants and
conditions of this Lease for the balance of the term remaining, including any
extensions or renewals, with the same force and effect as if the Purchaser
were Landlord under this Lease, and if requested by the purchaser, Tenant
agrees to attorn to the Purchaser, including the first mortgagee under any
such mortgage if it be the Purchaser, as its Landlord. Notwithstanding the
foregoing, Tenant shall not be disturbed in its possession of the Premises so
long as Tenant is not in default hereunder.
9.5 Tenant's Statement. Tenant agrees to furnish from time to time
within ten (10) days after receipt of a request from Landlord or Landlord's
mortgagee, a statement certifying, if applicable, the following: Tenant is in
possession of the Premises; the Premises are acceptable; the Lease is in full
force and effect; the Lease is unmodified; Tenant claims no present charge,
lien, or claim of offsets against rent the rent is paid for the current
month, but is not prepaid for more than one month and will not be prepaid for
more than one month in advance; there is no existing default by reason of
some act or omission by Landlord and such other matters as may be reasonably
required by Landlord or Landlord's mortgagee. Tenant's failure to deliver
such statement, in addition to being a default under this Lease, shall be
deemed to establish conclusively that this Lease is in full force and effect,
except as declared by Landlord, that Landlord is not in default of any of its
obligations under this Lease, and that Landlord has not received more than
one month's rent in advance. Tenant agrees to furnish, from time to time,
within ten (1) days after receipt of a request from Landlord, a current
financial statement of Tenant, certified as true and correct by Tenant.
ARTICLE 10. LIENS
{THIS ARTICLE WAS INTENTIONALLY OMITTED}
<PAGE>
ARTICLE 11. DEFAULT AND REMEDIES
11.1 Default by Tenant. The following shall be deemed to be events
of default ("Default") by Tenant under this Lease: (1) Tenant shall fail to
pay when due any installment of rent or any other payment required pursuant
to this Lease; (2) Tenant shall abandon any substantial portion of the
Premises; (3) Tenant shall fail to comply with any term, provision or
covenant of this Lease, other than the payment of rent, and the failure is
not cured within ten (10) days after written notice to Tenant (4) Tenant
shall file a petition or if an involuntary petition is filed against Tenant,
or becomes insolvent, under any applicable federal or state bankruptcy or
insolvency law or admit that it cannot meet its financial obligations as they
become due; or a receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant; or Tenant shall make a transfer in
fraud of creditors or shall make an assignment for the benefit of creditors;
or (5) Tenant shall do or permit to be done any act which results in a lien
being filed against the Premises or the Building and/or project if which the
Premises are a part.
In the event that an order for relief is entered in any
case under Title 11, U.S.C. (the "Bankruptcy Code") in which Tenant is the
debtor and: (A) Tenant as debtor-in-possession, or any trustee who may be
appointed in the case (the "Trustee") seeks to assume the Lease, then Tenant,
or Trustee if applicable, in addition to providing adequate assurance
described in applicable provisions of the Bankruptcy Code, shall provide
adequate assurance to Landlord of Tenant's future performance under the Lease
by depositing with Landlord a sum equal to the lesser of twenty-five percent
(25%) of the rental and other charges due for the balance of the Lease term
of six (6) months rent ("Security"), to be held (without any allowance for
interest thereon) to secure Tenant's obligations under the Lease, and (B)
Tenant, or Trustee if applicable, seeks to assign the Lease after assumption
of the same, then Tenant, in addition to providing adequate assurance
described in applicable provisions of the Bankruptcy Code, shall provide
adequate assurance to Landlord of the proposed assignee's future performance
under the Lease by deposing with Landlord a sum equal to the Security to be
held (without any allowance or interest thereon) to secure performance under
the Lease. Nothing contained herein expresses or implies, or shall be
construed to express or imply, that Landlord is consenting to assumption
and/or assignment of the Lease by Tenant, and Landlord expressly reserves all
of its rights to object to any assumption and/or assignment of the Lease.
Neither Tenant nor any Trustee shall conduct or permit the conduct of any
"fire", "bankruptcy", "going out of business" or auction sale in or from the
Premises.
11.2 Remedies for Tenant's Default. Upon the occurrence of a Default
as defined above, Landlord may elect either (i) to cancel and terminate this
Lease and this Lease shall not be treated as an asset of Tenant's bankruptcy
estate; or (ii) to terminate Tenant's right to possession only without
canceling and terminating Tenant's continued liability under this Lease.
Notwithstanding the fact that initially Landlord elects under (ii) to
terminate Tenant's right to possession only, Landlord shall have the
continuing right to cancel and terminate this Lease by giving three (3) days
written notice to Tenant of such further election, and shall have the right
to pursue any remedy at law or in equity that may be available to Landlord.
<PAGE>
In the event of election under (ii) to terminate Tenant's
right to possession only, Landlord may at Landlord's option, enter into the
Premises and take and hold possession thereof, without such entry into
possession terminating this Lease or releasing Tenant in whole or in part
from Tenant's obligation to pay all amounts hereunder for the full stated
term. Upon such reentry, Landlord may remove all persons and property from
the Premises and such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of Tenant, without
becoming liable for any loss or damage which may be occasioned thereby. Such
reentry shall be conducted in the following manner: without resort to
judicial process or notice of any kind if Tenant has abandoned or voluntarily
surrendered possession of the Premises; and, otherwise, by resort to judicial
process. Upon and after entry into possession without termination of the
Lease, Landlord may, but is not obligated to, relet the Premises, or any part
thereof, to any one other than the Tenant, for such time and upon such terms
as Landlord, in Landlord's sole discretion, shall determine. Landlord may
make alterations and repairs to the Premises to the extent deemed by Landlord
necessary or desirable.
Upon such reentry, Tenant shall be liable to Landlord as
follows:
A. For all attorneys' fees incurred by Landlord in
connection with exercising any remedy hereunder;
B. For the unpaid installments of base rent, additional
rent or other unpaid sums which were due prior to such reentry, including
interest and late payment fees, which sums shall be payable immediately;
C. For the installments of base rent, additional rent, and
other sums falling due pursuant to the provisions of this Lease for the
period after reentry during which the Premises remain vacant, including late
payment charges and interest, which sums shall be payable as they become due
hereunder.
D. For all expenses incurred in releasing the Premises,
including leasing commissions, attorneys' fees, and costs of alteration and
repairs, which shall be payable by Tenant as they are incurred by Landlord;
and
E. While the Premises are subject to any new lease or
leases made pursuant to this Section, for the amount by which the monthly
installments payable under such new lease or leases is less than the monthly
installment for all charges payable pursuant to this Lease, which
deficiencies shall be payable monthly.
Notwithstanding Landlord's election to terminate Tenant's
right to possession only, and notwithstanding any reletting without
termination, Landlord, at any time thereafter, may elect to terminate this
Lease, and to recover (in lieu of the amounts which would thereafter be
payable pursuant to the foregoing, but not in diminution of the amounts
payable as provided above before termination), as damages for loss of bargain
and not as a penalty, an aggregate sum equal to the amount by which the
rental value of the portion of the term unexpired at the time of such
election is less than an amount equal to the unpaid base rent, percentage
rent, and additional rent and all other charges which would have been payable
by Tenant for the unexpired portion of the term of this Lease, which
deficiency and all expenses incident thereto, including commissions,
attorneys' fees, expenses of alterations and repairs, shall be due to
Landlord as of the time Landlord exercises said election, notwithstanding
that the term had not expired. If
<PAGE>
Landlord, after such reentry, leases the Premises, then the rent payable
under such new lease shall be conclusive evidence of the rental value of the
unexpired portion of the term of this Lease.
If this Lease shall be terminated by reason of the bankruptcy or
insolvency of Tenant, Landlord shall be entitled to recover from Tenant or
Tenant's estate, as liquidated damages for loss of bargain and not as a
penalty, the amount determined by the immediately preceding paragraph.
11.3 Landlord's Right to Perform For Account of Tenant. If Tenant
shall be in Default under this Lease, Landlord may cure the Default at any
time for the account and at the expense of Tenant. If Landlord cures a
Default on the part of Tenant, Tenant shall reimburse Landlord upon demand
for any amount expended by Landlord in connection with the cure, including,
without limitation, attorney's fees and interest.
11.4 Interest and Attorney's Fees. In the event of a Default by
Tenant: (1) if a monetary default, interest shall accrue on any sum due and
unpaid at the rate of the lesser of eighteen percent (18%) per annum or the
highest rate permitted by law and, if Landlord places in the hands of an
attorney the enforcement of all or any part of this Lease, the collection of
any rent due or to become due or recovery of the possession of the Premises.
Tenant agrees to pay Landlord's costs of collection, including reasonable
attorney's fees for the services of the attorney, whether suit is actually
filed or not.
11.5 Additional Remedies, Waivers, Etc.
A. The rights and remedies of Landlord set forth herein
shall be in addition to any other right and remedy now and hereafter provided
by law. All rights and remedies shall be cumulative and not exclusive of each
other. Landlord may exercise its rights and remedies at any times, in any
order, to any extent, and as often as Landlord deems advisable without regard
to whether the exercise of one right or remedy precedes, concurs with or
succeeds the exercise of another.
B. A single or partial exercise of a right or remedy shall
not preclude a further exercise thereof, or the exercise of another right or
remedy from time to time.
C. No delay or omission by Landlord in exercising a right
or remedy shall exhaust or impair the same or constitute a waiver of, or
acquiesce to, a Default.
D. No waiver of a Default shall extend to or affect any
other Default or impair any right or remedy with respect thereto.
E. No action or inaction by Landlord shall constitute a
waiver of a Default.
F. No waiver of a Default shall be effective unless it is
in writing and signed by Landlord.
ARTICLE 12. RELOCATION
{THIS ARTICLE WAS INTENTIONALLY OMITTED}
<PAGE>
ARTICLE 13. AMENDMENT AND LIMITATION OF WARRANTIES
13.1 Entire Agreement. IT IS EXPRESSLY AGREED BY TENANT, AS A
MATERIAL CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS LEASE, WITH
THE SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE ENTIRE
AGREEMENT OF THE PARTIES; THAT THERE ARE AND WERE NO VERBAL REPRESENTATIONS,
WARRANTIES, UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES PERTAINING
TO THIS LEASE OR TO THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS NOT
INCORPORATED IN WRITING IN THIS LEASE.
13.2 Amendment. THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR
EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY LANDLORD AND TENANT.
13.3 Limitation of Warranties. LANDLORD AND TENANT EXPRESSLY AGREE
THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OR MERCHANTABILITY,
HABITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING
OUT OF THIS LEASE AND THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE
EXPRESSLY SET FORTH IN THIS LEASE.
ARTICLE 14. MISCELLANEOUS
14.1 Act of God. Landlord shall not be required to perform any
covenant or obligation in this Lease, or be liable in damages to Tenant, so
long as the performance or non-performance of the covenant or obligation is
delayed, caused or prevented by an act of God, force majeure or by Tenant.
14.2 Successors and Assigns. This Lease shall be binding upon and
inure to the benefit of Landlord and Tenant and their respective heirs,
personal representatives, successors and assigns. It is hereby covenanted and
agreed that should Landlord's interest in the Premises cease to exist for any
reason during the term of this Lease, then notwithstanding the happening of
such event this Lease nevertheless shall remain unimpaired and in full force
and effect, and Tenant hereunder agrees to attorn to the then owner of the
Premises.
14.3 Rent Tax. If applicable in the jurisdiction where the Premises
are issued, Tenant shall pay and be liable for all rental sales and use taxes
or other similar taxes. If any, levied or imposed by any city, state, county
or other governmental body having authority, such payments to be in addition
to all other payments required to be paid to Landlord under the terms of this
Lease. Any such payment shall be paid concurrently with the payment of the
rent, additional rent, operating expenses or other charge upon which the tax
is based as set forth above.
14.4 Captions. The captions appearing in this Lease are inserted
only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of any Section.
<PAGE>
14.5 Notice. All rent and other payments required to be made by
Tenant shall be payable to Landlord at the address set forth in Section 1.5.
All payments required to be made by Landlord to Tenant shall be payable to
Tenant at the address set forth in Section 1.5, or any other address within
the United States as Tenant may specify from time to time by written notice.
Any notice or document required or permitted to be delivered by the terms of
this Lease shall be deemed to be delivered (whether or not actually received)
when deposited in the United States Mail, postage prepaid, certified mail,
return receipt requested, addressed to the parties at the respective
addresses set forth in Section 1.5.
14.6 Submission of Lease. Submission of this Lease ot Tenant for
signature does not constitute a reservation of space or an option to lease.
This Lease is not effective until execution by and delivery to both Landlord
and Tenant.
14.7 Corporate Authority. If Tenant executes this Lease as a
corporation, each of the persons executing this Lease on behalf of Tenant
does hereby personally represent and warrant that Tenant is a duly authorized
and existing corporation, that Tenant is qualified to do business in the
state in which the Premises are located, that the corporation has full right
and authority to enter into this Lease, and that each person signing on
behalf of the corporation is authorized to do so. In the event any
representation or warranty is false, all persons who execute this Lease shall
be liable, individually, as Tenant.
14.8 Hazardous Substances. Tenant shall not bring or permit to
remain on the Premises or the Building, any asbestos, petroleum or petroleum
products, explosives, toxic materials, or substances defined as hazardous
wastes, hazardous materials, or hazardous substances under any federal,
state, or local law or regulation ("Hazardous Materials"). Tenant's violation
of the foregoing prohibition shall constitute a material breach and default
hereunder and Tenant shall indemnify, hold harmless and defend Landlord from
and against any claims, damages, penalties, liabilities, and costs (including
reasonable attorney fees and court costs) caused by or arising out of (i) a
violation of the foregoing prohibition or (ii) the presence or any release of
any Hazardous Materials in, on, under, or about the Premises of the Building
during the term of the Lease in conformance with the requirements of
applicable law. Tenant shall immediately give Landlord written notice of any
suspected breach of this paragraph, upon learning of the presence of any
release of any Hazardous Materials, and upon receiving any notices from
governmental agencies pertaining to Hazardous Materials which may affect the
Premises or the Building. The obligations of Tenant hereunder shall survive
the expiration or earlier termination, for any reason, of this Lease.
14.9 Severability. If any provision of this Lease of the application
thereof to any person or circumstances shall be invalid or unenforceable to
any extent, the remainder of this Lease and the application of such provision
to other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
14.10 Brokerage. Landlord and Tenant each represents and warrants to
the other that there is no obligation to pay any brokerage fee, commission,
finder's fee or other similar charge
<PAGE>
in connection with this Lease, other than fees due to
___________________________________ which are the responsibility of
_________________________________. Each party covenants that it will defend,
indemnify and hold harmless the other party from and against any loss or
liability by reason of brokerage or similar services alleged to have been
rendered to, at the instance of, or agreed upon by said indemnifying party.
Notwithstanding anything herein to the contrary, Landlord and Tenant agree
that there shall be no brokerage fee or commission due on expansions, options
or renewals by Tenants.
14.11 Notification to Tenant. Landlord hereby notifies Tenant that
the person authorized to execute this Lease and manage the Premises is The
Steven Hoyt Company which has been appointed to act as the agent in leasing
management and operation of the Building for owner and is authorized to
accept services of process and receive or give receipts for notices and
demands on behalf of Landlord. Landlord reserves the right to change the
identity and status of its duly authorized agent upon written notice to
Tenant.
14.12 Exhibits. Reference is made to the following Exhibits which
are attached hereto and made a part hereof:
Exhibit A Plan of Demised Premises
Exhibit B Legal Description
Exhibit C Standard Tenant Finish Specifications
Exhibit D Schedule of Additional Leasehold Improvements
Exhibit E Sign Restrictions
Exhibit F Rules and Regulations
ARTICLE 15. SIGNATURES
SIGNED effective the day and year first above written:
LANDLORD TENANT
THERMAL LINE WINDOWS, L.L.P.,
A Minnesota limited liability partnership
/S/ ALVIN W. LEINGANG BY: Blizzard Enterprises, Inc.,
--------------------- a Minnesota corporation
ALVIN W. LEINGANG
By: /S/ STEVEN B. HOYT
---------------------------
STEVEN B. HOYT, President
<PAGE>
ARTICLE 16. ADDITIONAL PROVISIONS
16.1 Landlord grants Tenant the option to renew this lease for a
five (5) year term at the same Base Rent by providing Landlord 120 days
notice prior to lease termination.
16.2 Landlord grants Tenant the option to lease the remainder of the
Building now leased and occupied by Homeworks Supply if and when such space
becomes available.
Tenant agrees to exercise this option within thirty (30) days of
notice by Landlord that Homeworks Supply has vacated the space.
Tenant agrees to pay Base Rent of $6,187.50 per month for such
space. At the time the option space is occupied, this Lease is deemed amended
to read:
Article 1.2: 49,500 square feet total
Article 1.4: $12,375
Article 1.8: 100%
<PAGE>
EXHIBIT A
PLAN OF DEMISED PREMISES
<PAGE>
EXHIBIT B
LEGAL DESCRIPTION
<PAGE>
EXHIBIT C
STANDARD TENANT FINISH SPECIFICATIONS
<PAGE>
EXHIBIT D
SCHEDULE OF ADDITIONAL LEASEHOLD IMPROVEMENTS
<PAGE>
EXHIBIT E
SIGN RESTRICTIONS
<PAGE>
EXHIBIT F
RULES AND REGULATIONS
<PAGE>
June 4, 1996
The Mandan City Commission met in regular session at 5:30 pm on June
4, 1996 in the Ed "Bosh" Froehlich Room at City Hall. Commissioners present
were Kelsch, Christensen, Boehm, Ulmer and Mayor Dykshoorn. Department Heads
present were Attorney Gallagher, Chief Rohr, Chief Gartner, Engineer Little,
Assessor Barta, and Auditor Christ. Absent was Director of Public Works
Snider.
Commissioner Kelsch moved, seconded by Commissioner Christensen to
approve the May 21, 1996 meeting minutes. Upon vote, the motion received
unanimous approval of the Board.
Under Old Business was a discussion regarding a request to allow
manufactured housing in R-7 zoning. This item was before the Board on April
30, 1996 and at that time, Engineer Little recommended a change in the
residential zoning regulations to reflect some criteria in regard to the
square footage, footprint, etc. Assessor Barta presented two examples on
zoning changes from Dickinson and Bismarck, on manufactured housing and
recommended proceeding forward in drafting a similar ordinance. Commissioner
Ulmer moved, seconded by Commissioner Christensen to refer the item to the
City Attorney, Building Inspector and City Engineer, to draft an ordinance
concerning zoning changes in connection with manufactured housing and forward
it to the Planning and Zoning Commission for review. Upon vote, the motion
received unanimous approval of the Board.
Under New Business was a discussion concerning the paving grades to
be used on Falcon Drive. Ron Manchester, Toman Engineering, noted three
available options: (1) to drain the proposed area, design the street with a
gravity flow, and no storm sewer, (22) construct the street and build a storm
sewer system, (3) same as option number two, except that the storm sewer will
go out the twenty foot easement with a new discharge point to the Missouri
River. Neil Kostelecky, 4913 35th Street SE, noted he had met with the
developer and engineer and have come up with a plan to remove the water from
his property. He also stated that he is confident that it will work. Roland
Wiedrich, 3508 Falcon Drive, wanted to know how much fill would be needed on
his property. Leonard Bullinger, 3504 Falcon Drive, wanted to know what
everyone's cut will be on their driveway. Robert Schlinder, 3500 Falcon
Drive, was also concerned with the destruction of his front yard. Steve
Thilmony also owns property in this area. Commissioner Boehm moved, seconded
by Commissioner Kelsch to approve option (1) with the gravity flow profile,
give Toman Engineering authority to generate the change order which will be
processed if the change order is in line with the estimates, and to approve
the following Resolution extending the boundaries of Street Improvement
District No. 93:
<PAGE>
"RESOLUTION EXTENDING THE BOUNDARIES OF STREET
IMPROVEMENT DISTRICT NO. 93.
BE IT RESOLVED By the Board of City Commissioners of the City of
Mandan, North Dakota, as follows:
1. It is hereby found, determined and declared that the City of
Mandan did on the 15th day of August, 1995, duly create Street Improvement
District No. 93, and defined in the Resolution creating the same, the size,
form and location of the various areas included within said District.
One (1), Borden Harbor First Subdivision;
AREA 7 - QUAIL STREET SOUTHEAST Lots Eleven (11), Twelve (12) and
Thirteen (13) of Block One (1), Borden Harbor First Subdivision; and to cause
the following streets to be included therein, namely:
AREA 5: On Falcon Drive from South Bay Drive southwardly to the
terminus of the cul-de-sac;
AREA 6: On Forty-Sixth Street Southeast from South Bay Drive
southwardly to its terminus;
AREA 7: On Quail Street from Forty-sixth Avenue Southeast easterly
to the terminus (cul-de-sac); to be improved by work of the same character to
be done in the same manner, in the same proceedings and under the same
contract heretofore awarded for the construction of the improvements in
Street Improvement District No. 93.
3. It is hereby ordered that Street Improvement District No. 93 be
enlarged so as to include therein all of the above described properties.
4. It is further found, determined and declared that the additional
cost of constructing the improvement proposed for the aforesaid properties
will not exceed the limitations provided in Section 40-22-36 of the North
Dakota Century Code.
/S/ ROBERT DYKSHOORN
--------------------
President, Board of City Commissioners
Attest:
/S/ KEVIN CHRIST
- ------------------------
City Auditor."
Passed: June 4, 1996.
<PAGE>
Upon roll call vote, Commissioners Kelsch, Christensen, Boehm, Ulmer and
President Dykshoorn voted "aye". The motion passed.
Under Public Hearings was to consider an application of Thermal Line
Windows for the remaining portion of the 5 year property tax exemption which
was granted to Homeworks. Assessor Barta noted that the application appears
to be in order. David Anderson, the Chief Financial Manager, noted the
company is an expansion of an existing business project. There being no
comment from the public, Mayor Dykshoorn closed the public hearing.
Commissioner Kelsch moved, seconded by Commissioner Boehm to approve the
application as presented. Upon vote, the motion received unanimous approval
of the Board.
Also under Public Hearings was to consider removal of a substandard
structure at 906 South Frontier. Assessor Barta noted this is a mobile home
at Zins Mobile Home Park, that is not livable and has back-taxes against it.
Mr. Zins noted the home was abandoned in December of 1995, and is
unhabitable. There being no further comment from the public, Mayor Dykshoorn
closed the public hearing. Commissioner Ulmer moved, seconded by Commissioner
Boehm to approve removal of the structure under the property legal guidance
of Attorney Gallagher. Upon vote, the motion received unanimous approval of
the Board.
<PAGE>
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (the "First Amendment") is made and entered
into as of the 14th day of August, 1998, by and between ALVIN W. LEINGANG
(hereinafter referred to as the "Landlord") and THERMAL LINE WINDOWS, L.L.P.
(hereinafter referred to as the "Tenant").
RECITALS:
A. Landlord and Tenant have entered into a Standard Commercial Lease
dated January 2, 1996 (the "Lease") for certain premises (the "Premises")
located in Mandan, North Dakota, as more particularly set forth therein.
B. Landlord and Tenant desire to amend the Lease as set forth below.
NOW, THEREFORE, for valuable consideration, receipt and sufficiency of
which is hereby acknowledged, it is agreed between the parties as follows:
1. Paragraph 1.6 shall be revised to read as follows:
"1.6 Permitted Use: Any lawful purpose."
2. The following shall be inserted after the definition of "operating
expenses" in Paragraph 2.3 on Page 2 of the Lease:
Tenant shall have the right at its own expense to challenge any tax or
assessment; such challenge will not, however, relieve Tenant's obligation to pay
such taxes promptly when due. If such challenge results in a reduction of taxes
or assessments, Tenant shall be entitled to a refund of such reduction within
fourteen (14) days of the date such refund amount is received by Landlord. If
the challenge results in reduction of a bill prior to payment by Landlord,
Tenant shall not be entitled to a refund, but shall have its bill appropriately
reduced.
3. The first sentence of Paragraph 6.2 on Page 4 shall be revised to read
as follows:
"Any remodeling, alterations and additions to the Premises which
Tenant may deem necessary shall be made at Tenant's expense, and Landlord hereby
consents thereto. Major structural changes to the Premises shall be made only
with Landlord's written consent.
4. Paragraph 7.1 on Page 4 shall be revised to read as follows:
"If all or a substantial portion of the Premises or the Building
should be totally destroyed by fire or other casualty, or if the Premises or the
Building should be damaged so that rebuilding cannot reasonably be completed
within one hundred eighty (180) working days after
<PAGE>
the date of written notification by Tenant to Landlord of the destruction, or
if insurance proceeds are not made available to Landlord, or are inadequate,
for restoration, this Lease shall terminate at the option of the Landlord or
the Tenant by written notice to the other party within sixty (60) days
following the occurrence, and the rent shall be abated for the unexpired
portion of the Lease, effective as of the date of the written notification."
5. The first sentence of Paragraph 7.4 on Page 4 of the Lease shall be
revised as follows:
"Anything in this Lease to the contrary notwithstanding, Landlord and
Tenant hereby waive and release each other of and from any and all right of
recovery, claim, action or cause of action, against each other, their agents,
officers and employees, for any loss or damage that may occur to the Premises,
the improvements of the Building or personal property within the Building, by
reason of fire or the elements, except for intentional or grossly negligent acts
of the parties, it being the intent of the parties that in the event of loss
caused by ordinary negligence, the parties agree to look solely to the proceeds
of insurance policies.
6. The following shall be inserted as Paragraph 11.6:
If Landlord shall fail to promptly keep and perform any of its
representations and warranties strictly in accordance with the terms of this
Lease and shall continue in default for a period of thirty (30) days after
written notice thereof to Landlord, then Tenant may, at its sole option and
discretion, exercise any or all of the following remedies:
(A) declare this Lease ended and vacate the leased premises
without incurring additional rent or other costs associated with the lease of
the leased premises; or
(B) remain in the leased premises and withhold rent and other
costs due Landlord until such time as Landlord cures such default; or
(C) perform any Landlord obligation, and all expenses (including
without limitation, reasonable attorney fees) incurred by Tenant in
performing such obligation shall be deemed an obligation of Landlord to
Tenant and shall be paid to Tenant on demand.
7. Article 16 shall be revised to read as follows:
"Landlord grants Tenant the option to renew this Lease for 2
additional terms of 5 years each at the same Base Rent by providing Landlord
120 days notice prior to lease termination."
8. All other terms and conditions of the Lease shall remain the same,
except as expressly modified herein.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto executed this First
Amendment to Lease as of the date set forth above.
LANDLORD:
/s/ Alvin W. Leingang
----------------------------------------
ALVIN W. LEINGANG
TENANT:
THERMAL LINE WINDOWS, L.L.P.
By: /s/
-----------------------------------
ICE, INC., General Partner
By: /s/ Stephen A. Hoffmann
-----------------------------------
Stephen A. Hoffmann, President
By:
-----------------------------------
BLIZZARD ENTERPRISES, INC.,
General Partner
By: /s/ Stephen A. Hoffmann
-----------------------------------
Stephen A. Hoffmann, President
3
<PAGE>
EQUIPMENT LEASE
THIS EQUIPMENT LEASE is made and entered into as of the 2nd day of January, 1996
by and between NORTH COUNTRY THERMAL LINE, INC. ("Lessor") and THERMAL LINE
WINDOWS, L.L.P., a Minnesota limited liability partnership ("Lessee").
WITNESSETH:
WHEREAS, subject to the terms and upon the conditions herein contained, Lessor
desires to lease to Lessee, and Lessee desires to take and rent from Lessor, the
equipment described on EXHIBIT A attached hereto and hereby made part hereof
(the "Equipment").
NOW, THEREFORE, pursuant to the foregoing recital, which is an integral part
hereof, and in consideration of the mutual covenants contained herein, the
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. LEASE. Subject to the terms and upon the conditions hereby contained,
Lessor hereby leases the Equipment to Lessee and Lessee hereby takes and rents
the Equipment from Lessor.
2. TERM. The term of this Lease ("Lease Term") shall begin as of the date
hereof and shall continue for a period of five (5) years.
3. RENT. As rent for the use of Equipment hereunder, Lessee shall pay to
Lessor, at such address as Lessor may direct, the sum of $3,036.83 per month
("Rent"), beginning upon the date hereof and continuing on the same day of each
calendar month thereafter until the expiration of the Lease Term.
4. OPTION TO PURCHASE. Upon the expiration of the Lease Term, Lessee shall
have the right and option (the "Purchase Option") to purchase the equipment from
Lessor for a price (the "Option Price") equal to the greater of $32,493.94 or
the fair market value of the Equipment, as determined hereunder. The Purchase
Option shall be exercisable by the delivery of written notice of exercise to
Lessor prior to sixty (60) days before the expiration of the Lease Term. If the
Purchase Option shall be exercised, a closing of the purchase and sale of the
Equipment thereunder shall be held upon the expiration of the Lease Term,
whereat Lessor shall deliver to Lessee a Bill of Sale with respect to the
Equipment, which Bill of Sale shall transfer title in and to the Equipment to
the Lessee free and clear of any liens or encumbrances other than liens or
encumbrances created or caused by Lessee. For purposes of determining the Option
Price, unless otherwise agreed by Lessor and Lessee in writing, the fair market
value of the Equipment shall be determined as follows:
a. No later than one hundred twenty (120) days prior to the
expiration of the Lease Term, Lessor shall provide Lessee
written notice of Lessor's determination of the fair market
value of the Equipment.
<PAGE>
b. Such determination shall be deemed to be the fair market value
of the Equipment unless, within fifteen (15) days following
the receipt of such notice, Lessee shall provide Lessor
written notice of its objection to such determination (an
"Objection Notice").
c. Within fifteen (15) days following the receipt of an Objection
Notice by Lessor, each of Lessee and Lessor shall select an
appraiser to determine the fair market value of the Equipment
and shall provide the name and address of such appraiser to
the other.
d. If either Lessee or Lessor shall fail to comply with the
provisions of Paragraph 4(c), the appraiser selected by the
other, by itself, shall perform the appraisal described
herein, and the results of such appraisal shall be conclusive
as to the fair market value of the Equipment.
e. The appraiser selected by Lessee and the appraiser selected by
Lessor (or, if Paragraph 4(d) shall become applicable, the
appraiser selected by Lessee or Lessor) shall determine the
fair market value of the Equipment.
f. If the appraiser selected by Lessee and the appraiser selected
by Lessor shall be unable to agree as to the fair market value
of the Equipment, such appraisers shall appoint a third
appraiser and the fair market value of the Equipment shall be
determined by such third appraiser and shall be conclusive and
binding as the fair market value of the Equipment.
g. If Paragraph 4(f) shall require the appointment of a third
appraiser, and the appraiser selected by Lessee and the
appraiser selected by Lessor shall be unable to agree as to
such third appraiser, either Lessor or Lessee may petition any
court of competent jurisdiction for the appointment of such
third appraiser.
h. For purposes of this Paragraph 4, the appraiser selected by
Lessee and Lessor shall be deemed to have failed to agree on
any matter if such appraisers shall have been in disagreement
with regard to such matter for a period in excess of fourteen
(14) days.
i. All costs and expenses incurred by either Lessee or Lessor in
connection with the appraisal process described in this
Paragraph 4, including, without limitation, the fees and
charges of the appraiser selected by Lessee, the fees and
charges of the appraiser selected by Lessor and the fees and
charges of a third appraiser, if any, shall be allocated
equally between Lessee and Lessor.
j. Notwithstanding anything contained herein to the contrary, the
fair market value of the Equipment shall not be determined
hereunder, and any process to determine the fair market value
of the Equipment hereunder shall be immediately discontinued,
if Lessee shall waive the Purchase Option by written notice
delivered to Lessor.
<PAGE>
5. USE. Lessee shall use the Equipment in a careful and proper manner and
shall comply with and conform to all laws relating to the possession, use or
maintenance of the Equipment. Lessee shall install, operate and maintain the
Equipment only in accordance with applicable vendor's or manufacturer's manuals
or instructions and will allow the Equipment to be operated only by competent
and duly qualified personnel. Lessee shall use the Equipment only within the
state of North Dakota and shall not remove the Equipment from the state of North
Dakota without the prior written consent of Lessor.
6. MAINTENANCE. Lessee shall, at its sole expense, keep and maintain the
Equipment in good operating condition, reasonable wear and tear excepted. Lessee
shall obtain and pay for all duplicate parts, extras, mechanisms and devices of
every kind needed or used in the operation, repair or renewal of the Equipment,
and the same shall become part of the Equipment. Lessee shall not make or allow
any addition, subtraction or alteration to, from or in the Equipment without
prior written consent of Lessor.
7. INSURANCE. Lessee shall, at its sole expense, obtain and maintain
insurance coverage against loss or theft of or damage or destruction to the
Equipment, which insurance coverage shall be carried in an amount not less than
the replacement cost of the Equipment. Such insurance coverage shall be
maintained with an insurance carrier licensed to transact business in the state
of North Dakota and the policy(ies) therefore shall provide that Lessor shall
receive at least thirty (30) days advance written notice, by certified mail,
return receipt requested, before cancellation, termination, nonrenewal or
amendment thereto.
8. RISK OF LOSS AND/OR DAMAGE. Lessee hereby assumes any and all risks and
liability, whether or not covered by insurance, for loss of or damage to the
Equipment however arising from or incident to the installation, possession,
operation, use or maintenance of the Equipment. In the event that the Equipment
shall be damaged or destroyed by any cause whatsoever, Lessee shall, at its
option: (a) repair the Equipment, returning it to its condition immediately
preceding such damage or destruction; (b) replace the Equipment with new
equipment of equivalent value and reasonably acceptable to Lessor, which
equipment shall become the property of Lessor and be subject to the terms and
provisions of this lease, being defined herein as the "Equipment"; or (c) pay to
Lessor the entirety of the rent then remaining due under this Lease, together
with the Option Price, whereupon this Lease shall terminate. Lessee expressly
agrees and acknowledges that unless and until this lease shall be terminated in
accordance with the terms and provisions hereof, no damage or destruction of or
to the Equipment, irrespective of the cause, shall relieve Lessee of its duties
and obligations hereunder.
9. RETURN OF EQUIPMENT. Upon the expiration of the Lease Term, or as
otherwise provided in this Lease, and unless the Purchase Option shall be
exercised in accordance with its terms, Lessee shall immediately return the
Equipment to Lessor at such address in Mandan, North Dakota, as Lessor shall
reasonably specify. Any and all additions or improvements made to the Equipment
by Lessee shall immediately be deemed to be part of the Equipment and, as such,
shall become property of Lessor.
10. TITLE. At all times during the Lease Team, title to the Equipment shall
remain with Lessor. Lessee shall not change or remove any insignia or lettering
which may be placed upon
<PAGE>
the Equipment to indicate Lessor's ownership thereof. Lessor may, at its
option, cause the Lease to be filed or recorded or may cause such financing
statements as Lessor may deem appropriate to be filed with respect to the
Equipment. Upon request, Lessee shall, without delay, execute and deliver to
Lessor any and all documents or instruments that may be necessary to any such
recording or filing.
11. WARRANTIES.
a. Lessor hereby represents and warrants to Lessee that Lessor is
the owner of the Equipment, that Lessor holds title to the
Equipment free and clear of any liens or encumbrances of any
type or nature whatsoever and that the Lessor has all power
and authority necessary to execute, enter into and perform
this Lease.
b. LESSEE HEREBY ACKNOWLEDGES THAT, EXCEPT AS OTHERWISE
SPECIFICALLY PROVIDED IN THIS LEASE: (i) THE EQUIPMENT IS
LEASED TO LESSEE HEREUNDER "AS IS," AND WITHOUT WARRANTY OF
LESSOR, EITHER EXPRESSED OR IMPLIED; AND (ii) LESSOR HAS NOT
MADE, DOES NOT MAKE AND AFFIRMATIVELY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES OF ANY NATURE WHATSOEVER,
DIRECTLY OR INDIRECTLY, EXPRESS OR IMPLIED, INCLUDING
SPECIFICALLY, BUT NOT EXCLUSIVELY, REPRESENTATIONS OR
WARRANTIES AS TO THE SUITABILITY, DURABILITY, FITNESS FOR USE,
MERCHANTABILITY, CONDITION OR QUALITY OF THE EQUIPMENT.
12. DEFAULT. As used herein, the term "Event of Default" shall mean one or
more of the following occurrences: (a) Lessee shall fail to make any payment of
rent due Lessor hereunder within fifteen (15) days following the date upon which
such payment is due; (b) Lessee shall fail to perform any of its duties or
obligations hereunder and such failure shall continue for a period of thirty
(30) days following the receipt of written notice thereof from Lessor; or (c)
Lessee makes an assignment for the benefit of creditors or authorizes, initiates
or consents to the initiation against it of any proceeding for a moratorium or
for relief under the United States Bankruptcy Code or any similar state law or
otherwise procures a stay of enforcement against it of creditors remedies
generally.
13. REMEDIES. Without limiting any other provision of this Lease, upon the
occurrence of any Event of Default, Lessor may, at its option: (a) terminate
this Lease by written notice delivered to Lessee, whereupon Lessor shall be
entitled to damages from Lessee in an amount equal to the present value,
determined by using an interest rate of thirteen percent (13%) per annum, of the
difference between (i) the unpaid Rent for the balance of the Lease Term, and
(ii) the amount which Lessee proves that Lessor can receive over the balance of
the Lease Term from reletting the Equipment to another lessee, net of all costs
and expenses which could reasonably be incurred by Lessor in connection with any
such reletting, or (b) without constituting a termination of this Lease or
relieving Lessee of its duties and obligations hereunder, demand that the
Equipment be returned to Lessor in accordance with Paragraph 9 hereof, whereupon
Lessee shall so return the Equipment to Lessor. Upon any termination of this
<PAGE>
Lease by Lessor hereunder and/or upon any failure of Lessee to return the
Equipment to Lessor hereunder, Lessor may, without demand or legal process and
without hereby rendering Lessor liable to refund any sums received as a deposit
and without constituting a termination of this Lease or relieving Lessee of its
duties and obligations hereunder, enter into the premises where the Equipment is
located and take possession of and remove the Equipment. The remedies of Lessor
hereunder are cumulative and may, to the extent permitted by law, be exercised
concurrently or separately, together with any other remedies that may be
available to Lessor at law or in equity. The election of any one remedy shall
not be deemed to be an election of such remedy and shall not preclude the
exercise of any other remedy. No failure or delay on the part of Lessor to
exercise any right or remedy shall operate as a waiver thereof; nor shall any
single or partial exercise by Lessor of any right or remedy preclude any further
exercise of any right or remedy.
4. TERMINATION BY LESSEE. Notwithstanding anything contained herein to the
contrary, Lessee shall have the right and option to terminate this Lease by
written notice delivered to Lessor upon the occurrence of either of the
following events:
a. The sale or other disposition of all or substantially all of
the assets and properties of Lessee in a single transaction or
in a series of related transactions; or
b. More than fifty percent (50%) of the partnership interest(s)
of Lessee shall be sold or otherwise transferred by the
holder(s) thereof, in a single transaction or in a series of
related transactions, to any person(s) who or which is not
(are not) an Affiliate(s) (as that term is hereafter defined)
of such holder(s).
15. ASSIGNMENT.
a. This Lease and Lessor's rights and privileges hereunder may be
assigned by Lessor any time and from time to time in its sole
and absolute discretion and without the consent of Lessee;
provided, however, that Lessor shall provide Lessee written
notice of each and every such assignment.
b. With the exception of an assignment or sublease to any person
or entity who or which acquires all or substantially all of
the assets and properties of Lessee, which may be made by
Lessee upon written notice of Lessor, this Lease and Lessee's
rights and privileges hereunder may not be assigned, sublet or
otherwise transferred or conveyed without the prior written
consent of Lessor.
16. GENERAL PROVISIONS.
a. NOTICES. All notices or other communications from either of
the parties hereto to the other shall be in writing and will
be considered duly given if sent by first class mail, return
receipt requested, postage prepaid, to the party at his or its
address set forth below, or to such other address as the party
hereafter designates by written notice to the other.
<PAGE>
If to Lessor to: If to Lessee, to:
North Country Thermal Line, Inc. Thermal Line Windows, L.L.P.
P.O. Box 579 2605 Twin City Drive
Mandan, ND 58554 Mandan, ND 58554
Attn: Alvin W. Leingang
b. WAIVER, MODIFICATION OR AMENDMENT. No waiver, modification or
amendment of any term, condition or provision of this lease
shall be valid or of any effect unless made in writing, signed
by the party(ies) to be bound or its (their) duly authorized
representatives and specifying with particularity the nature
and extent of such waiver, modification, or amendment. Any
waiver by any party of any provision hereof shall not affect,
or impair any right arising from, any other provision hereof.
c. AFFILIATES DEFINED. As used in this Agreement, the term
"Affiliate" means, as to any person: (a) any parent
company(ies); (b) any subsidiary(ies); (c) any entity (of
whatever form) directly or indirectly owned, operated or
controlled by such person or all or any of the principals,
partners, shareholders, members, directors or officers of such
person; and (d) any spouse, child, brother, sister or parent
of such person.
d. PERSONS. As used in this Agreement, the term person means and
includes both individuals and entities.
e. ENTIRE AGREEMENT. This Lease contains the entire understanding
of the parties hereto in respect to the transactions
contemplated hereby and supersedes all prior agreements and
understandings between the parties with respect to such
matter.
f. PARTIES IN INTEREST. Except as herein otherwise provided, this
Lease shall inure to the benefit and shall be binding upon the
parties and their personal representatives, heirs, successors
and assigns.
g. INTERPRETATION AND SEVERANCE. The provisions of this Lease
shall be applied and interpreted in a manner consistent with
each other so as to carry out the purposes and intent of the
parties hereto, but if for any reason any provision hereof is
determined to be unenforceable or invalid, such provisions
shall be deemed severed from this lease and the remaining
provisions shall be carried out with the same force and effect
as of the severed provision or part thereof had not been an
part of this Lease.
h. COUNTERPARTS. This Lease may be executed in any number of
counterparts, each of which shall be deemed to be an original,
but all of which shall constitute one and the same instrument.
<PAGE>
i. GOVERNING LAW. This Lease shall be construed and enforceable
in accordance with the laws of the State of North Dakota.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and year first above written.
LESSOR: LESSEE:
/s/ Alvin W. Leingang THERMAL LINE WINDOWS, L.L.P.
- -------------------------------- a Minnesota limited liability partnership
North Country Thermal Line, Inc.
Alvin W. Leingang, President
By Ice, Inc.,
A North Dakota corporation
A General Partner
By: /s/ Alvin W. Leingang
----------------------------
Alvin W. Leingang
Its President
<PAGE>
FIRST AMENDMENT TO EQUIPMENT LEASE
THIS FIRST AMENDMENT TO EQUIPMENT LEASE (the "FIRST AMENDMENT") is made and
entered into as of the 14th day of August, 1998, by and between NORTH COUNTRY
THERMAL LINE, INC. (hereinafter referred to as the "LESSOR") and THERMAL LINE
WINDOWS, L.L.P. (hereinafter referred to as the "LESSEE").
RECITALS:
A. Lessor and Lessee have entered into an Equipment Lease dated
January 2, 1996 (the "Lease"), attached hereto as EXHIBIT A and incorporated
herein by reference.
B. Lessor and Lessee desire to amend the Lease as set forth below.
NOW, THEREFORE, for valuable consideration, receipt and sufficiency of
which is hereby acknowledged, it is agreed between the parties as follows:
1. The first sentence of Paragraph 4 of the Lease, "OPTION TO PURCHASE,"
shall be revised to read as follows:
"Upon the expiration of the Lease Term, Lessee shall have the right
and option (the "Purchase Option") to purchase the Equipment from
Lessor for a price (the "Option Price") of $24,370.46.
2. The following shall be added after the last sentence of Paragraph 15,
"ASSIGNMENT," of the Lease:
"c. Notwithstanding anything contained herein to the contrary, this
Lease and Lessee's rights and privileges hereunder may be
assigned, sublet or otherwise transferred or conveyed to any
Affiliate(s) of Lessee or ThermoView Industries, Inc., a
Delaware corporation, without the prior written consent of
Lessor."
3. All other terms and conditions of the Lease shall remain the same,
except as expressly modified herein.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto executed this First
Amendment to Lease as of the date set forth above.
LESSOR:
NORTH COUNTRY THERMAL LINE, INC.
BY: /s/ Alvin W. Leingang
-----------------------------------
Alvin W. Leingang, President
LESSEE:
THERMAL LINE WINDOWS, L.L.P.
BY: ICE, INC., GENERAL PARTNER
BY: /s/ Stephen A. Hoffmann
------------------------------
Stephen A. Hoffmann, President
BY: BLIZZARD ENTERPRISES, INC.,
GENERAL PARTNER
BY: /s/ Stephen A. Hoffmann
------------------------------
Stephen A. Hoffmann, President
<PAGE>
EQUIPMENT LEASE
THIS EQUIPMENT LEASE is made and entered into as of the 2nd day of January, 1996
by and between NORTH COUNTRY THERMAL LINE, INC. ("Lessor") and THERMAL LINE
WINDOWS, L.L.P., a Minnesota limited liability partnership ("Lessee").
WITNESSETH:
WHEREAS, subject to the terms and upon the conditions herein contained, Lessor
desires to lease to Lessee, and Lessee desires to take and rent from Lessor, the
equipment described on EXHIBIT A attached hereto and hereby made part hereof
(the "Equipment").
NOW, THEREFORE, pursuant to the foregoing recital, which is an integral part
hereof, and in consideration of the mutual covenants contained herein, the
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. LEASE. Subject to the terms and upon the conditions hereby contained,
Lessor hereby leases the Equipment to Lessee and Lessee hereby takes and rents
the Equipment from Lessor.
2. TERM. The term of this Lease ("Lease Term") shall begin as of the date
hereof and shall continue for a period of five (5) years.
3. RENT. As rent for the use of Equipment hereunder, Lessee shall pay to
Lessor, at such address as Lessor may direct, the sum of $4,839.24 per month
("Rent"), beginning upon the date hereof and continuing on the same day of each
calendar month thereafter until the expiration of the Lease Term.
4. OPTION TO PURCHASE. Upon the expiration of the Lease Term, Lessee shall
have the right and option (the "Purchase Option") to purchase the equipment from
Lessor for a price (the "Option Price") equal to the greater of $47,794.40 or
the fair market value of the Equipment, as determined hereunder. The Purchase
Option shall be exercisable by the delivery of written notice of exercise to
Lessor prior to sixty (60) days before the expiration of the Lease Term. If the
Purchase Option shall be exercised, a closing of the purchase and sale of the
Equipment thereunder shall be held upon the expiration of the Lease Term,
whereat Lessor shall deliver to Lessee a Bill of Sale with respect to the
Equipment, which Bill of Sale shall transfer title in and to the Equipment to
the Lessee free and clear of any liens or encumbrances other than liens or
encumbrances created or caused by Lessee. For purposes of determining the Option
Price, unless otherwise agreed by Lessor and Lessee in writing, the fair market
value of the Equipment shall be determined as follows:
a. No later than one hundred twenty (120) days prior to the
expiration of the Lease Term, Lessor shall provide Lessee
written notice of Lessor's determination of the fair market
value of the Equipment.
<PAGE>
b. Such determination shall be deemed to be the fair market value
of the Equipment unless, within fifteen (15) days following
the receipt of such notice, Lessee shall provide Lessor
written notice of its objection to such determination (an
"Objection Notice").
c. Within fifteen (15) days following the receipt of an Objection
Notice by Lessor, each of Lessee and Lessor shall select an
appraiser to determine the fair market value of the Equipment
and shall provide the name and address of such appraiser to
the other.
d. If either Lessee or Lessor shall fail to comply with the
provisions of Paragraph 4(c), the appraiser selected by the
other, by itself, shall perform the appraisal described
herein, and the results of such appraisal shall be conclusive
as to the fair market value of the Equipment.
e. The appraiser selected by Lessee and the appraiser selected by
Lessor (or, if Paragraph 4(d) shall become applicable, the
appraiser selected by Lessee or Lessor) shall determine the
fair market value of the Equipment.
f. If the appraiser selected by Lessee and the appraiser selected
by Lessor shall be unable to agree as to the fair market value
of the Equipment, such appraisers shall appoint a third
appraiser and the fair market value of the Equipment shall be
determined by such third appraiser and shall be conclusive and
binding as the fair market value of the Equipment.
g. If Paragraph 4(f) shall require the appointment of a third
appraiser, and the appraiser selected by Lessee and the
appraiser selected by Lessor shall be unable to agree as to
such third appraiser, either Lessor or Lessee may petition any
court of competent jurisdiction for the appointment of such
third appraiser.
h. For purposes of this Paragraph 4, the appraiser selected by
Lessee and Lessor shall be deemed to have failed to agree on
any matter if such appraisers shall have been in disagreement
with regard to such matter for a period in excess of fourteen
(14) days.
i. All costs and expenses incurred by either Lessee or Lessor in
connection with the appraisal process described in this
Paragraph 4, including, without limitation, the fees and
charges of the appraiser selected by Lessee, the fees and
charges of the appraiser selected by Lessor and the fees and
charges of a third appraiser, if any, shall be allocated
equally between Lessee and Lessor.
j. Notwithstanding anything contained herein to the contrary, the
fair market value of the Equipment shall not be determined
hereunder, and any process to determine the fair market value
of the Equipment hereunder shall be immediately discontinued,
if Lessee shall waive the Purchase Option by written notice
delivered to Lessor.
<PAGE>
5. USE. Lessee shall use the Equipment in a careful and proper manner and
shall comply with and conform to all laws relating to the possession, use or
maintenance of the Equipment. Lessee shall install, operate and maintain the
Equipment only in accordance with applicable vendor's or manufacturer's manuals
or instructions and will allow the Equipment to be operated only by competent
and duly qualified personnel. Lessee shall use the Equipment only within the
state of North Dakota and shall not remove the Equipment from the state of North
Dakota without the prior written consent of Lessor.
6. MAINTENANCE. Lessee shall, at its sole expense, keep and maintain the
Equipment in good operating condition, reasonable wear and tear excepted. Lessee
shall obtain and pay for all duplicate parts, extras, mechanisms and devices of
every kind needed or used in the operation, repair or renewal of the Equipment,
and the same shall become part of the Equipment. Lessee shall not make or allow
any addition, subtraction or alteration to, from or in the Equipment without
prior written consent of Lessor.
7. INSURANCE. Lessee shall, at its sole expense, obtain and maintain
insurance coverage against loss or theft of or damage or destruction to the
Equipment, which insurance coverage shall be carried in an amount not less than
the replacement cost of the Equipment. Such insurance coverage shall be
maintained with an insurance carrier licensed to transact business in the state
of North Dakota and the policy(ies) therefore shall provide that Lessor shall
receive at least thirty (30) days advance written notice, by certified mail,
return receipt requested, before cancellation, termination, nonrenewal or
amendment thereto.
8. RISK OF LOSS AND/OR DAMAGE. Lessee hereby assumes any and all risks and
liability, whether or not covered by insurance, for loss of or damage to the
Equipment however arising from or incident to the installation, possession,
operation, use or maintenance of the Equipment. In the event that the Equipment
shall be damaged or destroyed by any cause whatsoever, Lessee shall, at its
option: (a) repair the Equipment, returning it to its condition immediately
preceding such damage or destruction; (b) replace the Equipment with new
equipment of equivalent value and reasonably acceptable to Lessor, which
equipment shall become the property of Lessor and be subject to the terms and
provisions of this lease, being defined herein as the "Equipment"; or (c) pay to
Lessor the entirety of the rent then remaining due under this Lease, together
with the Option Price, whereupon this Lease shall terminate. Lessee expressly
agrees and acknowledges that unless and until this lease shall be terminated in
accordance with the terms and provisions hereof, no damage or destruction of or
to the Equipment, irrespective of the cause, shall relieve Lessee of its duties
and obligations hereunder.
9. RETURN OF EQUIPMENT. Upon the expiration of the Lease Term, or as
otherwise provided in this Lease, and unless the Purchase Option shall be
exercised in accordance with its terms, Lessee shall immediately return the
Equipment to Lessor at such address in Mandan, North Dakota, as Lessor shall
reasonably specify. Any and all additions or improvements made to the Equipment
by Lessee shall immediately be deemed to be part of the Equipment and, as such,
shall become property of Lessor.
10. TITLE. At all times during the Lease Team, title to the Equipment shall
remain with Lessor. Lessee shall not change or remove any insignia or lettering
which may be placed upon
<PAGE>
the Equipment to indicate Lessor's ownership thereof. Lessor may, at its
option, cause the Lease to be filed or recorded or may cause such financing
statements as Lessor may deem appropriate to be filed with respect to the
Equipment. Upon request, Lessee shall, without delay, execute and deliver to
Lessor any and all documents or instruments that may be necessary to any such
recording or filing.
11. WARRANTIES.
a. Lessor hereby represents and warrants to Lessee that Lessor is
the owner of the Equipment, that Lessor holds title to the
Equipment free and clear of any liens or encumbrances of any
type or nature whatsoever and that the Lessor has all power
and authority necessary to execute, enter into and perform
this Lease.
b. LESSEE HEREBY ACKNOWLEDGES THAT, EXCEPT AS OTHERWISE
SPECIFICALLY PROVIDED IN THIS LEASE: (i) THE EQUIPMENT IS
LEASED TO LESSEE HEREUNDER "AS IS," AND WITHOUT WARRANTY OF
LESSOR, EITHER EXPRESSED OR IMPLIED; AND (ii) LESSOR HAS NOT
MADE, DOES NOT MAKE AND AFFIRMATIVELY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES OF ANY NATURE WHATSOEVER,
DIRECTLY OR INDIRECTLY, EXPRESS OR IMPLIED, INCLUDING
SPECIFICALLY, BUT NOT EXCLUSIVELY, REPRESENTATIONS OR
WARRANTIES AS TO THE SUITABILITY, DURABILITY, FITNESS FOR USE,
MERCHANTABILITY, CONDITION OR QUALITY OF THE EQUIPMENT.
12. DEFAULT. As used herein, the term "Event of Default" shall mean one or
more of the following occurrences: (a) Lessee shall fail to make any payment of
rent due Lessor hereunder within fifteen (15) days following the date upon which
such payment is due; (b) Lessee shall fail to perform any of its duties or
obligations hereunder and such failure shall continue for a period of thirty
(30) days following the receipt of written notice thereof from Lessor; or (c)
Lessee makes an assignment for the benefit of creditors or authorizes, initiates
or consents to the initiation against it of any proceeding for a moratorium or
for relief under the United States Bankruptcy Code or any similar state law or
otherwise procures a stay of enforcement against it of creditors remedies
generally.
13. REMEDIES. Without limiting any other provision of this Lease, upon the
occurrence of any Event of Default, Lessor may, at its option: (a) terminate
this Lease by written notice delivered to Lessee, whereupon Lessor shall be
entitled to damages from Lessee in an amount equal to the present value,
determined by using an interest rate of thirteen percent (13%) per annum, of the
difference between (i) the unpaid Rent for the balance of the Lease Term, and
(ii) the amount which Lessee proves that Lessor can receive over the balance of
the Lease Term from reletting the Equipment to another lessee, net of all costs
and expenses which could reasonably be incurred by Lessor in connection with any
such reletting, or (b) without constituting a termination of this Lease or
relieving Lessee of its duties and obligations hereunder, demand that the
Equipment be returned to Lessor in accordance with Paragraph 9 hereof, whereupon
Lessee shall so return the Equipment to Lessor. Upon any termination of this
<PAGE>
Lease by Lessor hereunder and/or upon any failure of Lessee to return the
Equipment to Lessor hereunder, Lessor may, without demand or legal process and
without hereby rendering Lessor liable to refund any sums received as a deposit
and without constituting a termination of this Lease or relieving Lessee of its
duties and obligations hereunder, enter into the premises where the Equipment is
located and take possession of and remove the Equipment. The remedies of Lessor
hereunder are cumulative and may, to the extent permitted by law, be exercised
concurrently or separately, together with any other remedies that may be
available to Lessor at law or in equity. The election of any one remedy shall
not be deemed to be an election of such remedy and shall not preclude the
exercise of any other remedy. No failure or delay on the part of Lessor to
exercise any right or remedy shall operate as a waiver thereof; nor shall any
single or partial exercise by Lessor of any right or remedy preclude any further
exercise of any right or remedy.
14. TERMINATION BY LESSEE. Notwithstanding anything contained herein to the
contrary, Lessee shall have the right and option to terminate this Lease by
written notice delivered to Lessor upon the occurrence of either of the
following events:
a. The sale or other disposition of all or substantially all of
the assets and properties of Lessee in a single transaction or
in a series of related transactions; or
b. More than fifty percent (50%) of the partnership interest(s)
of Lessee shall be sold or otherwise transferred by the
holder(s) thereof, in a single transaction or in a series of
related transactions, to any person(s) who or which is not
(are not) an Affiliate(s) (as that term is hereafter defined)
of such holder(s).
15. ASSIGNMENT.
a. This Lease and Lessor's rights and privileges hereunder may be
assigned by Lessor any time and from time to time in its sole
and absolute discretion and without the consent of Lessee;
provided, however, that Lessor shall provide Lessee written
notice of each and every such assignment.
b. With the exception of an assignment or sublease to any person
or entity who or which acquires all or substantially all of
the assets and properties of Lessee, which may be made by
Lessee upon written notice of Lessor, this Lease and Lessee's
rights and privileges hereunder may not be assigned, sublet or
otherwise transferred or conveyed without the prior written
consent of Lessor.
16. GENERAL PROVISIONS.
a. NOTICES. All notices or other communications from either of
the parties hereto to the other shall be in writing and will
be considered duly given if sent by first class mail, return
receipt requested, postage prepaid, to the party at his or its
address set forth below, or to such other address as the party
hereafter designates by written notice to the other.
<PAGE>
If to Lessor to: If to Lessee, to:
North Country Thermal Line, Inc. Thermal Line Windows, L.L.P.
P.O. Box 579 2605 Twin City Drive
Mandan, ND 58554 Mandan, ND 58554
Attn: Alvin W. Leingang
b. WAIVER, MODIFICATION OR AMENDMENT. No waiver, modification or
amendment of any term, condition or provision of this lease
shall be valid or of any effect unless made in writing, signed
by the party(ies) to be bound or its (their) duly authorized
representatives and specifying with particularity the nature
and extent of such waiver, modification, or amendment. Any
waiver by any party of any provision hereof shall not affect,
or impair any right arising from, any other provision hereof.
c. AFFILIATES DEFINED. As used in this Agreement, the term
"Affiliate" means, as to any person: (a) any parent
company(ies); (b) any subsidiary(ies); (c) any entity (of
whatever form) directly or indirectly owned, operated or
controlled by such person or all or any of the principals,
partners, shareholders, members, directors or officers of such
person; and (d) any spouse, child, brother, sister or parent
of such person.
d. PERSONS. As used in this Agreement, the term person means and
includes both individuals and entities.
e. ENTIRE AGREEMENT. This Lease contains the entire understanding
of the parties hereto in respect to the transactions
contemplated hereby and supersedes all prior agreements and
understandings between the parties with respect to such
matter.
f. PARTIES IN INTEREST. Except as herein otherwise provided, this
Lease shall inure to the benefit and shall be binding upon the
parties and their personal representatives, heirs, successors
and assigns.
g. INTERPRETATION AND SEVERANCE. The provisions of this Lease
shall be applied and interpreted in a manner consistent with
each other so as to carry out the purposes and intent of the
parties hereto, but if for any reason any provision hereof is
determined to be unenforceable or invalid, such provisions
shall be deemed severed from this lease and the remaining
provisions shall be carried out with the same force and effect
as of the severed provision or part thereof had not been an
part of this Lease.
h. COUNTERPARTS. This Lease may be executed in any number of
counterparts, each of which shall be deemed to be an original,
but all of which shall constitute one and the same instrument.
<PAGE>
i. GOVERNING LAW. This Lease shall be construed and enforceable
in accordance with the laws of the State of North Dakota.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and year first above written.
LESSOR: LESSEE:
/s/ ALVIN W. LEINGANG THERMAL LINE WINDOWS, L.L.P.
- --------------------------------- a Minnesota limited liability partnership
North Country Thermal Line, Inc.
Alvin W. Leingang, President
By Ice, Inc.,
A North Dakota corporation
A General Partner
By: /s/ ALVIN W. LEINGANG
----------------------------------
Alvin W. Leingang
Its President
<PAGE>
FIRST AMENDMENT TO EQUIPMENT LEASE
THIS FIRST AMENDMENT TO EQUIPMENT LEASE (the "First Amendment") is made and
entered into as of the 14th day of August, 1998, by and between NORTH COUNTRY
THERMAL LINE, INC. (hereinafter referred to as the "Lessor") and THERMAL LINE
WINDOWS, L.L.P. (hereinafter referred to as the "Lessee").
RECITALS:
A. Lessor and Lessee have entered into an Equipment Lease dated
January 2, 1996 (the "Lease"), attached hereto as EXHIBIT A and incorporated
herein by reference.
B. Lessor and Lessee desire to amend the Lease as set forth below.
NOW, THEREFORE, for valuable consideration, receipt and sufficiency of
which is hereby acknowledged, it is agreed between the parties as follows:
1. The first sentence of Paragraph 4 of the Lease, "OPTION TO PURCHASE,"
shall be revised to read as follows:
"Upon the expiration of the Lease Term, Lessee shall have the right
and option (the "Purchase Option") to purchase the Equipment from Lessor for a
price (the "Option Price") of $35,845.80.
2. The following shall be added after the last sentence of Paragraph 15,
"ASSIGNMENT," of the Lease:
"c. Notwithstanding anything contained herein to the contrary, this
Lease and Lessee's rights and privileges hereunder may be assigned, sublet or
otherwise transferred or conveyed to any Affiliate(s) of Lessee or ThermoView
Industries, Inc., a Delaware corporation, without the prior written consent of
Lessor."
3. All other terms and conditions of the Lease shall remain the same,
except as expressly modified herein.
IN WITNESS WHEREOF, the parties hereto have hereunto executed this First
Amendment to Lease as of the date set forth above.
<PAGE>
LESSOR:
NORTH COUNTRY THERMAL LINE, INC.
By: /s/ Alvin W. Leingang
-----------------------------------
Alvin W. Leingang, President
LESSEE:
THERMAL LINE WINDOWS, L.L.P.
By: ICE, INC., General Partner
By: /s/ Stephen A. Hoffmann
------------------------------
Stephen A. Hoffmann, President
By: BLIZZARD ENTERPRISES, INC., General
Partner
By: /s/ Stephen A. Hoffmann
------------------------------
Stephen A. Hoffmann, President
<PAGE>
EQUIPMENT LEASE
THIS EQUIPMENT LEASE is made and entered into as of the 2nd day of January, 1996
by and between ALVIN W. LEINGANG ("Lessor") and THERMAL LINE WINDOWS, L.L.P., a
Minnesota limited liability partnership ("Lessee").
WITNESSETH:
WHEREAS, subject to the terms and upon the conditions herein contained, Lessor
desires to lease to Lessee, and Lessee desires to take and rent from Lessor, the
equipment described on EXHIBIT A attached hereto and hereby made a part hereof
(the "Equipment").
NOW, THEREFORE, pursuant to the foregoing recital, which is an integral part
hereof, and in consideration of the mutual covenants contained herein, the
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. LEASE. Subject to the terms and upon the conditions herein contained,
Lessor hereby leases the Equipment to Lessee and Lessee hereby takes and rents
the Equipment from Lessor.
2. TERM. The term of this Lease ("Lease Term") shall begin as of the date
hereof and shall continue for a period of five (5) years.
3. RENT. As rent for the use of the Equipment hereunder, Lessee shall pay
to Lessor, at such address as Lessor may direct, the sum of $1,572.81 per month
("Rent"), beginning upon the date hereof and continuing on the same day of each
calendar month thereafter until the expiration of the Lease Term.
4. OPTION TO PURCHASE. Upon the expiration of the Lease Term, Lessee shall
have the right and option (the "Purchase Option") to purchase the Equipment from
Lessor for a price (the "Option Price") equal to the greater of $15,533.90 or
the fair market value of the Equipment, as determined hereunder. The Purchase
Option shall be exercisable by the delivery of written notice of exercise to
Lessor prior to sixty (60) days before the expiration of the Lease Term. If the
Purchase Option shall be exercised, a closing of the purchase and sale of the
Equipment thereunder shall be held upon the expiration of the Lease Term,
whereat Lessor shall deliver to Lessee a Bill of Sale with respect to the
Equipment, which Bill of Sale shall transfer title in and to the Equipment to
the Lessee free and clear of any liens or encumbrances other than liens or
encumbrances created or caused by Lessee. For purposes of determining the Option
Price, unless otherwise agreed by Lessor and Lessee in writing, the fair market
value of the Equipment shall be determined as follows:
a. No later than one hundred twenty (120) days prior to the
expiration of the Lease Term, Lessor shall provide Lessee
written notice of Lessor's determination of the fair market
value of the Equipment.
b. Such determination shall be deemed to be the fair market value
of the Equipment unless, within fifteen (15) days following
the receipt of such notice, Lessee shall
<PAGE>
provide Lessor written notice of its objection to such
determination (an "Objection Notice").
c. Within fifteen (15) days following the receipt of an Objection
Notice by Lessor, each of Lessee and Lessor shall select an
appraiser to determine the fair market value of the Equipment
and shall provide the name and address of such appraiser to
the other.
d. If either Lessee or Lessor shall fail to comply with the
provisions of Paragraph 4(c), the appraiser selected by the
other, by itself, shall perform the appraisal described
herein, and the results of such appraisal shall be conclusive
as to the fair market value of the Equipment.
e. The appraiser selected by Lessee and the appraiser selected by
Lessor (or, if Paragraph 4(d) shall become applicable, the
appraiser selected by Lessee or Lessor) shall determine the
fair market value of the Equipment.
f. If the appraiser selected by Lessee and the appraiser selected
by Lessor shall be unable to agree as to the fair market value
of the Equipment, such appraisers shall appoint a third
appraiser and the fair market value of the Equipment shall be
determined by such third appraiser and shall be conclusive and
binding as the fair market value of the Equipment.
g. If Paragraph 4(f) shall require the appointment of a third
appraiser, and the appraiser selected by Lessee and the
appraiser selected by Lessor shall be unable to agree as to
such third appraiser, either Lessor or Lessee may petition any
court of competent jurisdiction for the appointment of such
third appraiser.
h. For purposes of this Paragraph 4, the appraisers selected by
Lessee and Lessor shall be deemed to have failed to agree on
any matter if such appraisers shall have been in disagreement
with regard to such matter for a period in excess of fourteen
(14) days.
i. All costs and expenses incurred by either Lessee or Lessor in
connection with the appraisal process described in this
Paragraph 4, including, without limitation, the fees and
charges of the appraiser selected by Lessee, the fees and
charges of the appraiser selected by Lessor and the fees and
charges of a third appraiser, if any, shall be allocated
equally between Lessee and Lessor.
j. Notwithstanding anything contained herein to the contrary, the
fair market value of the Equipment shall not be determined
hereunder, and any process to determine the fair market value
of the Equipment hereunder shall be immediately discontinued,
if Lessee shall waive the Purchase Option by written notice
delivered to Lessor.
5. USE. Lessee shall use the Equipment in a careful and proper manner and
shall comply with and conform to all laws relating to the possession, use or
maintenance of the Equipment. Lessee shall install, operate and maintain the
Equipment only in accordance with applicable
2
<PAGE>
vendor's or manufacturer's manuals or instructions and will allow the
Equipment to be operated only by competent and duly qualified personnel.
Lessee shall use the Equipment only within the state of North Dakota and
shall not remove the Equipment from the State of North Dakota without the
prior written consent of Lessor.
6. MAINTENANCE. Lessee shall, at its sole expense, keep and maintain the
Equipment in good operating condition, reasonable wear and tear excepted. Lessee
shall obtain and pay for all duplicate parts, extras, mechanisms and devices of
every kind needed or used in the operation, repair or renewal of the Equipment,
and the same shall become part of the Equipment. Lessee shall not make or allow
any addition, subtraction or alteration to, from or in the Equipment without the
prior written consent of Lessor.
7. INSURANCE. Lessee shall, at its sole expense, obtain and maintain
insurance coverage against loss or theft of or damage or destruction to the
Equipment, which insurance coverage shall be carried in an amount not less than
the replacement cost of the Equipment. Such insurance coverage shall be
maintained with an insurance carrier licensed to transact business in the State
of North Dakota and the policy(ies) therefore shall provide that Lessor shall
receive at least thirty (30) days advance written notice, by certified mail,
return receipt requested, before cancellation, termination, nonrenewal or
amendment thereto.
8. RISK OF LOSS AND/OR DAMAGE. Lessee hereby assumes any and all risks and
liability, whether or not covered by insurance, for loss of or damage to the
Equipment however arising from or incident to the installation, possession,
operation, use or maintenance of the Equipment. In the event that the Equipment
shall be damaged or destroyed by any cause whatsoever, Lessee shall, at its
option: (a) repair the Equipment, returning it to its condition immediately
preceding such damage or destruction; (b) replace the Equipment with new
equipment of equivalent value and reasonably acceptable to Lessor, which
equipment shall become the property of Lessor and be subject to the terms and
provisions of this Lease, being defined herein as the "Equipment"; or (c) pay to
Lessor the entirety of the rent then remaining due under this Lease, together
with the Option Price, whereupon this Lease shall terminate. Lessee expressly
agrees and acknowledges that unless and until this Lease shall be terminated in
accordance with the terms and provisions hereof, no damage or destruction of or
to the Equipment, irrespective of the cause, shall relieve Lessee of its duties
and obligations hereunder.
9. RETURN OF EQUIPMENT. Upon the expiration of the Lease Term, or as
otherwise provided in this Lease, and unless the Purchase Option shall be
exercised in accordance with its terms, Lessee shall immediately return the
Equipment to Lessor at such address in Mandan, North Dakota, as Lessor shall
reasonably specify. Any and all additions or improvements made to the Equipment
by Lessee shall immediately be deemed to be a part of the Equipment and, as
such, shall become the property of Lessor.
10. TITLE. At all times during the Lease Term, title to the Equipment shall
remain with Lessor. Lessee shall not change or remove any insignia or lettering
which may be placed upon the Equipment to indicate Lessor's ownership thereof.
Lessor may, at its option, cause this Lease to be filed or recorded or may cause
such financing statements as Lessor may deem appropriate to be filed with
respect to the Equipment. Upon request, Lessee shall, without delay,
3
<PAGE>
execute and deliver to Lessor any and all documents or instruments that may
be necessary to any such recording or filing.
11. WARRANTIES.
a. Lessor hereby represents and warrants to Lessee that Lessor is
the owner of the Equipment, that Lessor holds title to the
Equipment free and clear of any liens or encumbrances of any
type or nature whatsoever and that the Lessor has all power
and authority necessary to execute, enter into and perform
this Lease.
b. LESSEE HEREBY ACKNOWLEDGES THAT, EXCEPT AS OTHERWISE
SPECIFICALLY PROVIDED IN THIS LEASE: (i) THE EQUIPMENT IS
LEASED TO LESSEE HEREUNDER "AS IS," AND WITHOUT WARRANTY OF
LESSOR, EITHER EXPRESS OR IMPLIED; AND (ii) LESSOR HAS NOT
MADE, DOES NOT MAKE AND AFFIRMATIVELY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES OF ANY NATURE WHATSOEVER,
DIRECTLY OR INDIRECTLY, EXPRESS OR IMPLIED, INCLUDING
SPECIFICALLY, BUT NOT EXCLUSIVELY, REPRESENTATIONS OR
WARRANTIES AS TO THE SUITABILITY, DURABILITY, FITNESS FOR USE,
MERCHANTABILITY, CONDITION OR QUALITY OF THE EQUIPMENT.
12. DEFAULT. As used herein, the term "Event of Default" shall mean one or
more of the following occurrences: (a) Lessee shall fail to make any payment of
rent due Lessor hereunder within fifteen (15) days following the date upon which
such payment is due; (b) Lessee shall fail to perform any of its duties or
obligations hereunder and such failure shall continue for a period of thirty
(30) days following the receipt of written notice thereof from Lessor; or (c)
Lessee makes an assignment for the benefit of creditors or authorizes, initiates
or consents to the initiation against it of any proceeding for a moratorium or
for relief under the United States Bankruptcy Code or any similar state law or
otherwise procures a stay of enforcement against it of creditors remedies
generally.
13. REMEDIES. Without limiting any other provision of this Lease, upon the
occurrence of any Event of Default, Lessor may, at its option: (a) terminate
this Lease by written notice delivered to Lessee, whereupon Lessor shall be
entitled to damages from Lessee in an amount equal to the present value,
determined by using an interest rate of thirteen percent (13%) per annum, of the
difference between (i) the unpaid Rent for the balance of the Lease Term, and
(ii) the amount which Lessee proves that Lessor can receive over the balance of
the Lease Term from reletting the Equipment to another lessee, net of all costs
and expenses which would reasonably be incurred by Lessor in connection with any
such reletting, or (b) without constituting a termination of this Lease or
relieving Lessee of its duties and obligations hereunder, demand that the
Equipment be returned to Lessor in accordance with Paragraph 9 hereof, whereupon
Lessee shall so return the Equipment to Lessor. Upon any termination of this
Lease by Lessor hereunder and/or upon any failure of Lessee to return the
Equipment to Lessor hereunder, Lessor may, without demand or legal process and
without thereby rendering Lessor liable to refund any sums received as a deposit
and without constituting a termination of this Lease or relieving Lessee of its
duties and obligations hereunder, enter into the premises where
4
<PAGE>
the Equipment is located and take possession of and remove the Equipment. The
remedies of Lessor hereunder are cumulative and may, to the extent permitted
by law, be exercised concurrently or separately, together with any other
remedies that may be available to Lessor at law or in equity. The election of
any one remedy shall not be deemed to be an election of such remedy and shall
not preclude the exercise of any other remedy. No failure or delay on the
part of Lessor to exercise any right or remedy shall operate as a waiver
thereof; nor shall any single or partial exercise by Lessor of any right or
remedy preclude any further exercise of any right or remedy.
14. TERMINATION BY LESSEE. Notwithstanding anything contained herein to the
contrary, Lessee shall have the right and option to terminate this Lease by
written notice delivered to Lessor upon the occurrence of either of the
following events:
a. The sale or other disposition of all or substantially all of
the assets and properties of Lessee in a single transaction or
in a series of related transactions; or
b. More than fifty percent (50%) of the partnership interest(s)
of Lessee shall be sold or otherwise transferred by the
holder(s) thereof, in a single transaction or in a series of
related transactions, to any person(s) who or which is not
(are not) an Affiliate(s) (as that term is hereafter defined)
of such holder(s).
15. ASSIGNMENT.
a. This Lease and Lessor's rights and privileges hereunder may be
assigned by Lessor any time and from time to time in its sole
and absolute discretion and without the consent of Lessee;
provided, however, that Lessor shall provide Lessee written
notice of each and every such assignment.
b. With the exception of an assignment or sublease to any person
or entity who or which acquires all or substantially all of
the assets and properties of Lessee, which may be made by
Lessee upon written notice to Lessor, this Lease and Lessee's
rights and privileges hereunder may not be assigned, sublet or
otherwise transferred or conveyed without the prior written
consent of Lessor.
16. GENERAL PROVISIONS.
a. NOTICES. All notices or other communication from either of the
parties hereto to the other shall be in writing and will be
considered duly given if sent by first class mail, return
receipt requested, postage prepaid, to the party at his or its
address set forth below, or to such other address as the party
hereafter designates by written notice to the other.
If to Lessor to: If to Lessee to:
Alvin W. Leingang Thermal Line Windows, L.L.P.
P.O. Box 579 2605 Twin City Drive
Mandan, ND 58554 Mandan, ND 58554
Attn: Alvin W. Leingang
5
<PAGE>
b. WAIVER, MODIFICATION OR AMENDMENT. No waiver, modification or
amendment of any term, condition or provision of this Lease
shall be valid or of any effect unless made in writing, signed
by the party(ies) to be bound or its (their) duly authorized
representatives and specifying with particularity the nature
and extent of such waiver, modification, or amendment. Any
waiver by any party of any provision hereof shall not affect,
or impair any right arising from, any other provision hereof.
c. AFFILIATES DEFINED. As used in this Agreement, the term
"Affiliate" means, as to any person: (a) any parent
company(ies); (b) any subsidiary(ies); (c) any entity (of
whatever form) directly or indirectly owned, operated or
controlled by such person or all or any of the principals,
partners, shareholders, members, directors or officers of such
person; and (d) any spouse, child, brother, sister or parent
of such person.
d. PERSONS. As used in this Agreement, the term person means and
includes both individuals and entities.
e. ENTIRE AGREEMENT. This Lease contains the entire understanding
of the parties hereto in respect to the transactions
contemplated hereby and supersedes all prior agreements and
understandings between the parties with respect to such
matter.
f. PARTIES IN INTEREST. Except as herein otherwise provided, this
Lease shall inure to the benefit and shall be binding upon the
parties and their personal representatives, heirs, successors
and assigns.
g. INTERPRETATION AND SEVERANCE. The provisions of this Lease
shall be applied and interpreted in a manner consistent with
each other so as to carry out the purposes and intent of the
parties hereto, but if for any reason any provision hereof is
determined to be unenforceable or invalid, such provision
shall be deemed severed from this lease and the remaining
provisions shall be carried out with the same force and effect
as of the severed provision or part thereof had not been a
part of this Lease.
h. COUNTERPARTS. This Lease may be executed in any number of
counterparts, each of which shall be deemed to be an original,
but all of which shall constitute one and the same instrument.
i. GOVERNING LAW. This Lease shall be construed and enforced in
accordance with the laws of the State of North Dakota.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and year first above written.
6
<PAGE>
LESSOR: LESSEE:
/s/ ALVIN W. LEINGANG THERMAL LINE WINDOWS, L.L.P.
- -------------------------- A Minnesota limited liability partnership
Alvin W. Leingang
By Blizzard Enterprises, Inc.,
A Minnesota corporation
A General Partner
By /s/ STEVEN B. HOYT
---------------------------------
Steven B. Hoyt
Its President
7
<PAGE>
Exhibit 10.65
AMENDMENT TO EQUIPMENT LEASE
THIS AMENDMENT TO EQUIPMENT LEASE is made and entered into as of the 2nd day of
January, 1997 by and between ALVIN W. LEINGANG ("Lessor") and THERMAL LINE
WINDOWS, L.L.P., a Minnesota limited liability partnership ("Lessee").
WITNESSETH:
WHEREAS, the Lessor has disposed of, with the consent of the Lessee, a portion
of the Leased Equipment;
WHEREAS, subject to the terms and upon the conditions contained in the original
Equipment Lease dated January 2, 1996, Lessor and Lessee desire to change the
Lease payment amount and the Option to Purchase amount contained in the original
Lease Agreement as mentioned above.
NOW, THEREFORE, pursuant to the terms of the original Equipment Lease, the
parties hereto hereby agree to amend said Equipment Lease as follows:
3. RENT. As rent for the use of Equipment hereunder, Lessee shall pay to
Lessor, at such address as Lessor may direct, the sum of $1,339.93 per month
("Rent"), beginning upon the date hereof and continuing on the same day of each
calendar month thereafter until the expiration of the Lease Term.
4. OPTION TO PURCHASE. Upon the expiration of the Lease Term, Lessee shall
have the right and option (the "Purchase Option") to purchase the equipment from
Lessor for a price (the "Option Price") equal to the greater of $13,233.70 or
the fair market value of the Equipment, as determined hereunder. The Purchase
Option shall be exercisable by the delivery of written notice of exercise to
Lessor prior to sixty (60) days before the expiration of the Lease Term. If the
Purchase Option shall be exercised, a closing of the purchase and sale of the
Equipment thereunder shall be held upon the expiration of the Lease Term,
whereat Lessor shall deliver to Lessee a Bill of Sale with respect to the
Equipment, which Bill of Sale shall transfer title in and to the Equipment to
the Lessee free and clear of any liens or encumbrances other than liens or
encumbrances created or caused by Lessee. For purposes of determining the Option
Price, unless otherwise agreed by Lessor and Lessee in writing, the fair market
value of the Equipment shall be determined as follows:
<PAGE>
LESSOR: LESSEE:
/s/ ALVIN W. LEINGANG THERMAL LINE WINDOWS, L.L.P.,
- -------------------------------- a Minnesota limited liability partnership
North Country Thermal Line, Inc.
Alvin W. Leingang, President By Ice, Inc.
A North Dakota corporation
A General Partner
By /s/ ALVIN W. LEINGANG
----------------------------
Alvin W. Leingang
Its President
<PAGE>
SECOND AMENDMENT TO EQUIPMENT LEASE
THIS SECOND AMENDMENT TO EQUIPMENT LEASE (the "Second Amendment") is made
and entered into as of the 14th day of August, 1998, by and between ALVIN W.
LEINGANG (hereinafter referred to as the "Lessor") and THERMAL LINE WINDOWS,
L.L.P. (hereinafter referred to as the "Lessee").
RECITALS:
A. Lessor and Lessee have entered into an Equipment Lease dated
January 2, 1996, as amended on January 2, 1997 (the "Lease"), attached hereto
as EXHIBIT A and incorporated herein by reference.
B. Lessor and Lessee desire to amend the Lease as set forth below.
NOW, THEREFORE, for valuable consideration, receipt and sufficiency of
which is hereby acknowledged, it is agreed between the parties as follows:
1. The first sentence of Paragraph 4 of the Lease, "OPTION TO PURCHASE,"
shall be revised to read as follows:
"Upon the expiration of the Lease Term, Lessee shall have the right and
option (the "Purchase Option") to purchase the Equipment from Lessor for a
price (the "Option Price") of $9,925.28.
2. The following shall be added after the last sentence of Paragraph 15,
"ASSIGNMENT," of the Lease:
"c. Notwithstanding anything contained herein to the contrary, this
Lease and Lessee's rights and privileges hereunder may be assigned, sublet or
otherwise transferred or conveyed to any Affiliate(s) of Lessee or ThermoView
Industries, Inc., a Delaware corporation, without the prior written consent of
Lessor."
3. All other terms and conditions of the Lease shall remain the same,
except as expressly modified herein.
IN WITNESS WHEREOF, the parties hereto have hereunto executed this Second
Amendment to Lease as of the date set forth above.
<PAGE>
LESSOR:
/s/ Al Leingang
----------------------------------------
AL LEINGANG
LESSEE:
THERMAL LINE WINDOWS, L.L.P.
By: ICE, INC., General Partner
By: /s/ Stephen A. Hoffmann
------------------------------
Stephen A. Hoffmann, President
By: BLIZZARD ENTERPRISES, INC., General
Partner
By: /s/ Stephen A. Hoffmann
------------------------------
Stephen A. Hoffmann, President
<PAGE>
This ASSET PURCHASE AGREEMENT (this "Agreement") is entered into this
18th day of November, 1998 by and between THERMAL LINE WINDOWS, L.L.P., (the
"Buyer"), a Minnesota registered limited liability partnership, and NORTH
COUNTRY THERMAL LINE, INC. (the "Seller"), a North Dakota corporation.
PRELIMINARY STATEMENTS:
The Seller is engaged in the business of manufacturing and selling
insulated glass units with Heat Mirror film with advanced technology spacers,
gases and sealants (the "Business");
The Seller desires to sell or otherwise transfer certain of its assets
and the Business; and
The Buyer desires to purchase the Business.
In consideration of these preliminary statements and the mutual
covenants, representations, warranties and agreements hereinafter set forth, and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
SECTION 1.1 TRANSFER OF ASSETS.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, at the Effective Time (as hereinafter defined) the Seller shall
transfer to the Buyer, free and clear of all claims, charges, liens, contracts,
rights, options, security interests, mortgages, encumbrances and restrictions
whatsoever (collectively, "Claims"), all of the assets, properties and rights
owned by the Seller or in which the Seller has any right or interest of every
type and description, real, personal and mixed, tangible and intangible,
confirmed or contingent (other than the Excluded Assets as hereinafter defined),
including, without limitation, business agreements, property, Inventory (as
defined in Section 2.30), goodwill, supplier lists, customer lists, licenses and
permits, processes, service marks, know-how, show-how, trade secrets, software
(including, without limitation, documentation and related source and object
codes), licenses thereto, computers and computer equipment, files and other
records, systems and processes, security deposits, contracts, arrangements and
understandings, oral and written, formal and informal, for work to be performed
and/or services to be provided, real estate and interests therein, leasehold and
other improvements, machines, machinery, equipment, furniture, fixtures,
supplies, all rights and claims under insurance policies and other contracts of
whatever nature, all causes of action, claims and demands of every nature
relating to the Assumed Liabilities, Contracts and Leases (as hereinafter
defined), the right to use the names "North Country Thermal Line" and "North
Country Glass" or any derivative of either, and all other assets, properties and
rights of every kind and nature owned by the Seller, whether or not specifically
referred to in this Agreement
<PAGE>
(collectively, the "Transferred Assets"), all with the intention that the
Business shall be transferred to the Buyer as a going concern.
(b) Notwithstanding any provision of this Agreement to the
contrary, there shall be excluded from the Transferred Assets and retained by
the Seller the following assets (the "Excluded Assets"): (i) all cash on
hand and in banks (including all uncollected items); (ii) all billed and
unbilled accounts receivable; (iii) all other claims for services provided to
customers prior to the Effective Time; and (iv) all contracts, arrangements
and understandings which are not capable of being transferred or assigned
without the approval or consent of any party thereto other than the Seller if
such approval or consent has not been obtained, subject, however, to Sections
1.3 and 5.1 herein.
(c) The Seller shall transfer the Transferred Assets to the Buyer
pursuant to a Bill of Sale in substantially the form of EXHIBIT A, an
Assignment and Assumption Agreement in substantially the form of EXHIBIT B, a
Lease Agreement in substantially the form of EXHIBIT C, and such other
documents and instruments as the Buyer or its counsel may reasonably request.
(d) At any time and from time to time after the Closing Date, at
the request of the Buyer and without further consideration, the Seller shall
execute and deliver such other instruments of sale, transfer, conveyance,
assignment and confirmation as may be reasonably requested in order to more
effectively transfer, convey and assign to the Buyer and to confirm the
Buyer's title to the Transferred Assets.
SECTION 1.2 CONSIDERATION FOR THE TRANSFERRED ASSETS. In consideration
for the transfer of the Transferred Assets, upon the terms and subject to the
conditions set forth in this Agreement, the Buyer shall assume the Assumed
Liabilities pursuant to Section 1.3 hereof and shall make payments as follows:
(a) CLOSING PAYMENT. An initial payment of an aggregate of
$277,926 in cash on the Closing Date (defined below) by certified check, wire
transfer or other means of immediately available funds as follows
(i) $115,002 shall be paid to the Seller; and
(ii) $162,924 shall be paid to Norwest Bank, North
Dakota, National Association.
(b) POST CLOSING EARN-OUT. Post closing earn-out payments as set
forth on EXHIBIT D, which is incorporated herein by reference.
SECTION 1.3 ASSUMPTION OF LIABILITIES. The only obligations and
liabilities to be assumed by the Buyer in connection with its acquisition of the
Transferred Assets (the "Assumed Liabilities") are the obligations and
liabilities specifically listed on SCHEDULE 1.3 and obligations and liabilities
arising from the operation of the Business after the Effective Date, including
obligations under executory contracts listed on SCHEDULE 1.3 arising from the
operation of the Business after the Effective Date (provided such contracts are
not in default and are assigned in writing by the Seller with the written
consent of the other party or parties thereto, if necessary, and are delivered
to the Buyer on or prior to the Effective Date).
2
<PAGE>
The Buyer shall assume such obligations and liabilities pursuant to the
Assignment and Assumption Agreement substantially in the form of EXHIBIT B and
the Lease Agreement substantially in the form of EXHIBIT C. The Seller shall
remain liable for the payment of all other liabilities and obligations which
accrue prior or subsequent to the Effective Date. Except for the Assumed
Liabilities in the amount and to the extent provided in this Section 1.3, the
Buyer shall not assume or be responsible for any other liabilities or
obligations which relate in any manner to the operation of the Business prior to
the Effective Date, and the Seller shall indemnify, defend, and hold the Buyer
harmless from all of such obligations and liabilities as set forth in
Section 9.2 below. Operating expenses, including without limitation, rent
payable under real estate and equipment leases, staff commissions, unpaid
vacation and holiday pay and rebates to customers for which bills are received
or payment became due after the Effective Date with respect to periods both
prior to and after the Effective Date will be allocated to each of the Seller
and the Buyer on a pro-rata basis according to the ratio of pre-Effective Time
days to post-Effective Time days; promptly upon receipt of notice from the Buyer
of amounts so allocated to the Seller, the Seller shall remit full payment
therefor to the Buyer.
SECTION 1.4 ALLOCATION OF PURCHASE PRICE. The considerations paid
and the liabilities assumed by the Buyer pursuant to Sections 1.2 and 1.3
above shall be allocated among the Transferred Assets purchased hereunder as
set forth on SCHEDULE 1.4 attached hereto. The Seller and the Buyer each
hereby covenant and agree that neither of them will take a position on any
income tax return, before any governmental agency, or in any judicial
proceeding that is in any way inconsistent with the allocation set forth on
SCHEDULE 1.4. Each party shall duly and timely file Form 8594 with its
appropriate tax returns.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE SELLER
As an inducement to the Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, the Seller represents and
warrants to the Buyer as follows:
SECTION 2.1 ORGANIZATION AND QUALIFICATION. The Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of North Dakota. The nature of the Business or the Transferred Assets
does not require the Seller to be licensed or qualified in any other
jurisdiction. The Seller has made available to the Buyer complete and correct
copies of the Articles of Incorporation and Bylaws of the Seller as currently in
effect.
SECTION 2.2 CORPORATE POWER AND AUTHORITY. The Seller has the
corporate power and authority to own and hold its properties and to carry on its
business as now conducted, including the right to use the names "North Country
Thermal Line" and North Country Glass." The Seller (a) has the corporate power
and authority to execute, deliver and perform this Agreement and the Exhibits
and to deliver the Schedules hereto and the other documents and instruments
contemplated hereby (collectively this Agreement, the Exhibits and Schedules
hereto, and the other documents and instruments contemplated hereby shall
constitute the "Documents") and to consummate the transactions contemplated
hereby and thereby and (b) has taken all necessary corporate and shareholder
action to authorize and approve the execution, delivery and performance of this
Agreement and the other Documents and the consummation of
3
<PAGE>
the transactions contemplated hereby and thereby. This Agreement and the
other Documents have been duly and validly executed and delivered by the
Seller and constitute valid and binding obligations of the Seller,
enforceable against the Seller in accordance with their terms.
SECTION 2.3 VALIDITY, ETC. Except as set forth on SCHEDULE 2.3,
neither the execution and delivery of this Agreement or the other Documents, the
consummation of the transactions contemplated hereby or thereby, nor the
performance of this Agreement or the other Documents and such other agreements
in compliance with the terms and conditions hereof and thereof by the Seller
will (i) violate, conflict with or result in any breach of any trust agreement,
Articles of Incorporation, bylaw, judgment, decree, order, statute or regulation
applicable to the Seller, (ii) violate, conflict with or result in a breach,
default or termination or give rise to any right of termination, cancellation or
acceleration of the maturity of any payment date of any of the obligations of
the Seller or increase or otherwise affect the obligations of the Seller under
any law, rule, regulation or any judgment, decree, order, governmental permit,
license or order or any of the terms, conditions or provisions of any mortgage,
indenture, note, license, agreement or other instrument or obligation related to
the Seller or to the Seller's ability to consummate the transactions
contemplated hereby or thereby, except for such defaults (or rights of
termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained in writing and provided to the Buyer, (iii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
the Seller or (iv) result in the creation of any Claim upon the Transferred
Assets.
SECTION 2.4 SUBSIDIARIES AND INVESTMENTS. The Seller has no
subsidiaries and does not own, directly or indirectly, any capital stock or
other equity or ownership or proprietary interest in any other corporation,
partnership, association, trust, joint venture or other entity.
SECTION 2.5 BOOKS AND RECORDS. The minute books of the Seller, which
have been and will be made available to the Buyer and its representatives,
contain accurate records of all meetings of and corporate actions or written
consents by the shareholders and Board of Directors of the Seller set forth in
such minute books.
SECTION 2.6 FINANCIAL STATEMENTS. The Seller has previously furnished
to the Buyer, and attached hereto as SCHEDULE 2.6 are, the compiled balance
sheet of the Seller as at December 31, 1997 and 1996, the related statements of
income and shareholder equity for the fiscal years then ended, the audited
balance sheet of the Seller as at December 31, 1995 and 1994, the related
statements of income, retained earnings and cash flows and the notes thereto for
the fiscal years then ended, and the internally prepared balance sheet of the
Seller (the "Balance Sheet") as at August 31, 1998 (the "Balance Sheet Date")
and the related statements of income for the eight (8) months then ended. All
such financial statements (the "Financial Statements") have been prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied and were prepared from the books and records of the Seller. Such books
and records are complete and correct in all material respects, accurately
reflect all transactions of the Business, and have been made available to the
Buyer for examination. The Financial Statements fairly present the financial
position of the Seller as of the dates thereof and the results of its operations
and cash flows for the periods ended on the dates thereof. The Financial
Statements reflect reserves appropriate and adequate for all known material
liabilities and reasonably anticipated losses as required by GAAP. Since the
Balance Sheet Date (i) there has
4
<PAGE>
been no change in the assets, liabilities or financial condition of the
assets of the Seller from that reflected in the Balance Sheet except for
changes in the ordinary course of business consistent with past practice and
which have not been materially adverse, and (ii) none of the business,
prospects, financial condition, operations, property or affairs of the Seller
has been materially adversely affected by any occurrence or development,
individually or in the aggregate, whether or not insured against. The Seller
has disclosed to the Buyer all material facts relating to the preparation of
the Financial Statements.
SECTION 2.7 ABSENCE OF UNDISCLOSED LIABILITIES.
(a) Except as and to the extent of the amounts specifically
reflected or reserved against in the Balance Sheet, or except as set forth on
SCHEDULE 2.7, the Seller has no liabilities or obligations of any nature
whatsoever due or to become due, accrued, absolute, contingent or otherwise,
except for liabilities and obligations incurred since the date thereof in the
ordinary course of business and consistent with past practice. The Seller
does not know of, and has no reason to know of, any basis for the assertion
against the Seller of any liability or obligation not fully reflected or
reserved against in the Balance Sheet.
(b) The Seller is not bound by any agreement, or subject to any
charter or other corporate restriction or any legal requirement, which has,
or in the future can reasonably be expected to have, a material adverse
effect on the business or prospects of the Seller.
SECTION 2.8 EMPLOYMENT AND LABOR MATTERS.
(a) SCHEDULE 2.8 lists all employees and officers of the Seller
on the date hereof, along with the amount of the current annual salaries and
total compensation paid or due for services to each employee or officer for
the most recent fiscal year end and the year to date, and a full and complete
description of any commitments to such employees and officers with respect to
compensation payable thereafter. To the best knowledge of the Seller, no key
employee or group of employees has any plans to terminate employment with the
Seller.
(b) The Seller is not a party to or bound by any collective
bargaining agreement with any labor organization, group or association
covering any of its employees, and the Seller has no knowledge of any attempt
to organize the Seller's employees by any Person, unit or group seeking to
act as their bargaining agent. There are no pending or, to the best
knowledge of the Seller, threatened charges (by employees, their
representatives or governmental authorities) of unfair labor practices or of
employment discrimination or of any other wrongful action with respect to any
aspect of employment of any person employed or formerly employed by the
Seller. No union representation election relating to employees of the Seller
has been scheduled by any governmental agency or authority, no organizational
effort is being made with respect to any of such employees, and there is no
investigation of the Seller's employment policies or practices by any
governmental agency or authority pending or threatened. The Seller is not
currently, nor has it been, involved in labor negotiations with any unit or
group seeking to become the bargaining unit for any employees of the Seller.
The Seller has not experienced any material work stoppages, and to the best
knowledge of the Seller, no work stoppage is planned. The Company has
complied with all material laws and regulations relating to the employment of
labor, including, without limitation, any provisions thereof relating to
wages, hours, employment
5
<PAGE>
practices, terms and conditions of employment, collective bargaining, equal
opportunity or similar laws and the payment of social security and similar
taxes, and is not liable for any material arrears of wages or any material
taxes or penalties for failure to comply with any of the foregoing.
SECTION 2.9 REAL PROPERTY. The Seller owns no real property.
SECTION 2.10 POWERS OF ATTORNEY; ABSENCE OF LIMITATIONS ON COMPETITION;
GUARANTEES.
Except as set forth in SCHEDULE 2.10, (i) no power of attorney or
similar authorization given by the Seller presently is in effect or
outstanding; (ii) no contract or agreement to which the Seller is a party or
is bound or to which the Seller's properties or assets are subject limits the
freedom of the Seller to compete in any line of business or with any Person;
and (iii) the Seller is not a party to or bound by any guarantee of any debt
or obligation of any other Person.
SECTION 2.11 SIGNIFICANT SUPPLIERS. Set forth on SCHEDULE 2.11 is a
true and correct list of the Seller's ten largest suppliers for the most recent
twelve (12) month period ending December 31, 1997, and for the eight (8) month
period ending August 31, 1998, together with the amount of services attributable
to such suppliers expressed in dollars and as a percentage of total purchases.
None of the suppliers identified on SCHEDULE 2.11 has terminated, materially
reduced or threatened to terminate or materially reduce its supplies to the
Seller during the period covered by such schedule.
SECTION 2.12 GOVERNMENTAL APPROVALS. No registration or filing with, or
consent or approval of or other action by, any Federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Seller of this Agreement.
SECTION 2.13 ABSENCE OF ADVERSE CHANGE; CONDUCT OF BUSINESS.
During the period from the Balance Sheet Date to and including the date
of this Agreement, except as set forth on SCHEDULE 2.13, the Seller has not
(i) borrowed or agreed to borrow any material amount of funds or incurred any
liability or obligation of any nature (whether accrued, absolute, contingent or
otherwise), or guaranteed or agreed to guarantee any obligations of others,
(ii) canceled any indebtedness owing to it or any claims that it might have
possessed, waived any material rights of substantial value or sold, leased,
encumbered, transferred or otherwise disposed of, or agreed to sell, lease,
encumber, or otherwise dispose of its assets or permitted any of its assets to
be subjected to any mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind, (iii) made any capital expenditure or
commitment therefor, (iv) increased its indebtedness for borrowed money or made
any loan to any Person, (v) written off as uncollectible any notes or accounts
receivable, except write-offs in the ordinary course of business charged to
applicable reserves, (vi) made any material change in any method of accounting
or auditing practice, (vii) otherwise conducted its business or entered into any
transaction, except in the usual and ordinary manner, or (viii) agreed, whether
or not in writing, to do any of the foregoing.
6
<PAGE>
SECTION 2.14 CERTAIN PRACTICES. None of the Seller, the Seller's
directors or officers, or to the best knowledge of the Seller, the Seller's
employees have, directly or indirectly, used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful expenses relating to
political activity; made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or campaigns
from corporate funds; violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended; established or maintained any unlawful or unrecorded
fund of corporate monies or other assets; made any false or fictitious entry on
the books or records of the Seller or any subsidiary; made any bribe, rebate,
payoff, influence payment, kickback, or other unlawful payment; given any favor
or gift which is not deductible for federal income tax purposes; or made any
bribe, kickback, or other payment of a similar or comparable nature, whether
lawful or not, to any person or entity, private or public, regardless of form,
whether in money, business or to obtain special concessions, or to pay for
favorable treatment for business secured or for special concessions already
obtained.
SECTION 2.15 COMPLIANCE WITH LAW; LICENSES AND PERMITS.
Except as set forth on SCHEDULE 2.15, the Seller has complied in all
material respects with all laws, ordinances, legal requirements, rules,
regulations and orders applicable to it, its operations, properties, assets,
products and services. Except as set forth on SCHEDULE 2.15, there is no
existing law, rule, regulation or order, and the Seller is not aware of any
proposed law, rule, regulation or order, whether Federal, state or local, which
would prohibit or materially restrict the Buyer from, or otherwise materially
adversely affect the Buyer in, conducting the Business in the manner heretofore
conducted by the Seller in any jurisdiction in which the Business is now
conducted. The Seller possesses all franchises, permits, licenses, certificates
and consents required from any governmental or regulatory authority in order for
the Seller to carry on its business as currently conducted and to own and
operate its properties and assets as now owned and operated and all of such
licenses and permits are set forth on SCHEDULE 2.15.
SECTION 2.16 EMPLOYEE BENEFITS.
(a) Set forth on SCHEDULE 2.16 is a list of all pension, profit
sharing, retirement, deferred compensation, multiemployer (as defined under
ERISA), stock purchase, stock option, incentive, bonus, vacation, severance,
disability, hospitalization, medical insurance, life insurance, fringe
benefit, welfare and other employee benefit plans, programs or arrangements
pursuant to which the Seller or its ERISA Affiliates provides (directly or
indirectly, individually or jointly through others) benefits or compensation
to or on behalf of employees or independent contractors or former employees
or former independent contractors of the Seller or its ERISA Affiliates,
whether formal or informal, whether or not written ("Employee Plan"). On
request by the Buyer, the Seller shall furnish a copy of each Employee Plan
and a copy of any related materials. The Seller will maintain the benefits
listed on SCHEDULE 2.16 in full force and effect through the Effective Date.
The Buyer shall have no obligation or liability of any kind or nature for any
compensation or benefits of any kind or nature to the employees or
consultants of the Seller for services rendered prior to the Effective Date.
(b) Neither the Seller nor any of its ERISA Affiliates is or has
been a participant in, or is or has been obligated to maintain or to make
contributions to, a multi-employer plan
7
<PAGE>
(within the meaning of ERISA Section 3(37) and ERISA Section 4001(a)(3)) or
an Employee Plan which is subject to Title IV of ERISA. Neither the Seller
nor any ERISA Affiliate has sponsored, contributed to or been obligated under
Title I or IV of ERISA to contribute to a "defined benefit plan" (as defined
in ERISA Section 3(35)).
(c) Neither the Seller nor its ERISA Affiliates have entered into
any contract, agreement or arrangement (whether oral or written) under which
the Seller or its ERISA Affiliates have assumed any liability relating to
their clients' retirement plans, nor have the Seller and/or its ERISA
Affiliates made any verbal representations that the use of any employees of
the Seller or its ERISA Affiliates would have no adverse consequence on such
client retirement plans.
(d) Termination of or withdrawal from any Employee Plan
immediately after the Closing Date would not subject the Buyer to any
liability, tax or penalty whatsoever.
(e) For purposes of this Section 2.16, the term "ERISA" shall
mean the Employee Retirement Income Security Act of 1974, as amended, and the
term "ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Seller is treated as a single employer
under Section 414(b), (c), (m), (o) or (t) of the Code.
SECTION 2.17 FIXED ASSETS. SCHEDULE 2.17 contains a true and complete
list of all of the Transferred Assets which are fixed assets with a net book
value of greater than $1,000.00, whether owned or leased. Except as shown on
SCHEDULE 2.17, the Seller has good and marketable title to all of its fixed
assets, free and clear of all claims, liens, mortgages, charges and encumbrances
except as disclosed in the Balance Sheet. All of the Seller's fixed assets,
whether owned or leased, are adequate and usable for the purposes for which they
are currently used, are in good operating condition and repair and have been
properly maintained.
SECTION 2.18 INSURANCE. The Seller is, and will be through the
Effective Date, insured with insurers in respect of its properties, assets
and businesses as set forth on the attached SCHEDULE 2.18. SCHEDULE 2.18
lists the insurance coverage carried by the Seller, which insurance will
remain in full force and effect with respect to all events occurring prior to
the Effective Date. Except as set forth on SCHEDULE 2.18, the Seller (i) has
not failed to give any notice or present any claim under any such policy or
binder in due and timely fashion, (ii) has not received notice of
cancellation or non-renewal of any such policy or binder, (iii) is not aware
of any threatened or proposed cancellation or non-renewal of any such policy
or binder, (iv) has not received notice of any insurance premium which will
be materially increased in the future, and (v) is not aware of any insurance
premium which will be materially increased in the future. There are no
outstanding claims under any such policy which have gone unpaid for more than
45 days, or as to which the insurer has disclaimed liability.
SECTION 2.19 OUTSTANDING CONTRACTS. SCHEDULE 2.19 sets forth a
description of all existing contracts, agreements, leases, commitments, licenses
and franchises, which involve obligations or commitments by the Seller of
$10,000 or more and are not cancelable by the Seller without penalty within 30
days (collectively "Contracts"), whether written or oral, relating to the
Seller. The Seller has delivered or made available to the Buyer true, correct
and complete copies of all of the Contracts specified on SCHEDULE 2.19 which are
in writing, and such schedule sets
8
<PAGE>
forth a complete description of all Contracts which are not in writing. All
of the Contracts are in full force and effect and enforceable in accordance
with their terms, except to the extent that the enforceability thereof may be
subject to or affected by applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium, or other laws relating to or
affecting the rights of creditors generally. Except as set forth on SCHEDULE
2.19, the Seller and, to the best knowledge of the Seller, each other party
thereto has materially performed all the obligations required to be performed
by it, has received no notice of default and is not in default (with due
notice or lapse of time or both) under any of the Contracts. The Seller has
no present expectation or intention of not fully performing all its
obligations under each of the Contracts, and the Seller has no knowledge of
any breach or anticipated breach by the other party to any of the Contracts
to which the Seller is a party. Except as set forth on SCHEDULE 2.19, none
of the Contracts has been terminated; no notice has been given by any party
thereto of any alleged default by any party thereunder; and the Seller is not
aware of any intention or right of any party to declare another party to any
of the Contracts to be in default. Except as set forth on SCHEDULE 2.19,
there exists no actual or, to the best knowledge of the Seller, threatened
termination, cancellation or limitation of the business relationship of the
Seller by any party to any of the Contracts.
SECTION 2.20 OUTSTANDING LEASES. SCHEDULE 2.20 sets forth a description
of each agreement by which the Seller leases each parcel of real property (the
"Leased Parcels") used in connection with the Business (collectively, the
"Leases"). The Seller has delivered or made available to the Buyer true,
correct and complete copies of all of the Leases specified on SCHEDULE 2.20.
All rents due under the Leases have been paid. All of the Leases are in full
force and effect and enforceable in accordance with their terms, except to the
extent that the enforceability thereof may be subject to or affected by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, or other laws relating to or affecting the rights of creditors
generally. Except as set forth on SCHEDULE 2.20, the Seller and to the best
knowledge of the Seller, each other party thereto has performed all the
obligations required to be performed by it, has received no notice of default
and is not in default (with due notice or lapse of time or both) under any of
the Leases. The Seller has no present expectation or intention of not fully
performing all its obligations under each of the Leases, and the Seller has no
knowledge of any breach or anticipated breach by the other party to any of the
Leases. Except as set forth on SCHEDULE 2.20, none of the Leases has been
terminated; no notice has been given by any party thereto of any alleged default
by any party thereunder; and the Seller is not aware of any intention or right
of any party to declare another party to any of the Leases to be in default.
There exists no actual or, to the best knowledge of the Seller, threatened
termination, cancellation or limitation of the business relationship of the
Seller with any party to any of the Leases.
SECTION 2.21 INTELLECTUAL PROPERTIES. SCHEDULE 2.21 contains an
accurate and complete list of all domestic and foreign letters patent, patents,
patent applications, patent licenses, software licenses and know-how licenses,
trade names, trademarks, copyrights, unpatented inventions, service marks,
trademark registrations and applications, service mark registrations and
applications and copyright registrations and applications, trade secrets or
other confidential proprietary information owned or used by the Seller in the
operation of the Business (collectively the "Intellectual Property"). Except as
set forth on SCHEDULE 2.21 and except for commercial software licensed for use
on personal computers, the Seller owns the entire right, title and interest in
and to the Intellectual Property, trade secrets and technology used in the
9
<PAGE>
operation of its business and each item constituting part of the Intellectual
Property and trade secrets and technology which is owned by the Seller has been,
to the extent indicated in SCHEDULE 2.21, duly registered with, filed in or
issued by, as the case may be, the United States Patent and Trademark office or
such other government entities, domestic or foreign, as are indicated in
SCHEDULE 2.21 and such registrations, filings and issuances remain in full force
and effect. There have been and are no pending or, to the best knowledge of the
Seller, threatened proceedings or litigation or other adverse claims affecting
or with respect to the Intellectual Property. There is, to the best knowledge
of the Seller, no reasonable basis upon which a claim may be asserted against
the Seller for infringement of any domestic or foreign letters patent, patents,
patent applications, patent licenses and know-how licenses, trade names,
trademark registrations and applications, common law trademarks, service marks,
service mark registrations or applications, copyrights, copyright registrations
or applications, trade secrets or other confidential proprietary information.
To the best knowledge of the Seller, no Person is infringing the Intellectual
Property.
SECTION 2.22 PROPRIETARY INFORMATION OF THIRD PARTIES.
Except as disclosed on SCHEDULE 2.22, no third party has claimed or,
to the best knowledge of the Seller, has reason to claim that any Person
employed by or consulting with the Seller ("Related Person") has (i) violated
or may be violating any of the terms or conditions of such person's
employment, non-competition or non-disclosure agreement with such third
party, (ii) disclosed or may be disclosing or utilized or may be utilizing
any trade secret or proprietary information or documentation of such third
party, or (iii) interfered or may be interfering in the employment
relationship between such third party and any of its present or former
employees. No third party has requested information from the Seller which
suggests that such a claim might be contemplated. Except as disclosed on
SCHEDULE 2.22, to the best knowledge of the Seller, no Related Person has
employed or proposes to employ any trade secret or any information or
documentation proprietary to any former employer and no Related Person has
violated any confidential relationship which such person may have had with
any third party, in connection with the development or sale of any service of
the Seller, and the Seller has no reason to believe there will be any such
employment or violation.
SECTION 2.23 TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 2.23, no director, officer or shareholder of the Seller, or member of
the family of any such person, or any corporation, partnership, trust or other
entity in which any such person, or any member of the family of any such person,
has a beneficial interest greater than 5% or is an officer, director, trustee,
partner or holder of any equity interest greater than 5%, is a party to any
transaction with the Seller, including any contract, agreement or other
arrangement providing for the employment of, furnishing of services by, rental
of real or personal property from or otherwise requiring payments or involving
other obligations to any such person or firm.
SECTION 2.24 TAXES. Except as set forth on SCHEDULE 2.24, all federal,
state, local and foreign tax returns and tax reports required to be filed by the
Seller on or before the date hereof have been timely filed with the appropriate
governmental agencies in all jurisdictions in which such returns and reports are
required to be filed and all amounts shown as owing thereon have been paid. All
taxes (including, without limitation, income, accumulated earnings, property,
sales, use, franchise, excise, license, value added, fuel, employees' income
withholding
10
<PAGE>
and social security taxes) which have become due or payable or are required
to be collected by the Seller or are otherwise attributable to any periods
ending on or before the Closing Date and all interest and penalties thereon,
whether disputed or not, have been paid or will be paid in full or adequately
reflected on the Balance Sheet or the Seller's books and records in
accordance with generally accepted accounting principles on or prior to the
Closing Date. Except as set forth on SCHEDULE 2.24, all deposits required by
law to be made by the Seller with respect to employees' withholding taxes
have been duly made, and as of the Closing Date all such deposits due will
have been made. The Seller has delivered to the Buyer true and complete
copies of all of the Seller's federal, state and local tax returns for the
fiscal periods ended December 31, 1997, 1996 and 1995 and all reports and
results of income tax audits, if any, related thereto. Except as set forth
on SCHEDULE 2.24, no examination of any tax return of the Seller is currently
in progress. There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any such tax return.
SECTION 2.25 LITIGATION. Except as set forth on SCHEDULE 2.25, there is
no (i) action, suit, claim, proceeding or investigation pending or, to the best
knowledge of the Seller, threatened against or affecting the Seller (whether or
not such Seller is a party or prospective party thereto), at law or in equity,
or before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
(ii) arbitration proceeding pending relating to the Seller or (iii) governmental
inquiry pending or threatened against or involving the Seller, and there is no
basis for any of the foregoing. The Seller has not received any opinion or
memorandum or legal advice from legal counsel to the effect that it is exposed,
from a legal standpoint, to any liability or disadvantage which may be material
to the business, prospects, financial condition, operations, property or affairs
of the Seller. There are no outstanding orders, writs, judgments, injunctions
or decrees served upon the Seller by any court, governmental agency or
arbitration tribunal against the Seller. There are no facts or circumstances
which may result in institution of any action, suit, claim or legal,
administrative or arbitration proceeding or investigation against, involving or
affecting the Seller or the transactions contemplated hereby. The Seller is not
in default with respect to any order, writ, injunction or decree known to or
served upon it from any court or of any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign. Except as disclosed on SCHEDULE 2.25, there is no action
or suit by the Seller pending or threatened against others.
SECTION 2.26 ENVIRONMENTAL MATTERS.
(a) COMPLIANCE. The Seller and all Leased Parcels are in compliance
with all applicable laws, rules, regulations, orders, ordinances, judgments and
decrees of all governmental authorities with respect to all environmental
statutes, rules and regulations. Except as set forth on SCHEDULE 2.26, the
Seller has not received notice of, nor does the Seller have knowledge of, any
past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans of the Seller or the Seller's
predecessors, either collectively, individually or severally, which may
interfere with or prevent continued compliance with, or which may give rise to
any common law or legal liability or otherwise form the basis of any claim,
action, suit, proceeding, hearing, or investigation, based on or related to the
disposal, storage, handling, manufacture, processing, distribution, use,
treatment or transport, or the emission, discharge, release or threatened
release into the environment, of any Substance. As
11
<PAGE>
used in this Section 2.26, the term "Substance" or "Substances" shall mean
any pollutant, contaminant, hazardous substance, hazardous material,
hazardous waste or toxic waste, as defined in any presently enacted federal,
state or local statute or any regulation that has been promulgated pursuant
thereto. No part of any of the Leased Parcels has been listed or proposed
for listing on the National Priorities List established by the United States
Environmental Protection Agency, or any corresponding list by any state or
local authorities.
(b) ENVIRONMENTAL SUBSTANCE LIABILITY. No event has occurred or
condition exists or operating practice is being employed that could give rise to
liability on the part of the Seller, either at the present time or in the
future, for any losses, liabilities, damages (whether consequential or
otherwise), settlements, penalties, interest, expenses and costs of responses,
including any such liability on account of the right of any governmental or
private entity or person, and including closure expenses, costs of assessment,
containment, removal, or response (other than monitoring or transportation or
disposal of materials required to be transported or disposed of in the ordinary
course of business consistent with past practice) arising under any rule or
federal, state, or local statute, or any regulation that has been promulgated
pursuant thereto, or common law, as a result of or in connection with, or
alleged to be as a result of or in connection with, the following (collectively
the "Hazardous Activities"):
1. the handling, storage, use, transportation or disposal of any
Substances in or near or from the Leased Parcels;
2. the handling, storage, use, transportation or disposal of any
Substances by the Seller or its predecessors which Substances were a product,
by-product or otherwise resulted from the operations conducted by or on
behalf of the Seller or its predecessors;
3. any intentional or unintentional emission, discharge or release of
any Substances in or near or from facilities into or upon the air, surface
water, ground water or land or any disposal, handling, manufacturing,
processing, distribution, use, treatment, or transport of such Substances in or
near or from facilities by or on behalf of the Seller or its predecessors; or
4. the presence of any toxic or hazardous building materials
(including but not limited to friable asbestos or similar substances) in any
facilities of the Seller, including but not limited to the inclusion of such
materials in the exterior and interior walls, floors, ceilings, tile, insulation
or any other portion of building structures.
(c) ENVIRONMENTAL PERMITS. The Seller has obtained and holds all
registrations, permits, licenses, and approvals issued by or on behalf of any
federal, state or local governmental body or agency if any ("Environmental
Permits") that are required in connection with the operation by the Seller of
the Leased Parcels, the discharge or emission of Substances by the Seller
from the Leased Parcels or the generation, treatment, storage,
transportation, or disposal of any such Substances by the Seller. Such
Environmental Permits, which are described on SCHEDULE 2.26, are currently
effective and sufficient for the operation of the Leased Parcels and the
business of the Seller as currently conducted and intended to be conducted.
The Seller is in compliance with all terms and conditions of the
Environmental Permits, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables contained in those laws or provisions or
12
<PAGE>
contained in any regulation, code, plan, order, decree, judgment, notice or
demand letter issued, entered, promulgated or approved thereunder and
applicable to the Seller.
(d) DELIVERIES. The Seller has delivered to the Buyer true and
complete copies and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by the Seller pertaining to Substances or
Hazardous Activities in, on, or under the Leases Parcels or concerning
compliance by the Seller or any other Person for whose conduct they are or may
be held responsible, with environmental statutes, rules and regulations.
SECTION 2.27 BROKER'S OR FINDER'S FEES. Except as set forth on SCHEDULE
2.27, no agent, broker, person or firm acting on behalf of the Seller is, or
will be, entitled to any commission or broker's or finder's fees from of the
Seller or from any person controlling, controlled by or under common control
with the Seller in connection with any of the transactions contemplated herein.
SECTION 2.28 YEAR-2000 COMPLIANCE.
(a) SCHEDULE 2.28 contains a true and complete list of all Systems
(as hereinafter defined), and each System is Year-2000 Compliant (as hereinafter
defined) to the extent indicated on SCHEDULE 2.28.
(b) As used throughout this Agreement, the following definitions
shall have the following meanings:
1. "External Systems" shall mean all services which are provided to
Seller by third parties and which are dependent on information technology,
including, but not limited to, any external payroll, accounting, or tax filing
services or any checking, savings, or other financial services.
2. "Internal Systems" shall mean all technology products and systems
generally operated or controlled in-house by Seller, or its employees, agents,
or independent contractors including, but not limited to, computers, computer
networks, telephone systems, voicemail systems, intercom systems, pager systems,
and software applications.
3. "Licensed Systems" shall mean all products and systems developed
by or for Seller which are licensed, sold, distributed, or otherwise transferred
by Seller to third parties.
4. "System" or "Systems" shall mean any, all, or any combination of
any Internal System, External System, or Licensed System.
5. "Year-2000 Compliant" shall mean, with respect to each System,
that such System is designed to be used before, during, and after the calendar
year 2000 A.D. and will accurately accept date input and process, store, and
output date data and date-related data, including, without limitation,
calculating, comparing, sorting, and sequencing such data and calculating leap
years before, during, and after the calendar year 2000 A.D. without any manual
intervention.
13
<PAGE>
SECTION 2.29 INVENTORY. All inventory of the Seller, whether or not
reflected in the financial statements or Balance Sheet, consists of a quality
and quantity usable and salable in the ordinary course of business, except for
obsolete items and items of below-standard quality, all of which have been
written off or written down to net realizable value in the financial statements
or the Balance Sheet, as the case may be (the "Inventory"). A list of Inventory
of the Seller as of Effective Time is set forth on SCHEDULE 2.29. As of the
Effective Time, the value of the Inventory was $97,600. All Inventories not
written off have been priced at the lower of cost or market on a first in, first
out basis. The quantities of each item of Inventory (whether raw materials,
work-in-process, or finished goods) are not excessive, but are reasonable in the
present circumstances of the Seller.
SECTION 2.30 DISCLOSURE. All Documents delivered or to be delivered by
or on behalf of the Seller in connection with this Agreement and the
transactions contemplated hereby are true, complete and correct. Neither this
Agreement, nor any of the other Documents contains any untrue statement of a
material fact or omits a material fact necessary to make the statements made by
the Seller herein or therein, in light of the circumstances in which made, not
misleading. There is no fact known to the Seller which materially and adversely
affects the business, prospects or financial condition of the Seller or its
properties or assets, which has not been set forth in the Documents.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE BUYER
As an inducement to the Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, the Buyer represents and
warrants to the Seller as follows:
SECTION 3.1 DISCLOSURE. All Documents delivered or to be delivered by
or on behalf of the Buyer in connection with this Agreement and the transactions
contemplated hereby are true, complete and correct. Neither this Agreement, nor
any of the other Documents contains any untrue statement of a material fact or
omits a material fact necessary to make the statements made by the Buyer herein
or therein, in light of the circumstances in which made, not misleading. There
is no fact known to the Buyer which may have a material adverse effect on the
Buyer's ability to pay its obligations under this Agreement, which has not been
set forth in the Documents.
ARTICLE 4
COVENANTS AND AGREEMENTS
SECTION 4.1 BEST EFFORTS. The Seller and the Buyer shall each use its
best efforts to procure upon reasonable terms and conditions all consents and
approvals, completion of all filings, all registrations and certificates, and
satisfaction of all other requirements prescribed by law which are necessary for
the consummation of the transactions contemplated by this Agreement and the
Buyer's ownership and operation of the Seller's Business after the
14
<PAGE>
Closing Date. Prior to the Closing Date, the Seller will use its best efforts
to preserve its relationships with its employees, customers and others having
business relationships with the Seller.
SECTION 4.2 TAX RETURNS. The Seller shall prepare and timely file, at
its sole expense, all of its required tax returns for all periods ending on or
prior to the Effective Date. The Seller shall be responsible for the payment
of, and will indemnify, defend and hold the Buyer harmless against all taxes due
or assessed which relate to the operations of the Business for all periods
ending on or prior to the Effective Date.
SECTION 4.3 PAYMENT OF LIABILITIES. Except for the Assumed
Liabilities, the Seller shall pay and satisfy in full all of its other
obligations and liabilities, of any nature whatsoever, which accrue prior or
subsequent to the Effective Date.
SECTION 4.4 SPECIAL PROVISIONS REGARDING EMPLOYEES OF THE SELLER.
(a) NEW EMPLOYEES OF THE BUYER. It is the intention of the
Buyer, and the Seller hereby acknowledges and agrees with such position, that
any employees of the Seller that the Buyer hires will be new employees of the
Buyer as of the Effective Date or the date of hire, whichever is later. Such
new employees shall be entitled only to such compensation and employee
benefits as are agreed to by such employees and the Buyer or as are otherwise
provided by the Buyer, in its sole discretion.
(b) HIRING OF EMPLOYEES. The Buyer will use its reasonable
efforts to hire the existing employees of the Seller engaged in the Business
in connection with its purchase of the Transferred Assets; provided, however,
that the Buyer shall be entitled to review employee records, conduct employee
interviews and employee screening procedures used by the Buyer in its
business, and may refuse to offer employment to any employee of the Seller if
such employee fails to meet the hiring criteria of the Buyer.
(c) NO CONTRIBUTIONS. After the Closing, the Seller shall make no
contributions to any Employee Plan on behalf of any former employee or
independent contractor of the Seller who is employed by the Buyer after the
Closing.
(d) COBRA ISSUES. The Buyer shall be a successor employer of
Seller solely for the purposes of providing continuation coverage to the
extent required under Code Section 4980B and ERISA Section 601 to
individuals receiving such continuation coverage on the Effective Date and
individuals qualifying (or who would otherwise qualify but for this Section
4.5) for such coverage commencing on or after the Effective Date. The Seller
shall be liable for any and all liabilities, costs, expenses and fees
whatsoever arising under Code Section 4980B and ERISA Section 601 before
the Effective Date.
SECTION 4.5 ACCOUNTS RECEIVABLE. The Seller shall remain responsible
for collection of all amounts due it on account of all Excluded Assets including
without limitation, the Seller's billed and unbilled accounts receivable. The
Buyer agrees that, in the event it shall receive payments from customers or
other persons ("Debtor" or "Debtors") indebted to the Seller
15
<PAGE>
for services rendered by the Seller prior to the Effective Time, or for other
amounts, such payments shall be allocated and distributed as follows:
1. In the event that the Debtor is not indebted to the Buyer, any
such payment received shall be distributed to the Seller.
2. In the event that the Debtor is indebted both to the Seller and
to the Buyer (for services rendered by the Buyer after the Effective Time)
any such payment received shall be allocated and distributed as follows:
(a) A payment received which has been identified by the Debtor as
relating to a specific invoice or claim shall be allocated and distributed to
the creditor (the Seller or the Buyer) rendering such invoice or owning such
claim.
(b) In the case of a payment which has not been identified by the
Debtor as relating to a specific invoice or claim, the Buyer shall use its best
efforts to contact the Debtor to determine which specific invoice or claim the
Debtor intended to pay. The Buyer shall allocate and distribute the amount
received in accordance with such determination.
(c) In the event that the Buyer is not able to ascertain from the
Debtor the invoice or claim to which the payment was related, the Buyer shall
allocate and distribute the amount received as may be mutually determined by
either David Anderson on the one hand and James J. TerBeest on the other.
3. (a) For the purpose of identifying amounts due the Seller,
within twenty (20) days after the Effective Date, and by the 10th business day
of each month thereafter until April 30, 1999, the Seller shall provide to the
Buyer a list ("Seller's List") of all outstanding accounts receivable and
claims, including the invoice numbers, remaining due to it as of the last day of
the previous month.
(b) The Buyer agrees that, commencing in December 1998, it
will deliver to the Seller, on or before the 10th day of each month, an
Accounting of all amounts received by it during the preceding month from
Debtors shown on any of Seller's Lists and the Buyer will, together with such
Accounting, remit to the Seller all amounts due to the Seller from such
collections.
SECTION 4.6 POST-CLOSING MATTERS. The Buyer agrees to use its best
efforts to cause Norwest Equipment Financing to release the personal guarantees
of Alvin W. Leingang in connection with certain of the Seller's debt obligations
on or before the expiration of sixty (60) days after the Closing Date.
16
<PAGE>
ARTICLE 5
CONDITIONS TO THE BUYER'S OBLIGATIONS
The obligation of the Buyer to make deliveries to the Seller pursuant to
Section 1.2 and 1.3 hereof and to consummate the other transactions contemplated
hereby is subject to the satisfaction, on or before the Closing Date, of the
following conditions each of which may be waived by the Buyer in its sole
discretion:
SECTION 5.1 CONSENTS. Except as set forth on SCHEDULE 5.1, all
requisite governmental approvals identified on such schedule and consents of
third parties identified on such schedule or otherwise identified by the Seller
as required to be received to prevent any material license, permit or agreement
relating to the Business from terminating prior to its scheduled termination, as
a result of the consummation of the transactions contemplated hereby, shall have
been obtained and all permits listed in SCHEDULE 2.15 shall have been
transferred or reissued to the Buyer.
SECTION 5.2 OPINION OF COUNSEL TO THE SELLER. The Buyer shall have
received from Kelsch Kelsch Ruff & Kranda, P.L.L.P., counsel to the Seller, an
opinion, dated as of the Closing Date, in form and substance reasonably
satisfactory to the Buyer, and to the following effect:
(a) The Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of North Dakota. The nature of the
Business or the Transferred Assets does not require the Seller to be licensed or
qualified in any other jurisdiction;
(b) The Seller has the corporate power and authority to own and hold
its properties and to carry on its business as now conducted. The Seller has
the corporate power and authority to execute, deliver and perform the Agreement
and the other Documents. The execution, delivery and performance of the
Agreement and the other Documents and the consummation of the transactions
contemplated hereby and thereby have been duly authorized and approved by all
necessary corporate action of the Seller. The Agreement and each of the other
Documents to be executed and delivered by the Seller have been duly executed and
delivered by, and constitute the legal, valid and binding obligation of the
Seller, enforceable against the Seller in accordance with their terms;
(c) There is no (i) action, suit, claim, proceeding or investigation
pending or, to the best knowledge of counsel, threatened against or affecting
the Seller (whether or not the Seller is a party or prospective party thereto),
at law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, (ii) arbitration proceeding pending relating to the Seller
or (iii) governmental inquiry pending or threatened against or involving the
Seller, and, to the best knowledge of counsel, there is no basis for any of the
foregoing. The Seller has not received any opinion or memorandum or legal
advice from legal counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage which may be material to the
business, prospects, financial condition, operations, property or affairs of the
Seller. There are no outstanding orders, writs, judgments, injunctions or
decrees served upon the Seller by any court,
17
<PAGE>
governmental agency or arbitration tribunal against the Seller. To the best
knowledge of counsel, there are no facts or circumstances which may result in
institution of any action, suit, claim or legal, administrative or
arbitration proceeding or investigation against, involving or affecting the
Seller or the transactions contemplated hereby. The Seller is not in default
with respect to any order, writ, injunction or decree known to or served upon
it from any court or of any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign. There is no action or suit by the Seller pending or threatened
against others;
(d) The execution and delivery of this Agreement and the other
Documents, the consummation of the transactions contemplated hereby and thereby,
and the performance of the Agreement and such other agreements in compliance
with the terms and conditions hereof and thereof by the Seller will not (i)
violate, conflict with or result in any breach of any trust agreement, articles
of incorporation, bylaw, judgment, decree, order, statute or regulation
applicable to the Seller, (ii) violate, conflict with or result in a breach,
default or termination or give rise to any right of termination, cancellation or
acceleration of the maturity of any payment date of any of the obligations of
the Seller or increase or otherwise affect the obligations of the Seller under
any law, rule, regulation or any judgment, decree, order, governmental permit,
license or order or any of the terms, conditions or provisions of any mortgage,
indenture, note, license, agreement or other instrument or obligation related to
the Seller or to the Seller's ability to consummate the transactions
contemplated hereby or thereby, except for such defaults (or rights of
termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained in writing and provided to the Buyer, (iii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
the Seller or (iv) result in the creation of any Claim upon the Transferred
Assets; and
(e) The Bill of Sale conveys all right, title and interest in and to
the Transferred Assets.
SECTION 5.3 CHANGE OF CORPORATE NAME. The Seller shall amend its
respective Articles of Incorporation to change its name to a name other than
"North Country Thermal Line" and "North Country Glass." The Seller shall
deliver to the Buyer at the Closing, an executed copy of such Amendment to the
Articles of Incorporation, and any such other documents or consents needed to
effectuate such change in name, for filing with the Office of the North Dakota
Secretary of State. Also, the Seller shall withdraw its assumed trade or
fictitious names, which are set forth on SCHEDULE 5.3 hereto. The Seller shall
deliver to the Buyer at the Closing, an executed copy of such withdrawal, and
any such other documents or consents needed to effectuate such change in name,
for filing with the Office of the North Dakota Secretary of State.
SECTION 5.4 CLOSING DOCUMENTS. The Seller shall have delivered all of
the resolutions, certificates, documents and instruments required by this
Agreement.
SECTION 5.5 APPROVAL OF THE BUYER AND ITS COUNSEL. All actions,
proceedings, consents, instruments and documents required to be delivered by, or
at the behest or direction of, the Seller hereunder or incident to its
performance hereunder, and all other related matters, shall be reasonably
satisfactory as to form and substance to the Buyer and its counsel.
18
<PAGE>
ARTICLE 6
CONDITIONS TO THE SELLER'S OBLIGATIONS
The obligation of the Seller to transfer the Transferred Assets to the
Buyer and to consummate the other transactions contemplated hereby is subject to
the satisfaction, on or before the Closing Date, of the following conditions,
each of which may be waived by the Seller in its sole discretion:
SECTION 6.1 CLOSING DOCUMENTS. The Buyer shall have delivered all of
the resolutions, certificates, documents and instruments required by this
Agreement.
SECTION 6.2 APPROVAL OF THE SELLER AND ITS COUNSEL. All actions,
proceedings, consents, instruments and documents required to be delivered by, or
at the behest or direction of, the Buyer hereunder or incident to its
performance hereunder, and all other related matters, shall be reasonably
satisfactory as to form and substance to the Seller and its counsel.
ARTICLE 7
THE CLOSING AND CERTAIN CLOSING DELIVERIES
SECTION 7.1 TIME AND PLACE OF CLOSING. Upon the terms and subject to
the satisfaction or waiver of the conditions contained in this Agreement, the
closing of the transactions contemplated by this Agreement (the "Closing") shall
take place on the date hereof or on such other date and time as may be mutually
agreed upon by the parties (the "Closing Date"). The transactions contemplated
by this Agreement shall be effective as of 12:01 a.m. (the "Effective Time") on
November 1, 1998 (the "Effective Date").
SECTION 7.2 DELIVERIES BY THE SELLER. At the Closing, the Seller will
deliver or cause to be delivered to the Buyer the following:
(a) All required consents of third parties to the sale
conveyance, transfer, assignment and delivery of the Transferred Assets and
Business of the Seller hereunder, including but not limited to the consent of
Southwall Technologies Inc. to the assignment of the North American Heat
Mirror Value-Added Reseller Agreement and the consent of Norwest Equipment
Finance, Inc. to the assignment of the Lease Agreement;
(b) A certificate of the Secretary of the Seller certifying as of
the Closing Date, (i) a true, correct, and complete copy of the Articles of
Incorporation of the Seller and all amendments thereto as in effect on the
Closing Date; (ii) a true, correct, and complete copy of the bylaws of the
Seller and all amendments thereto as in effect on the Closing Date; (iii) a
true, correct, and complete copy of the resolutions approved and adopted by
the Seller's Board of Directors and Shareholders authorizing and approving
the execution, performance and delivery of this Agreement and the
transactions contemplated by this Agreement; (iv) Good Standing
19
<PAGE>
Certificate from the North Dakota Secretary of State and all other
jurisdictions where the Seller is qualified to do business; and (v) the
incumbency of the duly authorized officers of the Seller.
(c) The affidavit of the Seller certifying as to its non-foreign
status in accordance with Section 1445(b)(2) of the Code;
(d) The Bill of Sale required by Section 1.1(c);
(e) The Assignment and Assumption Agreement required by
Section 1.1(c);
(f) The Lease Agreement required by Section 1.1(c);
(g) The First Amendment to the Earn-Out Schedule;
(h) The opinion of the Seller's counsel required by Section 5.2
above;
(i) Duly executed Amendment to the Articles of Incorporation of the
Seller and withdrawal of assumed trade names as required by Section 5.3 above;
(j) All other documents, instruments and writings required to be
delivered by the Seller at or prior to the Closing Date pursuant to this
Agreement or otherwise required in connection herewith.
SECTION 7.3 DELIVERIES BY THE BUYER. At the Closing, the Buyer will
deliver the following to or for the account of the Seller or certain of its
employees, as the case may be:
(a) The payment required by Section 1.2(a) above;
(b) The Assignment and Assumption Agreement required by Section 1.3;
(c) The Lease Agreement required by Section 1.3;
(d) The First Amendment to the Earn-Out Schedule;
(e) All other documents, instruments and writings required to be
delivered by the Buyer at or prior to the Closing Date pursuant to this
Agreement or otherwise required in connection herewith.
ARTICLE 8
[INTENTIONALLY OMITTED]
20
<PAGE>
ARTICLE 9
INDEMNIFICATION
SECTION 9.1 SURVIVAL. All representations and warranties in this
Agreement and the other Documents shall survive the Closing of the purchase of
the Transferred Assets contemplated hereby and any investigation at any time
made by or on behalf of any party for a period of three years and all such
representations and warranties shall expire on the third anniversary of the
Closing Date, except that (a) claims, if any, asserted in writing prior to such
third anniversary identified as a claim for indemnification pursuant to this
Article IX shall survive until finally resolved and satisfied in full; (b) any
Year-2000 Indemnification Obligations (as hereinafter defined) shall survive
until February 1, 2003 and until finally resolved and satisfied in full if
asserted on or prior to February 1, 2003; and (c) tax or environmental claims
arising from a breach of Section 2.24 or Section 2.26, respectively, shall
survive for the full period of the applicable statute of limitations, and until
finally resolved and satisfied in full if asserted on or prior to the expiration
of any such period. The representations and warranties shall not be affected or
otherwise diminished by any investigation at any time by or on behalf of the
party for whose benefit such representations and warranties were made.
SECTION 9.2 INDEMNIFICATION BY THE SELLER. Subject to the terms
herein, the Seller shall indemnify, defend, and hold the Buyer and the
respective officers, directors, and employees of the Buyer, and their successors
and assigns (the "Seller's Indemnitees") harmless from, against and with respect
to any claim, liability, obligation, loss, damage, assessment, judgment, cost or
expense of any kind or character, including reasonable attorneys' fees (the
"Damages"), arising out of or in any manner incident, relating or attributable
to:
(a) Any inaccuracy in any representation or breach of any
warranty of the Seller contained in this Agreement;
(b) Any failure by the Seller to perform or observe, or to have
performed or observed, in full, any covenant, agreement or condition to be
performed or observed by it under this Agreement;
(c) Reliance by the Buyer on any books or records of the Seller or
written information furnished to the Buyer pursuant to this Agreement by or on
behalf of the Seller in the event that such books and records or written
information are false or materially inaccurate; or
(d) Liabilities or obligations of, or claims against, the Buyer
(whether absolute, accrued, contingent or otherwise) relating to, or arising out
of, the operation of the Business prior to the Closing Date or facts and
circumstances relating specifically to the Business, the Leased Parcels, or the
Seller existing at or prior to the Closing Date, including but not limited to
matters set forth on SCHEDULE 2.25, whether or not such liabilities, obligations
or claims were known on such date, excluding only the Assumed Liabilities.
SECTION 9.3 NOTICE TO THE SELLER, ETC. If any of the matters as to
which the Seller's Indemnitees are entitled to receive indemnification under
Section 9.2 should entail litigation with or claims asserted by parties other
than the Seller, the Seller shall be given prompt notice thereof
21
<PAGE>
and shall have the right, at his expense, to control such claim or litigation
upon prompt notice to the Buyer of his election to do so. To the extent
requested by the Seller, the Buyer, at its expense, shall cooperate with and
assist the Seller, in connection with such claim or litigation. The Buyer
shall have the right to appoint, at its expense, single counsel to consult
with and remain advised by the Seller in connection with such claim or
litigation. The Seller shall have final authority to determine all matters
in connection with such claim or litigation; PROVIDED, HOWEVER, that the
Seller shall not settle any third party claim without the consent of the
Buyer, which shall not be unreasonably denied or delayed.
SECTION 9.4 INDEMNIFICATION BY THE BUYER. The Buyer shall indemnify,
defend, and hold the Seller and its successors and assigns (the "Buyer's
Indemnitees") harmless from, against and with respect to any claim, liability,
obligation, loss, damage, assessment, judgment, cost or expense of any kind or
character, including reasonable attorneys' fees (the "Damages"), arising out of
or in any manner incident, relating or attributable to:
(a) Any inaccuracy in any representation or breach of warranty of
the Buyer contained in this Agreement;
(b) Any failure by the Buyer to perform or observe, or to have
performed or observed, in full, any covenant, agreement or condition to be
performed or observed by it under any of the Documents;
(c) Reliance by the Seller on any books or records of the Buyer or
reliance by the Seller on any written information furnished to the Seller
pursuant to this Agreement by or on behalf of the Buyer in the event that such
books and records or written information are false or inaccurate;
(d) The failure of the Buyer to pay or perform the Assumed
Liabilities, Contracts and Leases subsequent to the Closing Date; or
(e) Liabilities or obligations of, or claims against, the Seller
(whether absolute, accrued, contingent or otherwise) relating to, or arising out
of, the operation of the Business subsequent to the Closing Date.
SECTION 9.5 NOTICE TO THE BUYER, ETC. If any of the matters as to
which the Buyer's Indemnitees are entitled to receive indemnification under
Section 9.4 should entail litigation with or claims asserted by parties other
than the Buyer, the Buyer shall be given prompt notice thereof and shall have
the right, at its expense, to control such claim or litigation upon prompt
notice to the Seller of its election to do so. To the extent requested by the
Buyer, the Seller, at his expense, shall cooperate with and assist the Buyer, in
connection with such claim or litigation. The Seller shall have the right to
appoint, at its expense, single counsel to consult with and remain advised by
the Buyer in connection with such claim or litigation. The Buyer shall have
final authority to determine all matters in connection with such claim or
litigation; PROVIDED, HOWEVER, that the Buyer shall not settle any third party
claim without the consent of the Seller, which shall not be unreasonably denied
or delayed.
SECTION 9.6 SURVIVAL OF INDEMNIFICATION. The obligations to indemnify
and hold harmless pursuant to this Article IX shall survive the Closing of the
purchase of the Transferred
22
<PAGE>
Assets contemplated hereby for a period of three years, notwithstanding any
investigation at any time made by or on behalf of any party, except that (a)
claims, if any, asserted in writing prior to such third anniversary
identified as a claim for indemnification pursuant to this Article IX shall
survive until finally resolved and satisfied in full; (b) any Year-2000
Indemnification Obligations (as hereinafter defined) shall survive until
February 1, 2003 and until finally resolved and satisfied in full if asserted
on or prior to February 1, 2003; and (c) tax or environmental claims arising
from a breach of Section 2.24 or Section 2.26, respectively, shall survive
for the full period of the applicable statute of limitations, and until
finally resolved and satisfied in full if asserted on or prior to the
expiration of any such period. As used in this Article IX, the term
"Year-2000 Indemnification Obligations" shall mean Seller's obligation to
indemnify, defend, and hold the Seller's Indemnitees harmless from, against
and with respect to any Damages arising out of or in any manner incident,
relating or attributable to (i) any claim or allegation that any Licensed
System is not Year-2000 Compliant and (ii) any claim arising from a breach of
Section 2.28.
SECTION 9.7 OFFSET. The Seller acknowledges and agrees that the Buyer
shall be entitled to offset any indemnity claim under Section 9.2 against any
payment due to the Seller under Section 1.2(b) hereof at the Buyer's sole
option.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1 KNOWLEDGE OF THE SELLER. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to the
best knowledge of the Seller, the Seller confirms that it has made due and
diligent inquiry of its President as to the matters that are the subject of such
representation and warranty.
SECTION 10.2 KNOWLEDGE OF THE BUYER. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to the
best of knowledge of the Buyer, the Buyer confirms that it has made due and
diligent inquiry of its President as to the matters that are the subject of such
representations and warranties.
SECTION 10.3 "PERSON" DEFINED. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or other department or agency
thereof.
SECTION 10.4 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) sent by recognized overnight courier, (iii) made by telecopy or facsimile
transmission, or (iv) sent by registered or certified mail, return receipt
requested, postage prepaid.
If to the Buyer:
23
<PAGE>
c/o ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
Attn: Stephen A. Hoffmann, President
Fax No: (502) 412-0301
With a copy to:
Stites & Harbison
400 W. Market Street, Suite 1800
Louisville, Kentucky 40202
Attn: Ralston W. Steenrod, Esq.
Fax No: (502) 587-6391
If to the Seller:
Alvin W. Leingang
P.O. Box 579
Mandan, ND 58554
Fax No.: (701) 663-2508
With a copy to:
Kelsch Kelsch Ruff & Kranda, P.L.L.P.
Collins Avenue and Main Street
P.O. Box 785
Mandan, North Dakota 58554-0785
Attn: Arlen M. Ruff
Fax No: (701) 663-9810
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof to
the receiving party at the address of such party set forth above, (ii) if sent
by overnight courier, on the next business day following the day such notice is
delivered to the courier service, (iii) if made by telecopy or facsimile
transmission, at the time that receipt thereof has been acknowledged by
electronic confirmation or otherwise, or (iv) if sent by registered or certified
mail, on the fifth business day following the day such mailing is sent. The
address of any party herein may be changed at any time by written notice to the
parties.
SECTION 10.5 ENTIRE AGREEMENT. This Agreement and the other Documents
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or
24
<PAGE>
agreement of any kind not expressly set forth in the other Documents shall
affect, or be used to interpret, change or restrict, the express terms and
provisions of this Agreement.
SECTION 10.6 MODIFICATIONS AND AMENDMENTS. The terms and provisions of
this Agreement may be modified or amended only by written agreement executed by
all parties hereto.
SECTION 10.7 ASSIGNMENT/BINDING EFFECT. Neither this Agreement, nor any
right hereunder, may be assigned by any of the parties hereto without the prior
written consent of the other parties. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns.
SECTION 10.8 PARTIES IN INTEREST. Nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement. Nothing in this
Agreement shall be construed to create any rights or obligations except among
the parties hereto, and no person or entity shall be regarded as a third-party
beneficiary of this Agreement.
SECTION 10.9 GOVERNING LAW. This Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with and
governed by the internal laws of the State of North Dakota without giving effect
to the conflict of law principles thereof.
SECTION 10.10 ARBITRATION. Any dispute or difference between the parties
hereto arising out of or relating to this Agreement shall be finally settled by
arbitration in accordance with the Commercial Rules of the American Arbitration
Association by a panel of three qualified arbitrators. The Seller and the Buyer
shall each choose an arbitrator and the third shall be chosen by the two so
chosen. If either the Seller or the Buyer fails to choose an arbitrator within
30 days after notice of commencement of arbitration or if the two arbitrators
fail to choose a third arbitrator within 30 days after their appointment, the
American Arbitration Association shall, upon the request of any party to the
dispute or difference, appoint the arbitrator or arbitrators to constitute or
complete the panel as the case may be. Arbitration proceedings hereunder may be
initiated by either the Seller or the Buyer making a written request to the
American Arbitration Association, together with any appropriate filing fee, at
the office of the American Arbitration Association in Bismarck, North Dakota.
All arbitration proceedings shall be held in Bismarck, North Dakota. Any order
or determination of the arbitral tribunal shall be final and binding upon the
parties to the arbitration and may be entered in any court having jurisdiction.
SECTION 10.11 SEVERABILITY. In the event that any arbitral tribunal of
competent jurisdiction shall finally determine that any provision, or any
portion thereof, contained in this Agreement shall be void or unenforceable in
any respect, then such provision shall be deemed limited to the extent that such
arbitral tribunal determines it enforceable, and as so limited shall remain in
full force and effect. In the event that such arbitral tribunal shall determine
any such provision, or portion thereof, wholly unenforceable, the remaining
provisions of this Agreement shall nevertheless remain in full force and effect.
SECTION 10.12 INTERPRETATION. The parties hereto acknowledge and agree
that: (i) the rule of construction to the effect that any ambiguities are
resolved against the drafting
25
<PAGE>
party shall not be employed in the interpretation of this Agreement, and (ii)
the terms and provisions of this Agreement shall be construed fairly as to
all parties hereto and not in favor of or against any party, regardless of
which party was generally responsible for the preparation of this Agreement.
SECTION 10.13 HEADINGS AND CAPTIONS. The headings and captions of the
various subdivisions of this Agreement are for convenience of reference only and
shall in no way modify, or affect, or be considered in construing or
interpreting the meaning or construction of any of the terms or provisions
hereof.
SECTION 10.14 RELIANCE. The parties hereto agree that, notwithstanding
any right of any party to this Agreement to investigate the affairs of any other
party to this Agreement, the party having such right to investigate shall have
the right to rely fully upon the representations and warranties of the other
party expressly contained herein.
SECTION 10.15 EXPENSES. Each party shall pay its own fees and expenses
(including the fees of any attorneys, accountants, appraisers or others engaged
by such party) incurred in connection with this Agreement and the transactions
contemplated hereby whether or not the transactions contemplated hereby are
consummated.
SECTION 10.16 GENDER. All pronouns and any variation thereof shall be
deemed to refer to the masculine, feminine, neuter, singular, or plural as the
identity of the person or entity or the context may require.
SECTION 10.17 PUBLICITY. Except by the mutual agreement between the
Seller and the Buyer, no party shall issue any press release or otherwise make
any public statement with respect to the execution of, or the transactions
contemplated by, this Agreement except as may be required by law.
SECTION 10.18 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by different parties hereto on separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Buyer and the Seller have each caused this
Agreement to be executed by its duly authorized officer all as of the day and
year first above written.
Buyer: THERMAL LINE WINDOWS, L.L.P.
By: ICE, INC., General Partner
By: /s/ Stephen A. Hoffmann
------------------------------
Stephen A. Hoffmann, President
26
<PAGE>
By: BLIZZARD ENTERPRISES, INC., General
Partner
By: /s/ Stephen A. Hoffmann
------------------------------
Stephen A. Hoffmann, President
Seller: NORTH COUNTRY THERMAL LINE, INC.
By: /s/ Alvin W. Leingang
------------------------------
Alvin W. Leingang, President
27
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into on this 5th day of January, 1999, by and among Charles L. Smith
("Smith"), Robert L. Cox ("Cox"), and Richard Ahrendts ("Ahrendts") (Smith,
Cox and Ahrendts are hereinafter sometimes referred to individually as a
"Seller" and collectively the "Sellers") and THERMOVIEW INDUSTRIES, INC., a
Delaware corporation (the "Buyer").
PRELIMINARY STATEMENTS
The Sellers own all of the issued and outstanding shares of common
stock, with no par (the "Common Stock"), of Precision Window Mfg., Inc., a
Missouri corporation (the "Company").
The Company is engaged in manufacturing and distributing state of the
art custom vinyl replacement thermal paned windows for the existing home
market (the "Business").
The Buyer desires to purchase and the Sellers desire to sell all of
the outstanding shares of Common Stock of the Company, upon the terms and
subject to the conditions set forth in this Agreement.
In consideration of these preliminary statements and the mutual
covenants, representations, warranties and agreements hereinafter set forth,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF STOCK
SECTION 1.1 SALE OF STOCK. Upon the terms and subject to the
conditions set forth in this Agreement, on the Closing Date the Sellers agree
to sell, assign, transfer and deliver to the Buyer, and the Buyer agrees to
purchase 300 shares of Class A voting Common Stock and 11,250 shares of Class
B non-voting Common Stock, representing all of the issued and outstanding
shares of Common Stock of the Company. The certificates representing the
Common Stock shall be duly endorsed in blank, or accompanied by stock powers
duly executed in blank, by each of the Sellers.
SECTION 1.2 CONSIDERATION. Upon the terms and subject to
satisfaction of the conditions set forth in this Agreement, in consideration
of the aforesaid sale, assignment, transfer
<PAGE>
and delivery of all of the issued and outstanding shares of Common Stock, the
Buyer will pay to the Sellers consideration as follows:
(a) A closing payment of $1,800,000 (the "Cash Closing Payment")
shall be made to the Sellers in cash on the Closing Date (defined below) by
certified check, wire transfer or other means of immediately available funds.
Each Seller shall be entitled to receive a percentage of the Cash Closing
Payment equal to the percentage of the total outstanding Common Stock sold by
such Seller, as set forth on SCHEDULE 1.1.
(b) A closing payment of $300,000 in Buyer Common Stock (defined in
Section 3.4) shall be made to Ahrendts (the "Ahrendts Closing Payment"). A
payment of $300,000 in Buyer Common Stock (defined in Section 3.4) (the
"Escrow Payment") shall be made to the Buyer, as escrow agent, under the
terms of an Escrow Agreement, in substantially the form attached hereto as
EXHIBIT A (the "Escrow Agreement"). The number of shares of Buyer Common
Stock to be issued would be determined by averaging the means between the
opening and closing prices on the OTC Bulletin Board over ten (10)
consecutive trading days ending three (3) business days prior to the Closing
Date.
(c) Aggregate payments of $1,200,000 shall be made to Smith and Cox
in accordance with the subordinated promissory notes, in substantially the
form attached hereto as EXHIBIT B (the "Promissory Notes").
SECTION 1.3 PURCHASE PRICE ADJUSTMENT. As soon as practicable but
within forty-five (45) days after the Closing Date, the Sellers, at their
expense, shall cause Terry P. Moosmann, P.C., an independent certified public
accountant, to prepare a balance sheet of the Company immediately prior to
the Effective Time (the "Effective Time Balance Sheet") setting forth the
tangible net worth of the Company using accrual accounting and in conformance
with generally accepted accounting principles (the "Tangible Net Worth"). A
copy of the Effective Time Balance Sheet shall be promptly furnished to the
Buyer. If the Buyer disagrees with the Tangible Net Worth, the Buyer shall
engage an independent public accounting firm, at its expense, to audit the
Effective Time Balance Sheet and deliver a certified written report to the
Sellers confirming the Tangible Net Worth ("Audited Tangible Net Worth"). If
the Sellers fail to notify the Buyer within fifteen (15) days after receiving
the report from the accounting firm selected by the Buyer, such report shall
be deemed accepted for purposes of calculating Tangible Net Worth. If the
Sellers should so notify the Buyer of a dispute concerning Audited Tangible
Net Worth, the Buyer shall then engage another big-five independent
accounting firm that is mutually acceptable to the Buyer, on one hand, and
the Sellers, on the other hand, to resolve such dispute and such firm shall
notify the Buyer and the Sellers of its resolution of such dispute within two
weeks of its engagement by the Buyer. The cost of services provided by such
big-five accounting firm shall be borne equally by the Buyer and the Sellers.
Any such resolution shall be final and binding on all parties hereto for the
purposes of calculating Tangible Net Worth. In the event the Tangible Net
Worth is less than $400,000, the Sellers shall pay such deficit portion to
the Buyer within thirty (30) days following the later of its determination of
the Tangible Net Worth, the Buyer's audit or the resolution of any dispute by
such big-five accounting firm on a dollar-for-dollar basis. In the event the
Tangible Net Worth is greater than
2
<PAGE>
$400,000, the Buyer shall pay the excess amount, on a dollar-for-dollar
basis, to the Sellers within thirty (30) days following the later of either
Terry P. Moosmann, P.C.'s determination of the Tangible Net Worth or the
determination of Audited Tangible Net Worth. For purposes of this Section
1.3, "Tangible Net Worth" shall mean the net book value of the Company at the
Effective Time determined in accordance with generally accepted accounting
principles applied on a consistent basis. Net book value shall be calculated
by subtracting the book value of all of the liabilities of the Company from
the book value of all tangible assets of the Company.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
As an inducement to the Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, the Sellers, jointly and
severally, unless specifically noted, represent and warrant to the Buyer as
follows:
SECTION 2.1 OWNERSHIP OF STOCK. Each Seller individually represents
and warrants as to himself that, except as set forth on SCHEDULE 2.1, (a)
such Seller owns the shares of Common Stock listed opposite such Seller's
name on SCHEDULE 1.1 hereto, free and clear of all pledges, security
interests, liens, charges, encumbrances, equities, claims, options or
limitations of every kind ("Claims"), and (b) that the delivery to the Buyer
of the Common Stock pursuant to the provisions of this Agreement will
transfer to the Buyer valid title thereto, free and clear of all Claims.
SECTION 2.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each Seller
individually represents and warrants as to himself (a) that such Seller has
full legal power, capacity and authority to execute, deliver and perform this
Agreement and the Exhibits and to deliver the Schedules hereto, and the other
documents and instruments contemplated hereby (collectively, this Agreement,
the Exhibits and Schedules hereto, and the other documents and instruments
contemplated hereby shall constitute the "Documents") and to consummate the
transactions contemplated hereby and thereby. This Agreement and the other
Documents have been duly and validly executed and delivered by such Seller
and constitute valid and binding obligations of such Seller, enforceable
against such Seller in accordance with their terms.
SECTION 2.3 FOREIGN PERSON. Each Seller individually represents and
warrants as to himself that such Seller is not a foreign person as that term
is defined in Section 1445(f)(3) of the Code and applicable regulations.
SECTION 2.4 ORGANIZATION, QUALIFICATION AND CORPORATE POWER.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Missouri. The Company is
qualified to do business as a foreign corporation and is in good standing in
the states set forth on SCHEDULE 2.4. The nature of the Business does not
require the Company to be licensed or qualified in any other jurisdiction.
The Sellers have made available to the Buyer complete and correct copies of
the Articles of Incorporation and Bylaws of the Company as currently in
effect. The Company has the
3
<PAGE>
corporate power and authority to own, lease, operate and hold its properties
and to carry on its business as now conducted, including the right to use the
name "Precision Manufacturing" or any derivative thereof.
SECTION 2.5 CAPITALIZATION. The Company has authorized capital
consisting of (i) 15,000 shares of Class A voting common stock, with no par
value, of which 300 shares are issued and outstanding and no shares are held
as treasury stock and (ii) 15,000 shares of Class B non-voting common stock,
with no par value, of which 11,250 shares are issued and outstanding and no
shares are held as treasury stock. All of the outstanding shares of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable. None of the outstanding shares of the Company has been issued
in violation of any preemptive right. Except as set forth on SCHEDULE 2.5,
there are no outstanding options, warrants, rights, calls, commitments,
conversion rights, rights of exchange, plans or other agreements of any
character providing for the purchase, issuance or sale of any shares of
capital stock of the Company, other than as contemplated by this Agreement.
SECTION 2.6 SUBSIDIARIES AND INVESTMENTS. The Company has no
subsidiaries and does not own, directly or indirectly, any capital stock or
other equity or ownership or proprietary interest in any other corporation,
partnership, association, trust, joint venture or other entity.
SECTION 2.7 BOOKS AND RECORDS. The minute books of the Company,
which have been and will be made available to the Buyer and its
representatives, contain accurate records of all meetings of and corporate
actions or written consents by the shareholders and Board of Directors of the
Company set forth in such minute books. The Company does not have any of its
records, systems, controls, data or information recorded, stored, maintained,
operated or otherwise wholly or partly dependent upon or held by any means
(including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and
therefrom) are not under the exclusive ownership and direct control of the
Company.
SECTION 2.8 FINANCIAL STATEMENTS. The Sellers have previously
furnished to the Buyer, and attached hereto as SCHEDULE 2.8 are, the compiled
statements of assets, liabilities and equity of the Company as of December
31, 1997, December 31, 1996, and December 31, 1995 and the related compiled
statements of revenue and expenses and cash flows for the years then ended
and the compiled statements of assets, liabilities and equity of the Company
(the "Balance Sheet") as at September 30, 1998 (the "Balance Sheet Date") and
the related statements of revenue and expenses and cash flows for the nine
(9) months then ended. Except as set forth on SCHEDULE 2.8, all such
financial statements (the "Financial Statements") have been prepared in
accordance with generally accepted accounting principles ("GAAP")
consistently applied and were prepared from the books and records of the
Company. Such books and records are complete and correct in all material
respects, accurately reflect all transactions of the business of the Company,
and have been made available to the Buyer for examination. The Financial
Statements fairly present the financial position of the Company as of the
dates thereof and the results of its operations and cash flows for the
periods ended on the dates thereof. The Financial Statements do not reflect
reserves appropriate and adequate for all known material liabilities and
4
<PAGE>
reasonably anticipated losses as required by GAAP. Since the Balance Sheet
Date, (i) there has been no change in the assets, liabilities or financial
condition of the Company from that reflected in the Balance Sheet except for
changes in the ordinary course of business consistent with past practice and
which have not been materially adverse, and (ii) none of the business,
prospects, financial condition, operations, property or affairs of the
Company has been materially adversely affected by any occurrence or
development, individually or in the aggregate, whether or not insured
against. The Sellers have disclosed to the Buyer all material facts relating
to the preparation of the Financial Statements.
SECTION 2.9 EMPLOYMENT AND LABOR MATTERS.
(a) SCHEDULE 2.9 lists all employees, independent contractors and
officers of the Company on the date hereof, along with the amount of the
current annual salaries and total compensation paid or due for services to
each employee, independent contractor or officer for the most recent fiscal
year end and the year to date, and a full and complete description of any
commitments to such employees, independent contractors and officers with
respect to compensation payable thereafter. To the best knowledge of the
Sellers, (1) no key employee or group of employees has any plans to terminate
employment with Company and (2) no independent contractor has any plans to
terminate its services to the Company and the Company has no plans to
terminate its relationship with any of its independent contractors.
(b) Except as set forth on SCHEDULE 2.9, the Company is not a party
to or bound by any collective bargaining agreement with any labor
organization, group or association covering any of its employees, and the
Sellers have no knowledge of any attempt to organize the Company's employees
by any Person, unit or group seeking to act as their bargaining agent. There
are no pending or threatened charges (by employees, their representatives or
governmental authorities) of unfair labor practices or of employment
discrimination or of any other wrongful action with respect to any aspect of
employment of any person employed or formerly employed by the Company. No
union representation election relating to employees of the Company has been
scheduled by any governmental agency or authority, no organizational effort
is being made with respect to any of such employees, and there is no
investigation of the Company's employment policies or practices by any
governmental agency or authority pending or threatened. The Company is not
currently, nor has it been, involved in labor negotiations with any unit or
group seeking to become the bargaining unit for any employees of the Company.
The Company has not experienced any material work stoppages, and to the best
knowledge of the Sellers, no work stoppage is planned. The Company has
complied with all material laws and regulations relating to the employment of
labor, including, without limitation, any provisions thereof relating to
wages, hours, employment practices, terms and conditions of employment,
collective bargaining, equal opportunity or similar laws and the payment of
social security and similar taxes, and is not liable for any material arrears
of wages or any material taxes or penalties for failure to comply with any of
the foregoing.
SECTION 2.10 REAL PROPERTY. The Company owns no real property.
5
<PAGE>
SECTION 2.11 POWERS OF ATTORNEY; ABSENCE OF LIMITATIONS ON COMPETITION;
GUARANTEES.
Except as set forth in SCHEDULE 2.11, (i) no power of attorney or
similar authorization given by the Company presently is in effect or
outstanding; (ii) no contract or agreement to which the Company is a party or
is bound or to which the Company's properties or assets are subject limits
the freedom of the Company to compete in any line of business or with any
Person; and (iii) the Company is not a party to or bound by any guarantee of
any debt or obligation of any other Person.
SECTION 2.12 SIGNIFICANT SUPPLIERS AND CUSTOMERS. Set forth on
SCHEDULE 2.12 is a true and correct list of the Company's ten largest
suppliers for the most recent twelve (12) month period ending December 31,
1997, and most recent ten (10) month period ending November 1, 1998, together
with the amount attributable to such suppliers expressed in dollars and as a
percentage of total supplies purchased. None of the suppliers identified on
SCHEDULE 2.12 has terminated, materially reduced or threatened to terminate
or materially reduce its supply of products or services to the Company during
the period covered by such schedule. Also, set forth on SCHEDULE 2.12 is a
true and correct list of the Company's ten largest customers for the most
recent twelve (12) month period ending December 31, 1997, and most recent
eleven (11) month period ending November 30, 1998, together with the amount
attributable to such customers expressed in dollars and as a percentage of
total sales. None of the customers identified on SCHEDULE 2.12 has
terminated, materially reduced or threatened to terminate or materially
reduce its orders for products of the Company during the period covered by
such schedule.
SECTION 2.13 GOVERNMENTAL APPROVALS. Except as set forth on SCHEDULE
2.13, no registration or filing with, or consent or approval of or other
action by, any Federal, state or other governmental agency or instrumentality
is or will be necessary for the valid execution, delivery and performance by
the Sellers of this Agreement.
SECTION 2.14 VALIDITY, ETC. Except as set forth on SCHEDULE 2.14,
neither the execution and delivery of this Agreement or the other Documents,
the consummation of the transactions contemplated hereby or thereby, nor the
performance of this Agreement or the other Documents in compliance with the
terms and conditions hereof and thereof by the Sellers will (i) violate,
conflict with or result in any breach of any trust agreement, Articles of
Incorporation, bylaw, judgment, decree, order, statute or regulation
applicable to the Company, (ii) violate, conflict with or result in a breach,
default or termination or give rise to any right of termination, cancellation
or acceleration of the maturity of any payment date of any of the obligations
of the Company or increase or otherwise affect the obligations of the Company
under any law, rule, regulation or any judgment, decree, order, governmental
permit, license or order or any of the terms, conditions or provisions of any
mortgage, indenture, note, license, agreement or other instrument or
obligation related to the Company or to the Sellers' ability to consummate
the transactions contemplated hereby or thereby, except for such defaults (or
rights of termination, cancellation or acceleration) as to which requisite
waivers or consents have been obtained in
6
<PAGE>
writing and provided to the Buyer, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company.
SECTION 2.15 ABSENCE OF ADVERSE CHANGE; CONDUCT OF BUSINESS. During
the period from the Balance Sheet Date to and including the date of this
Agreement, except as set forth on SCHEDULE 2.15, the Company has not (i)
borrowed or agreed to borrow any material amount of funds or incurred any
liability or obligation of any nature (whether accrued, absolute, contingent
or otherwise), or guaranteed or agreed to guarantee any obligations of
others, (ii) canceled any indebtedness owing to it or any claims that it
might have possessed, waived any material rights of substantial value or
sold, leased, encumbered, transferred or otherwise disposed of, or agreed to
sell, lease, encumber, or otherwise dispose of its assets or permitted any of
its assets to be subjected to any mortgage, pledge, lien, security interest,
encumbrance, restriction or charge of any kind, (iii) made any capital
expenditure or commitment therefor, (iv) declared or paid any dividend or
made any distribution on any shares of its capital stock, or redeemed,
purchased or otherwise acquired any shares of its capital stock or any
option, warrant or other right to purchase or acquire any such shares, (v)
increased its indebtedness for borrowed money, or made any loan to any
Person, (vi) written off as uncollectible any notes or accounts receivable,
except write-offs in the ordinary course of business charged to applicable
reserves, (vii) made any material change in any method of accounting or
auditing practice, (viii) otherwise conducted its business or entered into
any transaction, except in the usual and ordinary manner, or (ix) agreed,
whether or not in writing, to do any of the foregoing.
SECTION 2.16 CERTAIN PRACTICES. None of the Sellers, the Company,
the Company's directors or officers, or to the best knowledge of the Sellers,
the Company's employees has, directly or indirectly, used any corporate funds
for unlawful contributions, gifts, entertainment, or other unlawful expenses
relating to political activity; made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds; violated any provision
of the Foreign Corrupt Practices Act of 1977, as amended; established or
maintained any unlawful or unrecorded fund of corporate monies or other
assets; made any false or fictitious entry on the books or records of the
Company or any subsidiary; made any bribe, rebate, payoff, influence payment,
kickback, or other unlawful payment; given any favor or gift which is not
deductible for federal income tax purposes; or made any bribe, kickback, or
other payment of a similar or comparable nature, whether lawful or not, to
any person or entity, private or public, regardless of form, whether in
money, business or to obtain special concessions, or to pay for favorable
treatment for business secured or for special concessions already obtained.
SECTION 2.17 COMPLIANCE WITH LAW; LICENSES AND PERMITS.
Except as set forth on SCHEDULE 2.17, the Company has complied in all
material respects with all laws, ordinances, legal requirements, rules,
regulations and orders applicable to it, its operations, properties, assets,
products and services. Except as set forth on SCHEDULE 2.17, there is no
existing law, rule, regulation or order, and the Sellers are not aware of any
proposed law,
7
<PAGE>
rule, regulation or order, whether Federal, state or local, which would
prohibit or materially restrict the Buyer from, or otherwise materially
adversely affect the Buyer in, conducting the Business in the manner
heretofore conducted by the Company in any jurisdiction in which the Business
is now conducted. The Company possesses all franchises, permits, licenses,
certificates and consents required from any governmental or regulatory
authority in order for the Company to carry on its business as currently
conducted and to own and operate its properties and assets as now owned and
operated and all of such licenses and permits are set forth on SCHEDULE 2.17.
SECTION 2.18 EMPLOYEE BENEFITS.
(a) Set forth on SCHEDULE 2.18 is a list of all pension, profit
sharing, retirement, deferred compensation, stock purchase, stock option,
incentive, bonus, vacation, severance, disability, hospitalization, medical
insurance, life insurance, fringe benefit, welfare and other employee benefit
plans, programs or arrangements pursuant to which the Company or its ERISA
Affiliates provides (directly or indirectly, individually or jointly through
others) benefits or compensation to or on behalf of employees or independent
contractors or former employees or former independent contractors of the
Company or its ERISA Affiliates, whether formal or informal, whether or not
written ("Employee Plan"). On request by the Buyer, the Sellers shall
furnish a copy of each Employee Plan and a copy of any related materials.
The Company will maintain the benefits listed on SCHEDULE 2.18 in full force
and effect through the Effective Date. Except as set forth on SCHEDULE 2.18,
the Buyer shall not have any obligation or liability of any kind or nature
for any compensation or benefits of any kind or nature to the employees or
consultants of the Company for services rendered prior to the Effective Date.
(b) Each Employee Plan covering any present or former employee of
the Company which is subject to the continuation health coverage requirements
of Section 4980B of the Code or Section 601 of ERISA or any applicable state
law has complied with all such requirements for continuation coverage.
(c) There are no actions, suits or claims pending (other than
routine claims for benefits) or threatened against or with respect to any
Employee Plan or the assets of any Employee Plan.
(d) Each Employee Plan (and the related trust or funding
vehicle, if any) has been administered and maintained in accordance with its
terms and with applicable law. Except as set forth on SCHEDULE 2.18(d), each
Employee Plan which is intended to be qualified under Section 401 of the Code
and each amendment to such plan is subject to a favorable determination
letter from the Internal Revenue Service and each such plan has at all times
been maintained, by its terms and in operation, in accordance with Section
401 of the Code. The assets of each Employee Plan which is not funded
through the general assets of the Company are at least equal to the
liabilities under such Employee Plan, and all assets of each Employee Plan
are shown on the books and records of such Employee Plan at fair market
value. No Employee Plan has unfunded liabilities that as of the Closing Date
are not accurately and fully reflected on the Company's Balance Sheet.
8
<PAGE>
(e) Neither the Company nor any of its ERISA Affiliates is or has
been a participant in, or is or has been obligated to maintain or to make
contributions to, a multi-employer plan (within the meaning of ERISA Section
3(37) and ERISA Section 4001(a)(3)) or an Employee Plan which is subject to
Title IV of ERISA. Neither the Company nor any ERISA Affiliate has
sponsored, contributed to or been obligated under Title I or IV of ERISA to
contribute to a "defined benefit plan" (as defined in ERISA Section 3(35)).
The Company is not obligated to provide post-retirement medical benefits or
any other unfunded post-retirement welfare benefits to or on behalf of any
persons whatsoever (except the benefits pursuant to the continuation health
coverage requirements under Section 4980B of the Code, ERISA Section 601, or
applicable state law).
(f) Neither the Company nor its ERISA Affiliates is subject to and,
to the best knowledge of the Sellers, no facts exist which could subject the
Company or any of its ERISA Affiliates to, any liability whatsoever which is
directly or indirectly related to any Employee Plan, including, but not
limited to, liability for benefit payments or related claims, any liability
for any tax or related penalty under the Code, or liability for any damages
or penalties arising under Title I or Title IV of ERISA. No reportable event
under Section 4043 of ERISA has occurred or, to the best knowledge of the
Sellers, will occur with respect to such Employee Plan.
(g) Termination of or withdrawal from any Employee Plan immediately
after the Effective Time would not subject the Buyer to any liability, tax or
penalty whatsoever.
(h) The execution or performance of the transactions contemplated
by this Agreement will not create, accelerate or increase any obligations
under the Employee Plans, including any obligation to make any payment which
would not be deductible as an excess golden parachute payment under Section
280G of the Code.
(i) All contributions to or under each Employee Plan and all
expenses of each Employee Plan are fully deductible for income tax purposes
for the taxable year for which such contributions are made or such expenses
are paid. All contributions to or under each Employee Plan have been made
when due under the terms of such Employee Plan in accordance with applicable
law.
(j) For purposes of this Section 2.18, the term "ERISA" shall mean
the Employee Retirement Income Security Act of 1974, as amended, and the term
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Company is treated as a single employer
under Section 414(b), (c), (m), (o) or (t) of the Code.
SECTION 2.19 FIXED ASSETS. SCHEDULE 2.19 contains a true and
complete list of all of the Company's fixed assets with a net book value of
greater than $1,000.00, whether owned or leased. Except as shown on SCHEDULE
2.19, the Company has good and marketable title to all of its fixed assets,
free and clear of all claims, liens, mortgages, charges and encumbrances
except as disclosed in the Balance Sheet. All of the Company's fixed assets,
whether owned or leased, are adequate and usable for the purposes for which
they are currently used, are in good operating condition and repair and have
been properly maintained.
9
<PAGE>
SECTION 2.20 INSURANCE. The Company is, and will be through the
Closing, insured with insurers in respect of its properties, assets and
businesses as set forth on the attached SCHEDULE 2.20. SCHEDULE 2.20 lists
the insurance coverage carried by the Company, which insurance will remain in
full force and effect with respect to all events occurring prior to the
Effective Date. Except as set forth on SCHEDULE 2.20, the Company (i) has
not failed to give any notice or present any claim under any such policy or
binder in due and timely fashion, (ii) has not received notice of
cancellation or non-renewal of any such policy or binder, (iii) is not aware
of any threatened or proposed cancellation or non-renewal of any such policy
or binder, (iv) has not received notice of any insurance premium which will
be materially increased in the future, and (v) is not aware of any insurance
premium which will be materially increased in the future. There are no
outstanding claims under any such policy which have gone unpaid for more than
45 days, or as to which the insurer has disclaimed liability.
SECTION 2.21 ACCOUNTS RECEIVABLE; SELLER NOTES. The accounts
receivable and other debts due or recorded in the respective records and
books of account of the Company as being due to the Company as of the
Effective Date, all of which are set forth on SCHEDULE 2.21, arose in the
ordinary course of business of the Company, are not subject to any
counterclaim or set-off and are fully collectible within 90 days after the
Effective Date without resort to litigation and without offset or
counterclaim, other than accounts receivable not collectible in the ordinary
course of business which do not exceed one percent (1%) of the accounts
receivable reflected on SCHEDULE 2.21, provided, however, (i) this
representation and warranty shall not apply to any account receivable from
any subsidiary of the Buyer and (ii) Smith and Cox make no representation or
warranty with respect to any account receivable from A.S.I. All notes
payable to any of the Sellers by the Company and all notes receivable to the
Company from any of the Sellers have been paid in full.
SECTION 2.22 OUTSTANDING CONTRACTS. SCHEDULE 2.22 sets forth a
description of all existing contracts, agreements, leases, commitments,
licenses and franchises, which involve obligations or commitments by the
Company of $10,000 or more and are not cancelable by the Company without
penalty within 30 days (collectively "Contracts"), whether written or oral,
relating to the Company. The Sellers have delivered or made available to the
Buyer true, correct and complete copies of all of the Contracts specified on
SCHEDULE 2.22 which are in writing, and such schedule sets forth a complete
description of all Contracts which are not in writing. All of the Contracts
are in full force and effect and enforceable in accordance with their terms,
except to the extent that the enforceability thereof may be subject to or
affected by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, or other laws relating to or affecting the rights
of creditors generally. Except as set forth on SCHEDULE 2.22, the Company
and, to the best knowledge of the Sellers, each other party thereto has
materially performed all the obligations required to be performed by it, has
received no notice of default and is not in default (with due notice or lapse
of time or both) under any of the Contracts. The Company has no present
expectation or intention of not fully performing all its obligations under
each of the Contracts, and the Sellers have no knowledge of any breach or
anticipated breach by the other party to any of the Contracts to which the
Company is a party. Except as set forth on SCHEDULE 2.22, none of the
Contracts has been terminated; no notice has been given by any party thereto
of any alleged default by any party thereunder; and the Sellers are not aware
of any
10
<PAGE>
intention or right of any party to declare another party to any of the
Contracts to be in default. Except as set forth on SCHEDULE 2.22, there
exists no actual or, to the best knowledge of the Sellers, threatened
termination, cancellation or limitation of the business relationship of the
Company by any party to any of the Contracts.
SECTION 2.23 OUTSTANDING LEASES. SCHEDULE 2.23 sets forth a
description of each agreement by which the Company leases each parcel of real
property (the "Leased Parcels") used in connection with the Business
(collectively, the "Leases"). The Sellers have delivered or made available
to the Buyer true, correct and complete copies of all of the Leases specified
on SCHEDULE 2.23. All rents due under the Leases have been paid. All of the
Leases are in full force and effect and enforceable in accordance with their
terms, except to the extent that the enforceability thereof may be subject to
or affected by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, or other laws relating to or affecting the rights
of creditors generally. Except as set forth on SCHEDULE 2.23, the Company
and to the best knowledge of the Sellers, each other party thereto has
performed all the obligations required to be performed by it, has received no
notice of default and is not in default (with due notice or lapse of time or
both) under any of the Leases. The Company has no present expectation or
intention of not fully performing all its obligations under each of the
Leases, and the Sellers have no knowledge of any breach or anticipated breach
by the other party to any of the Leases. Except as set forth on SCHEDULE
2.23, none of the Leases has been terminated; no notice has been given by any
party thereto of any alleged default by any party thereunder; and the Sellers
are not aware of any intention or right of any party to declare another party
to any of the Leases to be in default. There exists no actual or, to the best
knowledge of the Sellers, threatened termination, cancellation or limitation
of the business relationship of the Company with any party to any of the
Leases.
SECTION 2.24 INTELLECTUAL PROPERTIES. SCHEDULE 2.24 contains an
accurate and complete list of all domestic and foreign letters patent,
patents, patent applications, patent licenses, software licenses and know-how
licenses, trade names, trademarks, copyrights, unpatented inventions, service
marks, trademark registrations and applications, service mark registrations
and applications and copyright registrations and applications, trade secrets
or other confidential proprietary information owned or used by the Company in
the operation of the Business (collectively the "Intellectual Property").
Except as set forth on SCHEDULE 2.24 and except for commercial software
licensed for use on personal computers, the Company owns the entire right,
title and interest in and to the Intellectual Property, trade secrets and
technology used in the operation of its business and each item constituting
part of the Intellectual Property and trade secrets and technology which is
owned by the Company has been, to the extent indicated in SCHEDULE 2.24, duly
registered with, filed in or issued by, as the case may be, the United States
Patent and Trademark office or such other government entities, domestic or
foreign, as are indicated in SCHEDULE 2.24 and such registrations, filings
and issuances remain in full force and effect. There have been and are no
pending or, to the best knowledge of the Sellers, threatened proceedings or
litigation or other adverse claims affecting or with respect to the
Intellectual Property. There is, to the best knowledge of the Sellers, no
reasonable basis upon which a claim may be asserted against the Company for
infringement of any domestic or foreign letters patent, patents, patent
applications, patent licenses and know-how licenses, trade names, trademark
11
<PAGE>
registrations and applications, common law trademarks, service marks, service
mark registrations or applications, copyrights, copyright registrations or
applications, trade secrets or other confidential proprietary information. To
the best knowledge of the Sellers, no Person is infringing upon the
Intellectual Property.
SECTION 2.25 PROPRIETARY INFORMATION OF THIRD PARTIES.
Except as disclosed on SCHEDULE 2.25, no third party has claimed or,
to the best knowledge of the Sellers, has reason to claim that any Person
employed by or consulting with the Company ("Related Person") has (i)
violated or may be violating any of the terms or conditions of such person's
employment, non-competition or non-disclosure agreement with such third
party, (ii) disclosed or may be disclosing or utilized or may be utilizing
any trade secret or proprietary information or documentation of such third
party, or (iii) interfered or may be interfering in the employment
relationship between such third party and any of its present or former
employees. No third party has requested information from the Company which
suggests that such a claim might be contemplated. Except as disclosed on
SCHEDULE 2.25, to the best knowledge of the Sellers, no Related Person has
employed or proposes to employ any trade secret or any information or
documentation proprietary to any former employer and no Related Person has
violated any confidential relationship which such person may have had with
any third party, in connection with the development or sale of any product or
service of the Company, and none of the Sellers have any reason to believe
there will be any such employment or violation.
SECTION 2.26 TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 2.26, to the best knowledge of Sellers, no director, officer or
shareholder of the Company, or member of the family of any such person, or
any corporation, partnership, trust or other entity in which any such person,
or any member of the family of any such person, has a beneficial interest
greater than 5% or is an officer, director, trustee, partner or holder of any
equity interest greater than 5%, is a party to any transaction with the
Company, including any contract, agreement or other arrangement providing for
the employment of, furnishing of services by, rental of real or personal
property from or otherwise requiring payments or involving other obligations
to any such person or firm.
SECTION 2.27 ABSENCE OF UNDISCLOSED LIABILITIES.
(a) Except as and to the extent of the amounts specifically
reflected or reserved against in the Balance Sheet, or except as set forth on
SCHEDULE 2.27, the Company has no liabilities or obligations of any nature
whatsoever due or to become due, accrued, absolute, contingent or otherwise,
except for liabilities and obligations incurred since the date thereof in the
ordinary course of business and consistent with past practice. The Sellers
do not know of, and have no reason to know of, any basis for the assertion
against the Company of any liability or obligation not fully reflected or
reserved against in the Balance Sheet.
(b) The Company is not bound by any agreement, or subject to any
charter or other corporate restriction or any legal requirement, which has,
or in the future can reasonably be expected to have, a material adverse
effect on the business or prospects of the Company.
12
<PAGE>
SECTION 2.28 TAXES. SCHEDULE 2.28 lists all the states and
localities with respect to which the Company is required to file any
corporate, income and/or franchise tax returns. Except as set forth on
SCHEDULE 2.28, all federal, state, local and foreign tax returns and tax
reports required to be filed by the Company on or before the date hereof have
been timely filed with the appropriate governmental agencies in all
jurisdictions in which such returns and reports are required to be filed and
all amounts shown as owing thereon have been paid. All taxes (including,
without limitation, income, accumulated earnings, property, sales, use,
franchise, excise, license, value added, fuel, employees' income withholding
and social security taxes) which have become due or payable or are required
to be collected by the Company or are otherwise attributable to any periods
ending on or before the Effective Time and all interest and penalties
thereon, whether disputed or not, have been paid or will be paid in full on
or prior to the Closing Date or are adequately reflected on the Balance Sheet
or the Company's books and records. Except as set forth on SCHEDULE 2.28,
all deposits required by law to be made by the Company with respect to
employees' withholding taxes have been duly made, and as of the Effective
Time all such deposits due will have been made. The Company has delivered to
the Buyer true and complete copies of all of the Company's federal and state
income tax returns for the fiscal periods ended December 31, 1997, 1996 and
1995 and all reports and results of income tax audits, if any, related
thereto. Except as set forth on SCHEDULE 2.28, no examination of any tax
return of the Company is currently in progress. There are no outstanding
agreements or waivers extending the statutory period of limitations
applicable to any such tax return.
SECTION 2.29 LITIGATION. Except as set forth on SCHEDULE 2.29, there
is no (i) action, suit, claim, proceeding or investigation pending or, to the
best knowledge of the Sellers, threatened against or affecting the Company
(whether or not such Company is a party or prospective party thereto), at law
or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceeding pending
relating to the Company or (iii) governmental inquiry pending or threatened
against or involving the Company, and there is no basis for any of the
foregoing. The Company has not received any opinion or memorandum or legal
advice from legal counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage which may be material to the
business, prospects, financial condition, operations, property or affairs of
the Company. There are no outstanding orders, writs, judgments, injunctions
or decrees served upon the Company by any court, governmental agency or
arbitration tribunal against the Company. To the best knowledge of the
Sellers, there are no facts or circumstances which may result in institution
of any action, suit, claim or legal, administrative or arbitration proceeding
or investigation against, involving or affecting the Company or the
transactions contemplated hereby. The Company is not in default with respect
to any order, writ, injunction or decree known to or served upon it from any
court or of any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign.
Except as disclosed on SCHEDULE 2.29, there is no action or suit by the
Company pending or threatened against others.
13
<PAGE>
SECTION 2.30 ENVIRONMENTAL MATTERS.
(a) COMPLIANCE. The Company and all Leased Parcels are in
compliance with all applicable laws, rules, regulations, orders, ordinances,
judgments and decrees of all governmental authorities with respect to all
environmental statutes, rules and regulations. Except as set forth on
SCHEDULE 2.30, the Company has not received notice of, nor does the Sellers
have knowledge of, any past, present or future events, conditions,
circumstances, activities, practices, incidents, actions or plans of the
Company or the Company's predecessors, either collectively, individually or
severally, which may interfere with or prevent continued compliance with, or
which may give rise to any common law or legal liability or otherwise form
the basis of any claim, action, suit, proceeding, hearing, or investigation,
based on or related to the disposal, storage, handling, manufacture,
processing, distribution, use, treatment or transport, or the emission,
discharge, release or threatened release into the environment, of any
Substance. As used in this Section 2.30, the term "Substance" or
"Substances" shall mean any pollutant, contaminant, hazardous substance,
hazardous material, hazardous waste or toxic waste, as defined in any
presently enacted federal, state or local statute or any regulation that has
been promulgated pursuant thereto. No part of any of the Leased Parcels has
been listed or proposed for listing on the National Priorities List
established by the United States Environmental Protection Agency, or any
other corresponding list by any state or local authorities.
(b) ENVIRONMENTAL SUBSTANCE LIABILITY. No event has occurred or
condition exists or operating practice is being employed that could give rise
to liability on the part of the Company, either at the present time or in the
future, for any losses, liabilities, damages (whether consequential or
otherwise), settlements, penalties, interest, expenses and costs of
responses, including any such liability on account of the right of any
governmental or private entity or person, and including closure expenses,
costs of assessment, containment, removal, or response (other than monitoring
or transportation or disposal of materials required to be transported or
disposed of in the ordinary course of business consistent with past practice)
arising under any rule or federal, state, or local statute, or any regulation
that has been promulgated pursuant thereto, or common law, as a result of or
in connection with, or alleged to be as a result of or in connection with,
the following (collectively the "Hazardous Activities"):
(A) the handling, storage, use, transportation or disposal
of any Substances in or near or from the Leased Parcels;
(B) the handling, storage, use, transportation or disposal
of any Substances by the Company or its predecessors which Substances were a
product, by-product or otherwise resulted from the operations conducted by or
on behalf of the Company or its predecessors;
(C) any intentional or unintentional emission, discharge or
release of any Substances in or near or from facilities into or upon the air,
surface water, ground water or land or any disposal, handling, manufacturing,
processing, distribution, use, treatment, or transport of such Substances in
or near or from facilities by or on behalf of the Company or its
predecessors; or
14
<PAGE>
(D) the presence of any toxic or hazardous building
materials (including but not limited to friable asbestos or similar
substances) in any facilities of the Company, including but not limited to
the inclusion of such materials in the exterior and interior walls, floors,
ceilings, tile, insulation or any other portion of building structures.
(c) ENVIRONMENTAL PERMITS. The Company has obtained and holds all
registrations, permits, licenses, and approvals issued by or on behalf of any
federal, state or local governmental body or agency if any ("Environmental
Permits") that are required in connection with the operation by the Company
of the Leased Parcels, the discharge or emission of Substances by the Company
from the Leased Parcels or the generation, treatment, storage,
transportation, or disposal of any such Substances by the Company. Such
Environmental Permits, which are described on SCHEDULE 2.30, are currently
effective and sufficient for the operation of the Leased Parcels and the
business of the Company as currently conducted and intended to be conducted.
The Company is in compliance with all terms and conditions of the
Environmental Permits, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables contained in those laws or provisions or contained
in any regulation, code, plan, order, decree, judgment, notice or demand
letter issued, entered, promulgated or approved thereunder and applicable to
the Company.
(d) DELIVERIES. The Sellers have delivered to the Buyer true and
complete copies and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by the Sellers pertaining to Substances or
Hazardous Activities in, on, or under the Leased Parcels or concerning
compliance by the Sellers or any other Person for whose conduct they are or
may be held responsible, with environmental statutes, rules and regulations.
SECTION 2.31 BROKER'S OR FINDER'S FEES. No agent, broker, person or
firm acting on behalf of the Sellers or the Company is, or will be, entitled
to any commission or broker's or finder's fees from the Sellers or the
Company, or from any person controlling, controlled by or under common
control with the Sellers or the Company, in connection with any of the
transactions contemplated herein.
SECTION 2.32 INVENTORY. All inventory of the Company, whether or not
reflected in the Financial Statements or Balance Sheet, consists of a quality
and quantity usable and salable in the ordinary course of business, except
for obsolete items and items of below-standard quality, all of which have
been written off or written down to net realizable value in the Financial
Statements or the Balance Sheet, as the case may be. All inventories not
written off have been priced at the lower of cost or market on a first in,
first out basis. The quantities of each item of inventory (whether raw
materials, work-in-process, or finished goods) are not excessive, but are
reasonable in the present circumstances of the Company.
SECTION 2.33 YEAR-2000 COMPLIANCE.
(a) SCHEDULE 2.33 contains a true and complete list of all Systems
(as hereinafter defined), and each System is Year-2000 Compliant (as
hereinafter defined) to the extent indicated on SCHEDULE 2.33.
15
<PAGE>
(b) As used throughout this Agreement, the following definitions
shall have the following meanings:
(1) "External Systems" shall mean all services which
are provided to the Company by third parties and which are dependent on
information technology, including, but not limited to, any external payroll,
accounting, or tax filing services or any checking, savings, or other
financial services.
(2) "Internal Systems" shall mean all technology
products and systems generally operated or controlled in-house by the
Company, or its employees, agents, or independent contractors including, but
not limited to, computers, computer networks, telephone systems, voicemail
systems, intercom systems, pager systems, and software applications.
(3) "Licensed Systems" shall mean all products and
systems developed by or for the Company which are licensed, sold,
distributed, or otherwise transferred by the Company to third parties.
(4) "System" or "Systems" shall mean any, all, or any
combination of any Internal System, External System, or Licensed System.
(5) "Year-2000 Compliant" shall mean, with respect to
each System, that such System is designed to be used before, during, and
after the calendar year 2000 A.D. and will accurately accept date input and
process, store, and output date data and date-related data, including,
without limitation, calculating, comparing, sorting, and sequencing such data
and calculating leap years before, during, and after the calendar year 2000
A.D. without any manual intervention.
SECTION 2.34 PURCHASE FOR INVESTMENT; RESTRICTED SECURITIES.
Ahrendts represents and warrants as to himself individually (a) that he is
acquiring shares of Buyer Common Stock, as hereinafter defined, for
investment and not with a present view toward, or for sale in connection
with, any distribution thereof, nor with any present intention of
distributing or selling the shares of Buyer Common Stock so acquired; and (b)
he acknowledges that (i) the shares of Buyer Common Stock are not and will
not be registered under the Securities Act of 1933, as amended (the "1933
Act"), and (ii) that the Buyer does not file periodic reports with the
Securities and Exchange Commission pursuant to the requirements of Section 12
or 15(d) of the Securities Exchange Act of 1934, as amended.
SECTION 2.35 DISCLOSURE. All Documents delivered or to be delivered
by or on behalf of the Sellers or the Company in connection with this
Agreement and the transactions contemplated hereby are true, complete and
correct. Neither this Agreement, nor any of the other Documents contains any
untrue statement of a material fact or omits a material fact necessary to
make the statements made by any of the Sellers herein or therein, in light of
the circumstances in which made, not misleading. There is no fact known to
the Sellers which materially and adversely affects the business, prospects or
financial condition of the Company or its properties or assets, which has not
been set forth in the Documents.
16
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE BUYER
As an inducement to the Sellers to enter into this Agreement and to
consummate the transactions contemplated hereby, the Buyer represents and
warrants to the Sellers as follows:
SECTION 3.1 ORGANIZATION. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and is duly qualified to transact business as a foreign
corporation in each jurisdiction in which the failure to so qualify would
have a material adverse impact on the Buyer's ability to purchase the Common
Stock pursuant to this Agreement and perform its obligations under this
Agreement.
SECTION 3.2 CORPORATE POWER AND AUTHORITY. The Buyer has the
corporate power and authority to execute, deliver and perform this Agreement
and the other Documents. The execution, delivery and performance of the
Documents contemplated hereby and the consummation of the transactions
contemplated hereby and thereby have been duly authorized and approved by all
necessary corporate action of the Buyer. The Documents to be executed and
delivered by the Buyer have been duly executed and delivered by, and
constitute the legal, valid and binding obligation of the Buyer enforceable
against the Buyer in accordance with their terms.
SECTION 3.3 VALIDITY, ETC. Neither the execution and delivery by
the Buyer of this Agreement and the other Documents, the consummation by the
Buyer of the transactions contemplated hereby or thereby, nor the performance
by the Buyer of this Agreement and such other agreements in compliance with
the terms and conditions hereof and thereof will (i) violate, conflict with
or result in any breach of any trust agreement, articles of incorporation,
bylaw, judgment, decree, order, statute or regulation applicable to the
Buyer, (ii) violate, conflict with or result in a breach of or default (or
give rise to any right of termination, cancellation or acceleration) under
any law, rule or regulation or any judgment, decree, order, governmental
permit, license or order or any of the terms, conditions or provisions of any
mortgage, indenture, note, license, agreement or other instrument to which
the Buyer is a party, or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Buyer.
SECTION 3.4 CAPITAL STOCK. The authorized capital stock of the
Buyer consists of (a) 100,000,000 shares of $.001 par value common stock
("Buyer Common Stock"), of which 13,503,967 shares were issued and 13,430,188
shares were outstanding as of October 15, 1998 and (b) 50,000,000 shares of
$.001 par value preferred stock ("Buyer Preferred Stock"), of which (i)
4,000,000 shares have been designated as "10% Cummulative Convertible Series
A Preferred Stock" of which 2,980,000 shares were issued and outstanding as
of October 15, 1998 and (ii) 400,000 shares have been designated as "10%
Cummulative Convertible Series B Preferred Stock" of which no shares were
issued and outstanding as of December 1, 1998 (collectively, Buyer Common
Stock and Buyer Preferred Stock are referred to as "Buyer Capital Stock").
All of the issued and outstanding shares of Buyer Capital Stock are, and all
of the shares of Buyer
17
<PAGE>
Common Stock to be issued pursuant to SCHEDULE 1.2, when issued in accordance
with the terms of this Agreement, will be, duly and validly issued and
outstanding and fully paid and nonassessable. None of the outstanding shares
of Buyer Capital Stock has been, and none of the shares of Buyer Common Stock
to be issued in connection with this transaction will be, issued in violation
of any preemptive rights of the current or past shareholders of the Buyer.
SECTION 3.5 DISCLOSURE STATEMENT. The Buyer's Disclosure Statement,
dated October 23, 1998, which has been previously delivered to the Sellers is
true, complete and correct in all material respects.
SECTION 3.6 ACQUISITION OF STOCK FOR INVESTMENT. The Buyer is
acquiring the shares of Common Stock for investment and not with a view
toward, or for sale in connection with, any distribution thereof, nor with
any present intention of distributing or selling such shares of Common Stock.
The Buyer agrees that such shares of Common Stock may not be sold,
transferred, offered for sale, pledged, hypothecated or otherwise disposed of
without registration under the Securities Act of 1933, as amended, except
pursuant to an exemption from registration available under such Act. The
Buyer will not sell, offer to sell or solicit offers to buy any of the shares
of Common Stock in violation of the Securities Act of 1933 or the securities
law of any state. The Buyer understands that the shares of Common Stock have
not been registered under federal or any state's securities laws.
SECTION 3.7 BROKER'S OR FINDER'S FEES. No agent, broker, person or
firm acting on behalf of the Buyer is, or will be, entitled to any commission
or broker's or finder's fees from the Buyer, or from any person controlling,
controlled by or under common control with the Buyer, in connection with any
of the transactions contemplated herein.
SECTION 3.8 GOVERNMENTAL APPROVALS. No registration or filing with,
or consent or approval of or other action by, any Federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Buyer of this Agreement.
SECTION 3.9 DISCLOSURE. All Documents delivered or to be delivered
by or on behalf of the Buyer in connection with this Agreement and the
transactions contemplated hereby are true, complete and correct. Neither
this Agreement, nor any of the other Documents contains any untrue statement
of a material fact or omits a material fact necessary to make the statements
made by the Buyer herein or therein, in light of the circumstances in which
made, not misleading. There is no fact known to the Buyer which may have a
material adverse effect on the Buyer's ability to pay its obligations under
this Agreement, which has not been set forth in the Documents.
18
<PAGE>
ARTICLE 4
COVENANTS AND AGREEMENTS
SECTION 4.1 BEST EFFORTS. Each of the Sellers and the Buyer shall
use their best efforts to procure upon reasonable terms and conditions all
consents and approvals, completion of all filings, all registrations and
certificates, and satisfaction of all other requirements prescribed by law
which are necessary for the consummation of the transactions contemplated by
this Agreement and the Buyer's ownership and operation of the Company's
Business after the Closing Date. Prior to the Closing Date, each of the
Sellers will use his best efforts to preserve the Company's relationships
with its employees, customers and others having business relationships with
the Company.
SECTION 4.2 TAX RETURNS. The Sellers shall cause the Company to
prepare and timely file, at their sole expense, all of the Company's required
tax returns for all periods ending on or prior to the Effective Date. The
Sellers shall be responsible for the payment of, and will indemnify, defend
and hold the Buyer harmless against all taxes due or assessed which relate to
the operations of the Business for all periods ending on or prior to the
Effective Date.
SECTION 4.3 INVESTIGATIONS. The Sellers shall give the Buyer and
its employees, accountants, attorneys and other authorized representatives
full access during all reasonable times to all the premises, properties,
books and records, and furnish the Buyer with such financial and operating
data, analyses and other information of any kind respecting the Company's
business and properties as the Buyer shall from time to time request. Any
investigation shall be conducted in a manner which does not unreasonably
interfere with business operations.
SECTION 4.4 PRESERVATION OF BUSINESS. The Sellers shall cause the
Company to use its best efforts to preserve the possession and control of all
of its assets and Business, to preserve the goodwill of its customers and
others with whom it has business relations, and to do nothing to impair its
ability to keep and preserve its Business as it exists on the date of this
Agreement.
SECTION 4.5 AUDITED FINANCIAL STATEMENTS. The Sellers shall furnish
to the Buyer, as soon as practical and at the Sellers's expense not to exceed
$20,000, audited financial statements of the Company for the two (2) fiscal
years ending December 31, 1997 and 1996.
SECTION 4.6 POST-CLOSING MATTERS. The Buyer agrees to use its best
efforts to cause NationsBank, N.A. to release the personal guarantees of the
Sellers in connection with certain of the Company's debt obligations on or
before the expiration of sixty (60) days after the Closing Date. The Buyer
agrees to indemnify and hold the Sellers harmless to the extent that the
Seller's respective personal guarantees are not released.
19
<PAGE>
ARTICLE 5
CONDITIONS TO THE BUYER'S OBLIGATIONS
The obligation of the Buyer to make deliveries to the Sellers pursuant
to Section 1.2 hereof and to consummate the other transactions contemplated
hereby is subject to the satisfaction, on or before the Closing Date, of the
following conditions each of which may be waived by the Buyer in its sole
discretion:
SECTION 5.1 INTRA-COMPANY DEBT. All indebtedness of each of the
Sellers and all other directors, officers and employees of the Company to the
Company shall have been repaid in full and the Sellers shall have delivered
to the Buyer a certificate, dated the Closing Date, to such effect.
SECTION 5.2 CONSENTS. Except as set forth on SCHEDULE 5.2, all
requisite governmental approvals and consents of third parties identified on
such schedule or otherwise identified by the Sellers as required to be
received to prevent any material license, permit or agreement relating to the
Business from terminating prior to its scheduled termination, as a result of
the consummation of the transactions contemplated hereby, shall have been
obtained.
SECTION 5.3 NON-COMPETITION AGREEMENT. Each of Sellers shall have
entered into a Non-Competition Agreement with the Buyer in substantially the
form attached hereto as EXHIBIT C (the "Non-Competition Agreement").
SECTION 5.4 EMPLOYMENT AGREEMENT. Smith shall have entered into an
Employment Agreement with the Company in substantially the form attached
hereto as EXHIBIT D (the "Employment Agreement").
SECTION 5.5 REGISTRATION RIGHTS AGREEMENT. Ahrendts shall have
entered into a Registration Rights Agreement with the Buyer in substantially
the form attached hereto as EXHIBIT E (the "Registration Rights Agreement").
SECTION 5.6 SUBORDINATION AGREEMENTS. Each of Smith and Cox shall
have entered into a Subordination Agreement with Buyer and PNC Bank, National
Association in substantially the form attached hereto as EXHIBIT F (the
"Subordination Agreements").
SECTION 5.7 ESCROW AGREEMENT. Ahrendts shall have entered into the
Escrow Agreement.
SECTION 5.8 ACCOUNTS RECEIVABLE. All accounts receivable from
A.S.I. shall be paid on or prior to Closing.
SECTION 5.9 CLOSING DOCUMENTS. The Sellers shall have delivered all
of the resolutions, certificates, documents and instruments required by this
Agreement.
20
<PAGE>
SECTION 5.10 APPROVAL OF THE BUYER AND ITS COUNSEL. All actions,
proceedings, consents, instruments and documents required to be delivered by,
or at the behest or direction of, the Sellers hereunder or incident to their
performance hereunder, and all other related matters, shall be reasonably
satisfactory as to form and substance to the Buyer and its counsel.
ARTICLE 6
CONDITIONS TO THE SELLERS' OBLIGATIONS
The obligation of the Sellers to transfer the Common Stock to the
Buyer and to consummate the other transactions contemplated hereby is subject
to the satisfaction, on or before the Closing Date, of the following
conditions, each of which may be waived by the Sellers in their sole
discretion:
SECTION 6.1 EMPLOYMENT AGREEMENT. The Company shall have entered
into the Employment Agreement.
SECTION 6.2 NONCOMPETITION AGREEMENT. The Buyer shall have entered
into the Noncompetition Agreement.
SECTION 6.3 REGISTRATION RIGHTS AGREEMENT. The Buyer shall have
entered into the Registration Rights Agreement.
SECTION 6.4 SUBORDINATION AGREEMENTS. The Buyer shall have entered
into the Subordination Agreements.
SECTION 6.5 ESCROW AGREEMENT. The Buyer shall have entered into the
Escrow Agreement.
SECTION 6.6 CLOSING DOCUMENTS. The Buyer shall have delivered all
of the resolutions, certificates, documents and instruments required by this
Agreement.
SECTION 6.7 Approval of the Sellers and Their Counsel.
All actions, proceedings, consents, instruments and documents required
to be delivered by, or at the behest or direction of, the Buyer hereunder or
incident to its performance hereunder, and all other related matters, shall
be reasonably satisfactory as to form and substance to the Sellers and their
counsel.
21
<PAGE>
ARTICLE 7
THE CLOSING AND CERTAIN CLOSING DELIVERIES
SECTION 7.1 TIME AND PLACE OF CLOSING. Upon the terms and subject
to the satisfaction or waiver of the conditions contained in this Agreement,
the closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Stites & Harbison, 400 West
Market Street, Suite 1800, Louisville, Kentucky 40202 on the date hereof (the
"Closing Date"). The transactions contemplated by this Agreement shall be
effective as of the opening of business (the "Effective Time") on January 1,
1999 (the "Effective Date").
SECTION 7.2 DELIVERIES BY THE SELLERS. At the Closing, the Sellers
will deliver or cause the Company to deliver to the Buyer the following:
(a) Stock certificates representing all of the issued and
outstanding shares of Common Stock owned by the Sellers, accompanied by stock
powers duly executed in favor of the Buyer or duly executed instruments of
transfer and any other documents that are necessary to transfer to the Buyer
good and marketable title to all issued and outstanding shares of Common
Stock;
(b) The stock books, stock ledgers, minute books, and other
corporate records of the Company;
(c) Resignations dated the Closing Date of all of the directors and
officers of the Company as designated by the Buyer;
(d) All required consents of third parties to the sale, conveyance,
transfer, assignment and delivery of the Common Stock or any assets of the
Company hereunder, including, but not limited to the consent of the landlord
under the Lease set forth on SCHEDULE 2.23;
(e) A certificate of the Secretary of the Company certifying as of
the Closing Date (i) a true, correct, and complete copy of the Articles of
Incorporation of the Company and all amendments thereto as in effect on the
Closing Date; (ii) a true, correct, and complete copy of the bylaws of the
Company and all amendments thereto as in effect on the Closing Date; and
(iii) Certificate of Good Standing from the Missouri Secretary of State;
(f) The affidavit of each of the Sellers certifying as to his
non-foreign status in accordance with Section 1445(b)(2) of the Code;
(g) The Non-Competition Agreements required by Section 5.3 above;
(h) The Employment Agreement required by Section 5.4 above;
(i) The Registration Rights Agreement required by Section 5.5 above;
22
<PAGE>
(j) The Subordination Agreements required by Section 5.6 above;
(k) The Escrow Agreement required by Section 5.7 above;
(l) A General Release from each of the Sellers which releases the
Company from any and all claims, known or unknown, contingent or direct,
which he may have against the Company as of the Closing Date, other than
claims arising under this Agreement and the other Documents and the
transactions contemplated hereby; and
(m) All other documents, instruments and writings required to be
delivered by the Sellers at or prior to the Closing Date pursuant to this
Agreement or otherwise required in connection herewith.
SECTION 7.3 DELIVERIES BY THE BUYER. At the Closing, the Buyer will
deliver the following to or for the account of the Sellers:
(a) The consideration required by Section 1.2 above;
(b) The Employment Agreement required by Section 6.1 above;
(c) The Noncompetition Agreement required by Section 6.2 above;
(d) The Registration Rights Agreement required by Section 6.3 above;
(e) The Subordination Agreements required by Section 6.4 above;
(f) The Escrow Agreement required by Section 6.5 above;
(g) A certificate of an officer of the Buyer certifying as of the
Closing Date (i) a true, correct, and complete copy of the Certificate of
Incorporation of the Buyer and all amendments thereto as in effect on the
Closing Date; (ii) a true, correct, and complete copy of the bylaws of the
Buyer and all amendments thereto as in effect on the Closing Date; (iii) a
true, correct, and complete copy of the resolutions approved and adopted by
the Board of Directors of the Buyer authorizing the transactions contemplated
herein; and (iv) Certificate of Good Standing from the Delaware Secretary of
State; and
(h) All other documents, instruments and writings required to be
delivered by the Buyer at or prior to the Closing Date pursuant to this
Agreement or otherwise required in connection herewith.
ARTICLE 8
[INTENTIONALLY OMITTED]
23
<PAGE>
ARTICLE 9
SURVIVAL; INDEMNIFICATION AND OFFSET
SECTION 9.1 SURVIVAL. All representations and warranties in this
Agreement and the other Documents shall survive the Closing of the purchase
of the Common Stock contemplated hereby and any investigation at any time
made by or on behalf of any party for a period of three years and all such
representations and warranties shall expire on the third anniversary of the
Closing Date, except that (a) claims, if any, asserted in writing prior to
such third anniversary identified as a claim for indemnification pursuant to
this Article IX shall survive until finally resolved and satisfied in full;
(b) any Year-2000 Indemnification Obligations (as hereinafter defined) shall
survive until February 1, 2001 and until finally resolved and satisfied in
full if asserted on or prior to February 1, 2001; and (c) tax or
environmental claims arising from a breach of Section 2.28 or Section 2.30,
respectively, shall survive for the full period of the applicable statute of
limitations, and until finally resolved and satisfied in full if asserted on
or prior to the expiration of any such period. The representations and
warranties shall not be affected or otherwise diminished by any investigation
at any time by or on behalf of the party for whose benefit such
representations and warranties were made. Notwithstanding anything contained
in this Section 9.1 to the contrary, all representations and warranties in
this Agreement and the other Documents shall expire on the sixth anniversary
of the filing of the Federal tax return of the Company for the period ending
immediately prior to or on the Effective Date.
SECTION 9.2 INDEMNIFICATION BY THE SELLERS. Subject to the terms
herein, the Sellers shall, jointly and severally, indemnify, defend, and hold
the Company and the Buyer and the respective officers, directors, and
employees of the foregoing, and their successors and assigns (the "Sellers'
Indemnitees") harmless from, against and with respect to any claim,
liability, obligation, loss, damage, assessment, judgment, cost or expense of
any kind or character, including reasonable attorneys' fees (the "Damages"),
arising out of or in any manner incident, relating or attributable to:
(a) Any inaccuracy in any representation or breach of any warranty
of any of the Sellers contained in this Agreement;
(b) Any failure by any of the Sellers to perform or observe, or to
have performed or observed, in full, any covenant, agreement or condition to
be performed or observed by him under this Agreement;
(c) Reliance by the Buyer on any books or records of the Company or
written information furnished to the Buyer pursuant to this Agreement by or
on behalf of any of the Sellers or the Company in the event that such books
and records or written information are false or otherwise materially
inaccurate;
24
<PAGE>
(d) Claims related to any product or service sold, installed or
provided by the Company on or prior to the Closing Date, except to the extent
such claims are covered by the Company's insurance that is in effect on the
Closing Date or thereafter; or
(e) Liabilities or obligations of, or claims against, the Company
or the Buyer (whether absolute, accrued, contingent or otherwise) relating
to, or arising out of, the operation of the Business prior to the Closing
Date or facts and circumstances relating specifically to the Business, the
Leased Parcels, or the Company existing at or prior to the Closing Date,
including but not limited to matters set forth on SCHEDULE 2.29, whether or
not such liabilities, obligations or claims were known on such date,
excluding only liabilities set forth in the Balance Sheet and liabilities and
obligations incurred since the date thereof in the ordinary course of
business and consistent with past practice.
Provided, however, the Sellers's Indemnitees shall not be entitled to
indemnification or offset hereunder until Damages in total exceed $25,000 and
then only to the extent of aggregate Damages in excess of $25,000, up to a
maximum aggregate amount of $3,600,000 for all claims for indemnification;
provided further, however, this limitation or "basket" shall not apply to any
Damages arising in connection with the representations and warranties as set
forth in Sections 2.1 and 2.2 hereof, respectively.
SECTION 9.3 NOTICE TO THE SELLERS, ETC. If any of the matters as to
which the Sellers' Indemnitees are entitled to receive indemnification under
Section 9.2 should entail litigation with or claims asserted by parties other
than the Sellers, the Sellers shall be given prompt notice thereof and shall
have the right, at their expense, to control such claim or litigation upon
prompt notice to the Buyer of their election to do so. To the extent
requested by the Sellers, the Buyer, at its expense, shall cooperate with and
assist the Sellers, in connection with such claim or litigation. The Buyer
shall have the right to appoint, at its expense, single counsel to consult
with and remain advised by the Sellers in connection with such claim or
litigation. The Sellers shall have final authority to determine all matters
in connection with such claim or litigation; PROVIDED, HOWEVER, that the
Sellers shall not settle any third party claim without the consent of the
Buyer, which shall not be unreasonably denied or delayed.
SECTION 9.4 INDEMNIFICATION BY THE BUYER. The Buyer shall
indemnify, defend, and hold the Sellers and their heirs, executors, and legal
representatives (the "Buyer's Indemnitees") harmless from, against and with
respect to any Damages, arising out of or in any manner incident, relating or
attributable to:
(a) Any inaccuracy in any representation or breach of warranty of
the Buyer contained in this Agreement;
(b) Any failure by the Buyer to perform or observe, or to have
performed or observed, in full, any covenant, agreement or condition to be
performed or observed by it under any of the Documents;
25
<PAGE>
(c) Reliance by the Sellers on any books or records of the Buyer or
reliance by the Sellers on any written information furnished to the Sellers
pursuant to this Agreement by or on behalf of the Buyer in the event that
such books and records or written information are false or otherwise
materially inaccurate; or
(d) The operation of the Business subsequent to the Closing Date.
Provided, however, the Buyer's Indemnitees shall not be entitled to
indemnification hereunder until Damages in total exceed $25,000 and then only
to the extent of aggregate damages in excess of $25,000, up to a maximum
aggregate of $3,600,000 for all claims for indemnification.
SECTION 9.5 NOTICE TO THE BUYER, ETC. If any of the matters as to
which the Buyer's Indemnitees are entitled to receive indemnification under
Section 9.4 should entail litigation with or claims asserted by parties other
than the Buyer, the Buyer shall be given prompt notice thereof and shall have
the right, at its expense, to control such claim or litigation upon prompt
notice to the Sellers of its election to do so. To the extent requested by
the Buyer, the Sellers, at their expense, shall cooperate with and assist the
Buyer, in connection with such claim or litigation. The Sellers shall have
the right to appoint, at his expense, single counsel to consult with and
remain advised by the Buyer in connection with such claim or litigation. The
Buyer shall have final authority to determine all matters in connection with
such claim or litigation; PROVIDED, HOWEVER, that the Buyer shall not settle
any third party claim without the consent of the Sellers, which shall not be
unreasonably denied or delayed.
SECTION 9.6 SURVIVAL OF INDEMNIFICATION. The obligations to
indemnify and hold harmless pursuant to this Article IX shall survive the
Closing of the purchase of the Common Stock contemplated hereby for a period
of three years, notwithstanding any investigation at any time made by or on
behalf of any party, except that (a) claims, if any, asserted in writing
prior to such third anniversary identified as a claim for indemnification
pursuant to this Article IX shall survive until finally resolved and
satisfied in full; (b) any Year-2000 Indemnification Obligations (as
hereinafter defined) shall survive until February 1, 2001 and until finally
resolved and satisfied in full if asserted on or prior to February 1, 2001;
and (c) tax or environmental claims arising from a breach of Section 2.28 or
Section 2.30, respectively, shall survive for the full period of the
applicable statute of limitations, and until finally resolved and satisfied
in full if asserted on or prior to the expiration of any such period. As used
in this Article 9, the term "Year-2000 Indemnification Obligations" shall
mean the Sellers' obligation to indemnify, defend, and hold the Sellers'
Indemnitees harmless from, against and with respect to any Damages arising
out of or in any manner incident, relating or attributable to (i) any claim
or allegation that any Licensed System is not Year-2000 Compliant and (ii)
any claim arising from a breach of Section 2.33. Notwithstanding anything
contained in this Section 9.6 to the contrary, the obligations to indemnify
and hold harmless pursuant to this Article IX shall expire on the sixth
anniversary of the filing of the Federal tax return of the Company for the
period ending immediately prior to or on the Effective Date.
26
<PAGE>
SECTION 9.7 OFFSET. The Sellers acknowledge and agree that the
Buyer shall be entitled to offset any indemnity claim under Section 9.2
against any payment due to such Sellers under Sections 1.2 and 1.3 hereof.
The Buyer agrees to offset any indemnity claim on a pro rata basis to the
extent that the unpaid balance of the Promissory Notes and the Buyer Common
Stock remaining under the Escrow Agreement permit. The Buyer shall deliver
to the Sellers' Agent (as defined hereafter) written notice not less than
fifteen (15) days prior to exercising its right of offset pursuant to this
Section 9.7, which notice shall set forth in reasonable detail the Buyer's
basis for exercising its right of offset and the amount of the proposed
offset. If within fifteen (15) days of receiving the Buyer's notice of its
intent to exercise its right of offset Sellers' Agent delivers to the Buyer
written notice setting forth Sellers' Agent's objection to the Buyer's
exercise of its right of offset, then the Buyer shall place into an
interest-bearing escrow account the amount of the proposed offset, which
amount, along with all accrued interest, shall be distributed to the Buyer or
the Sellers or both, as appropriate, upon resolution of such dispute or upon
the written consent of the Buyer and the Sellers' Agent. Neither the exercise
of nor the failure to give a notice of a Claim shall constitute an election
of remedies nor limit Indemnitee in any manner in the enforcement of any
other remedies that may be available to it.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1 KNOWLEDGE OF THE SELLERS. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to
the best knowledge of the Sellers, each Seller confirms that he has made due
and diligent inquiry of the Company's President and other officers as to the
matters that are the subject of such representations and warranties.
SECTION 10.2 KNOWLEDGE OF THE BUYER. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to
the best knowledge of the Buyer, the Buyer confirms that it has made due and
diligent inquiry of its President as to the matters that are the subject of
such representations and warranties.
SECTION 10.3 "PERSON" DEFINED. "Person" shall mean and include an
individual, a partnership, a joint venture, a limited liability company, a
corporation, a trust, an unincorporated organization and a government or
other department or agency thereof.
SECTION 10.4 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) sent by recognized overnight courier, (iii) made by telecopy or
facsimile transmission, or (iv) sent by registered or certified mail, return
receipt requested, postage prepaid.
27
<PAGE>
If to the Buyer:
ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
Attn: Stephen A. Hoffmann, Chief Executive Officer
Fax No: (502) 412-0301
With a copy to:
Stites & Harbison
400 W. Market Street, Suite 1800
Louisville, Kentucky 40202
Attn: Ralston W. Steenrod, Esq.
Fax No: (502) 587-6391
If to the Sellers:
Charles L. Smith
Primax Window Co.
5611 Fern Valley Road
Louisville, Kentucky 40228
Fax No: (502) 962-9484
Robert L. Cox
5830 Cobblestone Drive
Osage Beach, Missouri 65065
Richard Ahrendts
3368 South Leonard Drive
New Palestine, Indiana 46163
With a copy to:
Greenebaum Doll & McDonald, PLLC
3300 National City Towers
Louisville, Kentucky 40202
Attn: Ivan M. Diamond, Esq.
Fax No: (502) 540-2134
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof
to the receiving party at the address of such party set forth above, (ii) if
sent by overnight courier, on the next business day following the day such
notice is delivered to the courier service, (iii) if made by telecopy or
facsimile transmission, at the time that receipt thereof has been
acknowledged by electronic confirmation
28
<PAGE>
or otherwise, or (iv) if sent by registered or certified mail, on the fifth
business day following the day such mailing is sent. The address of any
party herein may be changed at any time by written notice to the parties.
SECTION 10.5 ENTIRE AGREEMENT. This Agreement and the other
Documents embody the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersede all prior oral
or written agreements and understandings relating to the subject matter
hereof. No statement, representation, warranty, covenant or agreement of any
kind not expressly set forth in the other Documents shall affect, or be used
to interpret, change or restrict, the express terms and provisions of this
Agreement.
SECTION 10.6 MODIFICATIONS AND AMENDMENTS. The terms and provisions
of this Agreement may be modified or amended only by written agreement
executed by all parties hereto.
SECTION 10.7 ASSIGNMENT/BINDING EFFECT. Neither this Agreement, nor
any right hereunder, may be assigned by any of the parties hereto without the
prior written consent of the other parties. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
heirs, personal representatives, successors and permitted assigns.
SECTION 10.8 PARTIES IN INTEREST. Nothing in this Agreement, express
or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Nothing in this Agreement shall be construed to create any rights or
obligations except among the parties hereto, and no person or entity shall be
regarded as a third-party beneficiary of this Agreement.
SECTION 10.9 GOVERNING LAW. This Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with
and governed by the internal laws of the Commonwealth of Kentucky without
giving effect to the conflict of law principles thereof.
SECTION 10.10 ARBITRATION. Any dispute or difference between the
parties hereto arising out of or relating to this Agreement shall be finally
settled by arbitration in accordance with the Commercial Rules of the
American Arbitration Association by a panel of three qualified arbitrators.
The Sellers, on one hand, and the Buyer, on the other hand, shall each choose
an arbitrator and the third shall be chosen by the two so chosen. If either
the Sellers or the Buyer fail to choose an arbitrator within 30 days after
notice of commencement of arbitration or if the two arbitrators fail to
choose a third arbitrator within 30 days after their appointment, the
American Arbitration Association shall, upon the request of any party to the
dispute or difference, appoint the arbitrator or arbitrators to constitute or
complete the panel as the case may be. Arbitration proceedings hereunder may
be initiated by either the Sellers, on one hand, or the Buyer, on the other
hand, making a written request to the American Arbitration Association,
together with any appropriate filing fee, at the office of the American
Arbitration Association in Louisville, Kentucky. All arbitration proceedings
shall be held in Louisville, Kentucky. Any order or determination of the
arbitral tribunal shall be final and binding upon the parties to the
arbitration and may be entered in any court having jurisdiction.
29
<PAGE>
SECTION 10.11 SEVERABILITY. In the event that any arbitral tribunal
of competent jurisdiction shall finally determine that any provision, or any
portion thereof, contained in this Agreement shall be void or unenforceable
in any respect, then such provision shall be deemed limited to the extent
that such arbitral tribunal determines it enforceable, and as so limited
shall remain in full force and effect. In the event that such arbitral
tribunal shall determine any such provision, or portion thereof, wholly
unenforceable, the remaining provisions of this Agreement shall nevertheless
remain in full force and effect.
SECTION 10.12 INTERPRETATION. The parties hereto acknowledge and
agree that: (i) the rule of construction to the effect that any ambiguities
are resolved against the drafting party shall not be employed in the
interpretation of this Agreement, and (ii) the terms and provisions of this
Agreement shall be construed fairly as to all parties hereto and not in favor
of or against any party, regardless of which party was generally responsible
for the preparation of this Agreement.
SECTION 10.13 HEADINGS AND CAPTIONS. The headings and captions of the
various subdivisions of this Agreement are for convenience of reference only
and shall in no way modify, or affect, or be considered in construing or
interpreting the meaning or construction of any of the terms or provisions
hereof.
SECTION 10.14 RELIANCE. The parties hereto agree that,
notwithstanding any right of any party to this Agreement to investigate the
affairs of any other party to this Agreement, the party having such right to
investigate shall have the right to rely fully upon the representations and
warranties of the other party expressly contained herein.
SECTION 10.15 EXPENSES. Each party shall pay its own fees and
expenses (including the fees of any attorneys, accountants, appraisers or
others engaged by such party) incurred in connection with this Agreement and
the transactions contemplated hereby whether or not the transactions
contemplated hereby are consummated.
SECTION 10.16 GENDER. All pronouns and any variation thereof shall be
deemed to refer to the masculine, feminine, neuter, singular, or plural as
the identity of the person or entity or the context may require.
SECTION 10.17 PUBLICITY. Except by the mutual agreement between the
Sellers and the Buyer, no party shall issue any press release or otherwise
make any public statement with respect to the execution of, or the
transactions contemplated by, this Agreement except as may be required by law.
SECTION 10.18 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by different parties hereto on separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
30
<PAGE>
IN WITNESS WHEREOF, the Buyer has caused this Agreement to be executed
by its duly authorized officer and the Sellers have executed this Agreement
all as of the day and year first above written.
BUYER:
THERMOVIEW INDUSTRIES, INC.
By: /s/ Stephen A. Hoffmann
----------------------------
Stephen A. Hoffmann, Chief
Executive Officer
SELLERS:
/s/ Charles L. Smith
-----------------------------------
Charles L. Smith
/s/ Robert L. Cox
-----------------------------------
Robert L. Cox
/s/ Richard Ahrendts
-----------------------------------
Richard Ahrendts
31
<PAGE>
NONNEGOTIABLE PROMISSORY NOTE
$600,000 January 5, 1999
FOR VALUE RECEIVED, THERMOVIEW INDUSTRIES, INC., a Delaware corporation
("Maker"), hereby promises to pay the principal sum of SIX HUNDRED THOUSAND
DOLLARS ($600,000.00) to Charles L. Smith ("Payee"). Principal and interest are
payable in lawful money of the United States by certified checks or other means
of immediately available funds at 290 County Highway 231, Orange Grove, Texas
78372.
Interest accrued on the outstanding balance of this Note shall be payable
on the first day of each quarter, with the first such payment due April 1, 1999.
The principal of this Note shall be paid as follows: (i) One Hundred Fifty
Thousand Dollars ($150,000) shall be paid on January 5, 2000; (ii) One Hundred
Fifty Thousand Dollars ($150,000) shall be paid on January 5, 2001; and Three
Hundred Thousand Dollars ($300,000) shall be paid on January 5, 2002.
Notwithstanding anything contained herein to the contrary, the unpaid principal
and all accrued and unpaid interest shall be due and payable in full upon any
public offering of Maker common stock whereby Maker sells shares of Maker common
stock pursuant to an effective registration statement. The unpaid principal
amount of this Note shall bear interest, compounded annually, at 5.00% per annum
(the "Interest Rate"). If default is made in any payment hereof and such
default is not cured within fifteen (15) days after notice thereof, the holder
hereof shall impose a late charge at the per annum rate equal to five percent
(5%) in excess of the Interest Rate.
This Note may be prepaid by the Maker hereof in whole or in part without
premium or penalty. The Maker hereof hereby waives presentment, demand, notice
of dishonor, protest, notice of protest and non-payment. This Note has been
delivered pursuant to a Stock Purchase Agreement dated as of the date hereof
(the "Purchase Agreement") by and between Maker, Payee and others.
PAYMENT OF PRINCIPAL AND INTEREST ON THIS NOTE IS EXPRESSLY SUBJECT TO
MAKER'S RIGHTS OF OFFSET SET FORTH IN SECTION 9.7 OF THE PURCHASE AGREEMENT.
THIS NOTE IS SUBORDINATE TO THE RIGHTS OF PNC BANK, NATIONAL ASSOCIATION ("PNC")
PURSUANT TO THE TERMS OF THAT CERTAIN SUBORDINATION AGREEMENT, DATED AS OF THE
DATE HEREOF, BY AND AMONG MAKER, PAYEE AND PNC.
<PAGE>
This Note shall be governed and construed in accordance with the laws of
the Commonwealth of Kentucky without regard to conflicts of law principles.
THERMOVIEW INDUSTRIES, INC.
By: /s/ Stephen A. Hoffmann
------------------------------------
Stephen A. Hoffmann, Chief Executive
Officer
2
<PAGE>
NONNEGOTIABLE PROMISSORY NOTE
$600,000 January 5, 1999
FOR VALUE RECEIVED, THERMOVIEW INDUSTRIES, INC., a Delaware corporation
("Maker"), hereby promises to pay the principal sum of SIX HUNDRED THOUSAND
DOLLARS ($600,000.00) to Robert L. Cox ("Payee"). Principal and interest are
payable in lawful money of the United States by certified checks or other means
of immediately available funds at 5830 Cobblestone Drive, Osage Beach, Missouri
65065.
Interest accrued on the outstanding balance of this Note shall be payable
on the first day of each quarter, with the first such payment due April 1, 1999.
The principal of this Note shall be paid as follows: (i) One Hundred Fifty
Thousand Dollars ($150,000) shall be paid on January 5, 2000; (ii) One Hundred
Fifty Thousand Dollars ($150,000) shall be paid on January 5, 2001; and Three
Hundred Thousand Dollars ($300,000) shall be paid on January 5, 2002.
Notwithstanding anything contained herein to the contrary, the unpaid principal
and all accrued and unpaid interest shall be due and payable in full upon any
public offering of Maker common stock whereby Maker sells shares of Maker common
stock pursuant to an effective registration statement. The unpaid principal
amount of this Note shall bear interest, compounded annually, at 5.00% per annum
(the "Interest Rate"). If default is made in any payment hereof and such
default is not cured within fifteen (15) days after notice thereof, the holder
hereof shall impose a late charge at the per annum rate equal to five percent
(5%) in excess of the Interest Rate.
This Note may be prepaid by the Maker hereof in whole or in part without
premium or penalty. The Maker hereof hereby waives presentment, demand, notice
of dishonor, protest, notice of protest and non-payment. This Note has been
delivered pursuant to a Stock Purchase Agreement dated as of the date hereof
(the "Purchase Agreement") by and between Maker, Payee and others.
PAYMENT OF PRINCIPAL AND INTEREST ON THIS NOTE IS EXPRESSLY SUBJECT TO
MAKER'S RIGHTS OF OFFSET SET FORTH IN SECTION 9.7 OF THE PURCHASE AGREEMENT.
THIS NOTE IS SUBORDINATE TO THE RIGHTS OF PNC BANK, NATIONAL ASSOCIATION ("PNC")
PURSUANT TO THE TERMS OF THAT CERTAIN SUBORDINATION AGREEMENT, DATED AS OF THE
DATE HEREOF, BY AND AMONG MAKER, PAYEE AND PNC.
<PAGE>
This Note shall be governed and construed in accordance with the laws of
the Commonwealth of Kentucky without regard to conflicts of law principles.
THERMOVIEW INDUSTRIES, INC.
By: /s/ Stephen A. Hoffmann
-----------------------------------------
Stephen A. Hoffmann, Chief Executive
Officer
2
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
on this 22nd day of December, 1998, by and between RODNEY H. THOMAS (the
"Seller") and THERMOVIEW INDUSTRIES, INC., a Delaware corporation (the "Buyer").
PRELIMINARY STATEMENTS
The Seller owns (i) all of the issued and outstanding shares of common
stock, with par value of $1.00 per share (the "Thomas Common Stock"), of THOMAS
CONSTRUCTION, INC., a Missouri corporation ("Thomas"), (ii) all of the issued
and outstanding shares of Common Stock, with par value of $1.00 per share (the
"Castle Common Stock"), of CASTLE ASSOCIATES, INC., a Missouri corporation
("Castle") and (iii) all of the issued and outstanding shares of Common Stock,
with par value of $1.00 per share (the "SHI Common Stock," which together with
the Thomas Common Stock and the Castle Common Stock is collectively referred to
as the "Common Stock"), of SHOWPLACE HOME IMPROVEMENTS, INC., a Missouri
corporation ("SHI") (Thomas, Castle and SHI are sometimes collectively referred
to as the "Companies" and individually as a "Company").
The Companies are engaged in designing, selling and installing state of
the art custom vinyl new and replacement thermal paned windows, vinyl and steel
siding, patio enclosures, decks and room additions and remodeling kitchens,
bathrooms and roofs for the existing home market (the "Business").
The Buyer desires to purchase, and the Seller desires to sell, all of the
outstanding shares of Common Stock of the Companies, upon the terms and subject
to the conditions set forth in this Agreement.
Effective at 12:01 a.m. on January 1, 1999, Castle and SHI will merge
with and into Thomas.
In consideration of these preliminary statements and the mutual
covenants, representations, warranties and agreements hereinafter set forth, and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereby agree as follows:
ARTICLE I. PURCHASE AND SALE OF STOCK
SECTION 1.1 SALE OF STOCK. Upon the terms and subject to the
conditions set forth in this Agreement, on the Closing Date the Seller agrees to
sell, assign, transfer and deliver to the Buyer, and the Buyer agrees to
purchase, 16,875 shares of Thomas Common Stock, 100 shares of Castle Common
Stock and 375 shares of SHI Common Stock, representing all of the issued and
outstanding shares of Common Stock of the Companies. The certificates
representing
<PAGE>
the Common Stock shall be duly endorsed in blank, or accompanied by stock
powers duly executed in blank, by the Seller.
SECTION 1.2 CONSIDERATION. Upon the terms and subject to satisfaction
of the conditions set forth in this Agreement, in consideration of the aforesaid
sale, assignment, transfer and delivery of all of the issued and outstanding
shares of Common Stock, the Buyer will pay to the Seller consideration as
follows:
(a) A closing payment shall be made to the Seller comprised of (i)
$10,130,000 in cash to be delivered to the Seller on January 4, 1999, by
certified check, wire transfer or other means of immediately available funds;
(ii) 301,425 shares of Buyer Common Stock (defined in Section 3.4) to be
delivered to the Seller on January 4, 1999; and (iii) 400,000 shares of Buyer
Series B Preferred Stock (defined in Section 3.4) to be delivered to the Seller
on January 4, 1999.
(b) The Seller shall also be entitled to receive post-closing earn-out
payments as set forth on SCHEDULE 1.2.
SECTION 1.3 PURCHASE PRICE ADJUSTMENT. As soon as practicable but
within sixty (60) days after the Effective Date, the Seller, at his expense,
shall cause Stone Carlie & Company, L.L.C., an independent certified public
accountant, to prepare combined balance sheets of the Companies immediately
prior to the Effective Time (the "Effective Time Balance Sheet") setting forth
the tangible net worth of the Company using accrual accounting and in
conformance with generally accepted accounting principles (the "Tangible Net
Worth"). A copy of the Effective Time Balance Sheet shall be promptly furnished
to the Buyer. If the Buyer disagrees with the Tangible Net Worth, the Buyer
shall engage an independent public accounting firm, at its expense, to audit the
Effective Time Balance Sheet and deliver a certified written report to the
Seller confirming the Tangible Net Worth ("Audited Tangible Net Worth"). If the
Seller fails to notify the Buyer of a dispute concerning Audited Tangible Net
Worth within fifteen (15) days after receiving the report from the accounting
firm selected by the Buyer, such report shall be deemed accepted for purposes of
calculating Tangible Net Worth. If the Seller should so notify the Buyer of a
dispute concerning Audited Tangible Net Worth, the Buyer shall then engage
another big-five independent accounting firm that is mutually acceptable to the
Buyer and the Seller to resolve such dispute and such firm shall notify the
Buyer and the Seller of its resolution of such dispute within two weeks of its
engagement by the Buyer. The cost of services provided by such big-five
accounting firm shall be borne equally by the Buyer and the Seller. Any such
resolution shall be final and binding on all parties hereto for the purposes of
calculating Tangible Net Worth. In the event the Tangible Net Worth is less
than $500,000, the Seller shall pay such deficit portion to the Buyer within
thirty (30) days following the later of Stone Carlie & Company, L.L.C.'s
determination of the Tangible Net Worth, the determination of the Audited
Tangible Net Worth or the resolution of any dispute by such big-five accounting
firm on a dollar-for-dollar basis. In the event the Tangible Net Worth is
greater than $500,000, the Buyer shall pay the excess amount, on a
dollar-for-dollar basis, to the Seller within thirty (30) days following the
later of Stone Carlie & Company, L.L.C.'s determination of the Tangible Net
Worth, the determination of Audited Tangible Net Worth, or the resolution of
any dispute by such big-five accounting firm. For purposes of this Section 1.3,
"Tangible Net Worth" shall
2
<PAGE>
mean the net book value of the Companies at the Effective Time determined in
accordance with generally accepted accounting principles applied on a
consistent basis. Net book value shall be calculated by subtracting the book
value of all of the liabilities of the Companies from the book value of all
tangible assets of the Companies.
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE SELLER
As an inducement to the Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, the Seller represents and
warrants to the Buyer as follows:
SECTION 2.1 OWNERSHIP OF STOCK. The Seller owns all of the issued and
outstanding shares of Common Stock free and clear of all pledges, security
interests, liens, charges, encumbrances, equities, claims, options or
limitations of every kind ("Claims"), and the delivery to the Buyer of the
Common Stock pursuant to the provisions of this Agreement will transfer to the
Buyer valid title thereto, free and clear of all Claims.
SECTION 2.2 AUTHORITY RELATIVE TO THIS AGREEMENT. The Seller has full
legal power and capacity to execute, deliver and perform this Agreement and the
Exhibits and to deliver the Schedules hereto, and the other documents and
instruments contemplated hereby (collectively, this Agreement, the Exhibits and
Schedules hereto, and the other documents and instruments contemplated hereby
shall constitute the "Documents") and to consummate the transactions
contemplated hereby and thereby. This Agreement and the other Documents have
been duly and validly executed and delivered by the Seller and constitute valid
and binding obligations of the Seller, enforceable against the Seller in
accordance with their terms, except to the extent that the enforceability
thereof may be subject to or affected by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium, or other laws relating to or
affecting the rights of creditors generally.
SECTION 2.3 FOREIGN PERSON. The Seller is not a foreign person as that
term is defined in Section 1445(f)(3) of the Code and applicable regulations.
SECTION 2.4 ORGANIZATION, QUALIFICATION AND CORPORATE POWER.
Each Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Missouri. Each Company is
qualified to do business as a foreign corporation and is in good standing in the
states set forth on SCHEDULE 2.4, and the failure of the Companies to so qualify
in any other state shall not have a material adverse effect on any of the
Companies. The Seller has made available to the Buyer complete and correct
copies of the Articles of Incorporation and Bylaws of each Company as currently
in effect. The Companies have the corporate power and authority to own, lease,
operate and hold their properties and to carry on their business as now
conducted, including the right to use the names "Thomas Construction, Inc.,"
"Thomas Construction Company," "Castle Associates, Inc.," and "Showplace Home
Improvements, Inc." or any derivative thereof.
3
<PAGE>
SECTION 2.5 CAPITALIZATION. Thomas has authorized capital consisting
of 30,000 shares of common stock, with par value of $1.00 per share, of which
16,875 shares are issued and outstanding and ________ shares are held as
treasury stock. Castle has authorized capital consisting of 30,000 shares of
Common Stock, with par value of $1.00 per share, of which 100 shares are issued
and outstanding and no shares are held as treasury stock. SHI has authorized
capital consisting of 30,000 shares of Common Stock, with par value of $1.00 per
share, of which 375 shares are issued and outstanding and no shares are held as
treasury stock. All of the outstanding shares of each Company have been duly
authorized and validly issued and are fully paid and nonassessable. None of the
outstanding shares of any Company has been issued in violation of any preemptive
right. Except as set forth on SCHEDULE 2.5, there are no outstanding options,
warrants, rights, calls, commitments, conversion rights, rights of exchange,
plans or other agreements of any character providing for the purchase, issuance
or sale of any shares of capital stock of any Company, other than as
contemplated by this Agreement.
SECTION 2.6 SUBSIDIARIES AND INVESTMENTS. None of the Companies has
any subsidiaries nor owns, directly or indirectly, any capital stock or other
equity or ownership or proprietary interest in any other corporation,
partnership, association, trust, joint venture or other entity, other than
investments in publicly traded entities (if any).
SECTION 2.7 BOOKS AND RECORDS. The minute books of each Company, which
have been and will be made available to the Buyer and its representatives,
contain accurate records of all meetings of and corporate actions or written
consents (other than standard printed resolutions) by the shareholders and Board
of Directors of each Company set forth in such minute books. Except as set
forth on SCHEDULE 2.7, none of the Companies has any of its records, systems,
controls, data or information recorded, stored, maintained, operated or
otherwise wholly or partly dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
which (including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of any of the Companies.
SECTION 2.8 FINANCIAL STATEMENTS. The Seller has previously furnished
to the Buyer, and attached hereto as SCHEDULE 2.8 are, the reviewed statements
of assets, liabilities and stockholder's equity of each of the Companies as of
December 31, 1997, 1996 and 1995 and the related reviewed statements of revenues
and expenses, statements of retained earnings, and statements of cash flows for
the years then ended and the unaudited consolidated statements of assets,
liabilities and stockholder's equity of the Companies (the "Balance Sheet") as
of October 31, 1998 (the "Balance Sheet Date") and the related statements of
revenues and expenses for the ten (10) months then ended. Except as set forth
on SCHEDULE 2.8, all such financial statements (the "Financial Statements") have
been prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied and were prepared from the books and records of
each Company. Such books and records are complete and correct in all material
respects, accurately reflect all transactions of the business of each Company,
and have been made available to the Buyer for examination. The Financial
Statements fairly present the financial position of each Company as of the dates
thereof and the results of their operations and cash flows for the periods ended
on the dates thereof. The Financial Statements reflect reserves appropriate and
adequate for all known material liabilities and reasonably anticipated losses as
4
<PAGE>
required by GAAP. Except as set forth on SCHEDULE 2.8, since the Balance Sheet
Date, (i) there has been no change in the assets, liabilities or financial
condition of the Companies from that reflected in the Balance Sheet except for
changes in the ordinary course of business consistent with past practice and
which have not been materially adverse, and (ii) none of the business,
prospects, financial condition, operations, property or affairs of the Companies
has been materially adversely affected by any occurrence or development,
individually or in the aggregate, whether or not insured against. To the best
knowledge of the Seller, the Seller has disclosed to the Buyer all material
facts relating to the preparation of the Financial Statements.
SECTION 2.9 EMPLOYMENT AND LABOR MATTERS.
(a) SCHEDULE 2.9 lists all current employees, independent contractors
and officers of the Companies with salaries during the calendar year 1998 in
excess of Thirty Thousand Dollars ($30,000), along with the amount of the
current annual salaries and total compensation paid or due for services to each
employee, independent contractor or officer for the most recent fiscal year end
and the year to date, and a full and complete description of any commitments to
such employees, independent contractors and officers with respect to
compensation payable thereafter. To the best knowledge of the Seller, (1) no
key employee or group of employees has any plans to terminate employment with
any Company and (2) no independent contractor has any plans to terminate its
services to any Company and none of the Companies has plans to terminate its
relationship with any of its independent contractors.
(b) None of the Companies is a party to or bound by any collective
bargaining agreement with any labor organization, group or association covering
any of its employees, and the Seller has no knowledge of any attempt to organize
any of the Company's employees by any Person, unit or group seeking to act as
their bargaining agent. There are no pending or, to the best knowledge of the
Seller, threatened charges (by employees, their representatives or governmental
authorities) of unfair labor practices or of employment discrimination or of any
other wrongful action with respect to any aspect of employment of any person
employed or formerly employed by any of the Companies. To the best knowledge of
the Seller, no union representation election relating to employees of the
Companies has been scheduled by any governmental agency or authority, no
organizational effort is being made with respect to any of such employees, and
there is no investigation of the Companies' employment policies or practices by
any governmental agency or authority pending or, to the best knowledge of the
Seller, threatened. None of the Companies is currently, nor have they been,
involved in labor negotiations with any unit or group seeking to become the
bargaining unit for any employees of the Companies. None of the Companies has
experienced any material work stoppages, and to the best knowledge of the
Seller, no work stoppage is planned. To the best knowledge of the Seller, the
Companies have complied with all material laws and regulations relating to the
employment of labor, including, without limitation, any provisions thereof
relating to wages, hours, employment practices, terms and conditions of
employment, collective bargaining, equal opportunity or similar laws and the
payment of social security and similar taxes, and are not liable for any
material arrears of wages or any material taxes or penalties for failure to
comply with any of the foregoing.
SECTION 2.10 REAL PROPERTY. None of the Companies owns real property.
5
<PAGE>
SECTION 2.11 POWERS OF ATTORNEY; ABSENCE OF LIMITATIONS ON COMPETITION;
GUARANTEES.
Except as set forth in SCHEDULE 2.11, (i) no power of attorney or similar
authorization given by any Company presently is in effect or outstanding; (ii)
no contract or agreement to which any Company is a party or is bound or to which
any of the Companies' properties or assets are subject limits the freedom of any
of the Companies to compete in any line of business or with any Person; and
(iii) none of the Companies is a party to or bound by any guarantee of any debt
or obligation of any other Person.
SECTION 2.12 SIGNIFICANT SUPPLIERS. Set forth on SCHEDULE 2.12 is a
true and correct list of the Companies' ten largest suppliers for the most
recent twelve (12) month period ending December 31, 1997, and most recent ten
(10) month period ending October 31, 1998 together with the amount attributable
to such suppliers expressed in dollars and the amount of total supplies
purchased. None of the suppliers identified on SCHEDULE 2.12 has terminated,
materially reduced or, to the best knowledge of the Seller, threatened to
terminate or materially reduce its supply of products or services to the
Companies during the period covered by such schedule.
SECTION 2.13 GOVERNMENTAL APPROVALS. Except as set forth on SCHEDULE
2.13, and to the best knowledge of the Seller, no registration or filing with,
or consent or approval of or other action by, any Federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Seller of this Agreement.
SECTION 2.14 VALIDITY, ETC. Except as set forth on SCHEDULE 2.14,
neither the execution and delivery of this Agreement or the other Documents, the
consummation of the transactions contemplated hereby or thereby, nor the
performance of this Agreement or the other Documents in compliance with the
terms and conditions hereof and thereof by the Seller will (i) violate, conflict
with or result in any breach of any trust agreement, Articles of Incorporation,
bylaw, judgment, decree, order, to the best knowledge of the Seller, statute or
regulation applicable to any of the Companies, (ii) to the best knowledge of the
Seller, violate, conflict with or result in a breach, default or termination or
give rise to any right of termination, cancellation or acceleration of the
maturity of any payment date of any of the obligations of any of the Companies
or increase or otherwise affect the obligations of any of the Companies under
any law, rule, regulation or any judgment, decree, order, governmental permit,
license or order or any of the terms, conditions or provisions of any mortgage,
indenture, note, license, agreement or other instrument or obligation related to
any of the Companies or to the Seller's ability to consummate the transactions
contemplated hereby or thereby, except for such defaults (or rights of
termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained in writing and provided to the Buyer, or (iii) to
the best knowledge of the Seller, violate any order, writ, injunction, decree,
statute, rule or regulation applicable to any of the Companies.
SECTION 2.15 ABSENCE OF ADVERSE CHANGE; CONDUCT OF BUSINESS. During the
period from the Balance Sheet Date to and including the date of this Agreement,
except as set forth on SCHEDULE 2.15, none of the Companies has, except in the
ordinary course of business
6
<PAGE>
consistent with past practices (i) borrowed or agreed to borrow any material
amount of funds or incurred any liability or obligation of any nature
(whether accrued, absolute, contingent or otherwise), or guaranteed or agreed
to guarantee any obligations of others, (ii) canceled any indebtedness owing
to it or any claims that it might have possessed, waived any material rights
of substantial value or sold, leased, encumbered, transferred or otherwise
disposed of, or agreed to sell, lease, encumber, or otherwise dispose of its
assets or permitted any of its assets to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction or charge of any
kind, (iii) made any capital expenditure or commitment therefor in excess of
Ten Thousand Dollars ($10,000), (iv) declared or paid any dividend or made
any distribution on any shares of its capital stock, or redeemed, purchased
or otherwise acquired any shares of its capital stock or any option, warrant
or other right to purchase or acquire any such shares, (v) increased its
indebtedness for borrowed money, or made any loan to any Person, (vi) written
off as uncollectible any notes or accounts receivable, except write-offs in
the ordinary course of business charged to applicable reserves, (vii) made
any material change in any method of accounting or auditing practice, (viii)
otherwise conducted its business or entered into any transaction, except in
the usual and ordinary manner, or (ix) agreed, whether or not in writing, to
do any of the foregoing.
SECTION 2.16 CERTAIN PRACTICES. None of the Seller, the Companies, the
Companies' directors or officers, or to the best knowledge of the Seller, the
Companies' employees has, directly or indirectly, used any of the Companies'
funds for unlawful contributions, gifts, entertainment, or other unlawful
expenses relating to political activity; made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic political
parties or campaigns from any of the Companies' funds; violated any provision of
the Foreign Corrupt Practices Act of 1977, as amended; established or maintained
any unlawful or unrecorded fund of any of the Companies' monies or other assets;
made any false or fictitious entry on the books or records of any of the
Companies or any subsidiary; made any unlawful bribe, rebate, payoff, influence
payment, kickback, or other unlawful payment; or made any bribe, kickback, or
other payment of a similar or comparable nature to any person or entity, private
or public, regardless of form, whether in money, business or to obtain special
concessions, or to pay for favorable treatment for business secured or for
special concessions already obtained.
SECTION 2.17 COMPLIANCE WITH LAW; LICENSES AND PERMITS.
Except as set forth on SCHEDULE 2.17, each of the Companies has, to the
best knowledge of the Seller, complied in all material respects with all laws,
ordinances, legal requirements, rules, regulations and orders applicable to it,
its operations, properties, assets, products and services. Except as set forth
on SCHEDULE 2.17, to the best knowledge of the Seller there is no existing law,
rule, regulation or order, and the Seller is not aware of any proposed law,
rule, regulation or order, whether Federal, state or local, which would prohibit
or materially restrict the Buyer from, or otherwise materially adversely affect
the Buyer in, conducting the Business in the manner heretofore conducted by the
Companies in any jurisdiction in which the Business is now conducted. To the
best knowledge of the Seller, each of the Companies possesses all franchises,
permits, licenses, certificates and consents required from any governmental or
regulatory authority in order for each of the Companies to carry on its business
as currently
7
<PAGE>
conducted and to own and operate its properties and assets as now owned and
operated and all of such licenses and permits are set forth on SCHEDULE 2.17.
SECTION 2.18 EMPLOYEE BENEFITS.
(a) Set forth on SCHEDULE 2.18 is a list of all pension, profit
sharing, retirement, deferred compensation, stock purchase, stock option,
incentive, bonus, vacation, severance, disability, hospitalization, medical
insurance, life insurance, fringe benefit, welfare and other employee benefit
plans, programs or arrangements pursuant to which any of the Companies or their
ERISA Affiliates provides (directly or indirectly, individually or jointly
through others) benefits or compensation to or on behalf of employees or
independent contractors or former employees or former independent contractors of
the Companies or their ERISA Affiliates, whether formal or informal, whether or
not written ("Employee Plan"). On request by the Buyer, the Seller shall
furnish a copy of each Employee Plan and a copy of any related materials. The
Companies will maintain the benefits listed on SCHEDULE 2.18 in full force and
effect through the Effective Date. Except as set forth on SCHEDULE 2.18, the
Buyer shall not have any obligation or liability of any kind or nature for any
compensation or benefits of any kind or nature to the employees or consultants
of any of the Companies under any Employee Plan for services rendered prior to
the Effective Date.
(b) Each Employee Plan covering any present or former employee of any
of the Companies which is subject to the continuation health coverage
requirements of Section 4980B of the Code or Section 601 of ERISA or any
applicable state law has complied with all such requirements for continuation
coverage.
(c) There are no actions, suits or claims pending (other than routine
claims for benefits) or, to the best knowledge of the Seller, threatened against
or with respect to any Employee Plan or the assets of any Employee Plan.
(d) Each Employee Plan (and the related trust or funding vehicle, if
any) has been administered and maintained in accordance with its terms and with
applicable law. Except as set forth on SCHEDULE 2.18(d), each Employee Plan
which is intended to be qualified under Section 401 of the Code and each
amendment to such plan is subject to a favorable determination letter from the
Internal Revenue Service and each such plan has at all times been maintained, by
its terms and in operation, in accordance with Section 401 of the Code. The
assets of each Employee Plan which is not funded through the general assets of
any of the Companies are at least equal to the liabilities under such Employee
Plan, and all assets of each Employee Plan are shown on the books and records of
such Employee Plan at fair market value. No Employee Plan has unfunded
liabilities that as of the Effective Date are not accurately and fully reflected
on the Balance Sheet or on any of the Companies' books.
(e) None of the Companies nor any of their ERISA Affiliates is or has
been a participant in, or is or has been obligated to maintain or to make
contributions to, a multi-employer plan (within the meaning of ERISA Section
3(37) and ERISA Section 4001(a)(3)) or an Employee Plan which is subject to
Title IV of ERISA. None of the Companies nor any ERISA Affiliate has sponsored,
contributed to or been obligated under Title I or IV of ERISA to
8
<PAGE>
contribute to a "defined benefit plan" (as defined in ERISA Section 3(35)).
Except as set forth on SCHEDULE 2.18(e), None of the Companies is obligated
to provide post-retirement medical benefits or any other unfunded
post-retirement welfare benefits to or on behalf of any persons whatsoever
(except the benefits pursuant to the continuation health coverage
requirements under Section 4980B of the Code, ERISA Section 601, or
applicable state law).
(f) None of the Companies nor their ERISA Affiliates is subject to
and, to the best knowledge of the Seller, no facts exist which could subject any
of the Companies or any of their ERISA Affiliates to, any liability whatsoever
which is directly or indirectly related to any Employee Plan, including, but not
limited to, liability for benefit payments or related claims, any liability for
any tax or related penalty under the Code, or liability for any damages or
penalties arising under Title I or Title IV of ERISA. To the best knowledge of
the Seller, no reportable event under Section 4043 of ERISA has occurred or, to
the best knowledge of the Seller, will occur with respect to such Employee Plan.
(g) [Other than funding obligation for the calendar year 1998 (PLEASE
EXPLAIN - E.G. CONTRIBUTIONS TO THE ___, ___, AND ___ PLANS IN THE AMOUNTS SET
FORTH ON SCHEDULE 2.18(g)), termination of or withdrawal from any Employee Plan
immediately after the Effective Time would not subject the Buyer to any
liability, tax or penalty whatsoever.
(h) The execution or performance of the transactions contemplated by
this Agreement will not create, accelerate or increase any obligations under the
Employee Plans, including any obligation to make any payment which would not be
deductible as an excess golden parachute payment under Section 280G of the Code.
(i) All contributions to or under each Employee Plan and all expenses
of each Employee Plan are fully deductible for income tax purposes for the
taxable year for which such contributions are made or such expenses are paid.
All contributions to or under each Employee Plan have been made when due under
the terms of such Employee Plan in accordance with applicable law.
(j) For purposes of this Section 2.18, the term "ERISA" shall mean the
Employee Retirement Income Security Act of 1974, as amended, and the term "ERISA
Affiliate" shall mean each trade or business (whether or not incorporated) which
together with the Company is treated as a single employer under Section 414(b),
(c), (m), (o) or (t) of the Code.
SECTION 2.19 FIXED ASSETS. SCHEDULE 2.19 contains a true and complete
list of all of the Companies' fixed assets (by category and not by item) as set
forth on the Company's depreciation schedules. Except as shown on SCHEDULE
2.19, the Companies have good and marketable title to all of its fixed assets,
free and clear of all claims, liens, mortgages, charges and encumbrances except
as disclosed in the Balance Sheet. All of the Companies' fixed assets, whether
owned or leased, are adequate and usable for the purposes for which they are
currently used, are in good operating condition and repair and have been
properly maintained or the failure thereof shall have no material adverse effect
on any of the Companies.
9
<PAGE>
SECTION 2.20 INSURANCE. Each Company is, and will be through the
Effective Date, insured with insurers in respect of its properties, assets and
businesses as set forth on the attached SCHEDULE 2.20. SCHEDULE 2.20 lists the
insurance coverage carried by each Company, which insurance will remain in full
force and effect with respect to all events occurring prior to the Effective
Date. Except as set forth on SCHEDULE 2.20, none of the Companies (i) to the
best knowledge of the Seller has failed to give any notice or present any claim
under any such policy or binder in due and timely fashion, (ii) has received
notice of cancellation or non-renewal of any such policy or binder, (iii) is
aware of any threatened or proposed cancellation or non-renewal of any such
policy or binder, (iv) has received notice of any insurance premium which will
be materially increased in the future, and (v) is aware of any insurance premium
which will be materially increased in the future. There are no outstanding
claims under any such policy which have gone unpaid for more than 45 days, or as
to which the insurer has disclaimed liability.
SECTION 2.21 ACCOUNTS RECEIVABLE; SELLER NOTES. Except the accounts
receivable from any of the Companies' employees, the accounts receivable and
other debts due or recorded in the respective records and books of account of
each Company as being due to such Company as of the Effective Date, all of which
are set forth on SCHEDULE 2.21, arose in the ordinary course of business of such
Company, are not subject to any counterclaim or set-off and are fully
collectible within 90 days after the Effective Date without resort to litigation
and without offset or counterclaim. All notes payable to the Seller, any
revocable trust established by the Seller ("Seller Trust"), or any company which
is owned, in whole or in part by the Seller or a Seller Trust, by any of the
Companies and all notes receivable to any of the Companies from the Seller, a
Seller Trust, individually, or any company which is owned, in whole or in part
by the Seller or a Seller Trust have been paid in full.
SECTION 2.22 OUTSTANDING CONTRACTS. SCHEDULE 2.22 sets forth a
description of all existing contracts, agreements, leases, commitments, licenses
and franchises, which involve obligations or commitments by any of the Companies
of Ten Thousand Dollars ($10,000) or more and are not cancelable by such Company
without penalty within 30 days, other than customer contracts entered into in
the ordinary course of business (collectively "Contracts"), whether written or
oral, relating to such Company. The Seller has delivered or made available to
the Buyer true, correct and complete copies of all of the Contracts specified on
SCHEDULE 2.22 which are in writing, and such schedule sets forth a complete
description of all Contracts which are not in writing. To the best knowledge of
the Seller, all of the Contracts are in full force and effect and enforceable in
accordance with their terms, except to the extent that the enforceability
thereof may be subject to or affected by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium, or other laws relating to or
affecting the rights of creditors generally. Except as set forth on SCHEDULE
2.22, each of the Companies and, to the best knowledge of the Seller, each other
party thereto has materially performed all the obligations required to be
performed by it as of the Closing Date, has received no notice of default and is
not in default (with due notice or lapse of time or both) under any of the
Contracts. None of the Companies has any present expectation or intention of
not fully performing all its obligations under each of the Contracts, and the
Seller has no knowledge of any breach or anticipated breach by the other party
to any of the Contracts to which any of the Companies is a party. Except as set
forth on SCHEDULE 2.22, none of the Contracts has been terminated; no notice has
been given by any party thereto of any alleged default by any party thereunder;
and the Seller is not aware of
10
<PAGE>
any intention or right of any party to declare another party to any of the
Contracts to be in default. Except as set forth on SCHEDULE 2.22, there
exists no actual or, to the best knowledge of the Seller, threatened
termination, cancellation or limitation of the business relationship of any
of the Companies by any party to any of the Contracts.
SECTION 2.23 OUTSTANDING LEASES. SCHEDULE 2.23 sets forth a description
of each agreement by which any of the Companies leases each parcel of real
property (the "Leased Parcels") used in connection with the Business
(collectively, the "Leases"). The Seller has delivered or made available to the
Buyer true, correct and complete copies of all of the Leases specified on
SCHEDULE 2.23. All rents due under the Leases have been paid. All of the
Leases are in full force and effect and enforceable in accordance with their
terms, except to the extent that the enforceability thereof may be subject to or
affected by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, or other laws relating to or affecting the rights of
creditors generally. Except as set forth on SCHEDULE 2.23, the Companies and to
the best knowledge of the Seller, each other party thereto has performed all the
obligations required to be performed by it as of the Closing Date, has received
no notice of default and is not in default (with due notice or lapse of time or
both) under any of the Leases. None of the Companies has any present
expectation or intention of not fully performing all its obligations under each
of the Leases, and the Seller has no knowledge of any breach or anticipated
breach by the other party to any of the Leases. Except as set forth on SCHEDULE
2.23, none of the Leases has been terminated; no notice has been given by any
party thereto of any alleged default by any party thereunder; and the Seller is
not aware of any intention or right of any party to declare another party to any
of the Leases to be in default. There exists no actual or, to the best
knowledge of the Seller, threatened termination, cancellation or limitation of
the business relationship of any of the Companies with any party to any of the
Leases.
SECTION 2.24 INTELLECTUAL PROPERTIES. SCHEDULE 2.24 contains an
accurate and complete list of all domestic and foreign letters patent, patents,
patent applications, patent licenses, software licenses and know-how licenses,
trade names, trademarks, copyrights, unpatented inventions, service marks,
trademark registrations and applications, service mark registrations and
applications and copyright registrations and applications owned or used by any
of the Companies in the operation of the Business (collectively the
"Intellectual Property"). Except as set forth on SCHEDULE 2.24 and except for
commercial software licensed for use on personal computers, each of the
Companies owns the entire right, title and interest in and to the Intellectual
Property, trade secrets and technology used in the operation of its business and
each item constituting part of the Intellectual Property and trade secrets and
technology which is owned by such Company has been, to the extent indicated in
SCHEDULE 2.24, duly registered with, filed in or issued by, as the case may be,
the United States Patent and Trademark office or such other government entities,
domestic or foreign, as are indicated in SCHEDULE 2.24 and such registrations,
filings and issuances remain in full force and effect. The Seller has not been
served with notice of, nor, to the best knowledge of the Seller, are there any
threatened proceedings or litigation or other adverse claims affecting or with
respect to the Intellectual Property. There is, to the best knowledge of the
Seller, no reasonable basis upon which a claim may be asserted against any of
the Companies for infringement of any domestic or foreign letters patent,
patents, patent applications, patent licenses and know-how licenses, trade
names, trademark registrations and applications, common law trademarks, service
marks, service mark registrations or
11
<PAGE>
applications, copyrights, copyright registrations or applications, trade
secrets or other confidential proprietary information. To the best knowledge
of the Seller, no Person is infringing upon the Intellectual Property.
SECTION 2.25 PROPRIETARY INFORMATION OF THIRD PARTIES.
Except as disclosed on SCHEDULE 2.25, no third party has claimed or, to
the best knowledge of the Seller, has reason to claim that any Person employed
by or consulting with any of the Companies ("Related Person") has (i) violated
or may be violating any of the terms or conditions of such person's employment,
non-competition or non-disclosure agreement with such third party,
(ii) disclosed or may be disclosing or utilized or may be utilizing any trade
secret or proprietary information or documentation of such third party, or
(iii) interfered or may be interfering in the employment relationship between
such third party and any of its present or former employees. To the best
knowledge of the Seller, no third party has requested information from any of
the Companies which suggests that such a claim might be contemplated. Except as
disclosed on SCHEDULE 2.25, to the best knowledge of the Seller, no Related
Person has employed or proposes to employ any trade secret or any information or
documentation proprietary to any former employer and no Related Person has
violated any confidential relationship which such person may have had with any
third party, in connection with the development or sale of any product or
service of any of the Companies, and the Seller has no reason to believe there
will be any such employment or violation.
SECTION 2.26 TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 2.26, to the best knowledge of the Seller, no director, officer or
shareholder of any of the Companies, or member of the family of any such person,
or any corporation, partnership, trust or other entity in which any such person,
or any member of the family of any such person, has a beneficial interest
greater than 5% or is an officer, director, trustee, partner or holder of any
equity interest greater than 5%, is a party to any transaction with any of the
Companies, including any contract, agreement or other arrangement providing for
the employment of, furnishing of services by, rental of real or personal
property from or otherwise requiring payments or involving other obligations to
any such person or firm.
SECTION 2.27 ABSENCE OF UNDISCLOSED LIABILITIES.
(a) Except as and to the extent of the amounts specifically reflected
or reserved against in the Balance Sheet, or except as set forth on SCHEDULE
2.27, none of the Companies has any liabilities or obligations of any nature
whatsoever due or to become due, accrued, absolute, contingent or otherwise,
except for liabilities and obligations incurred since the date thereof in the
ordinary course of business and consistent with past practice. The Seller does
not know of, and has no reason to know of, any basis for the assertion against
any of the Companies of any liability or obligation not fully reflected or
reserved against in the Balance Sheet.
(b) None of the Company is bound by any agreement, or subject to any
charter or other corporate restriction or any legal requirement, which has, or
in the future can
12
<PAGE>
reasonably be expected to have, a material adverse effect on the business or
prospects of any of the Companies.
SECTION 2.28 TAXES. Each Company has timely filed a valid election to
be treated as an S corporation in accordance with the provisions of Section 1361
of the Code, effective for Thomas for its tax year ending March 30, 1992, for
Castle for its tax year ended December 31, 1992 and for SHI for its tax year
ended December 31, 1991, and each Company has qualified and shall continue to
qualify as an S corporation for all years and periods thereafter until the
Effective Time. SCHEDULE 2.28 lists all the states and localities with respect
to which each Company is required to file any corporate, income and/or franchise
tax returns and sets forth whether each Company is treated as the equivalent of
an S corporation by or with respect to each such state or locality. None of the
Companies has engaged in any activity which would disqualify its treatment as an
S corporation for those tax purposes. Except as set forth on SCHEDULE 2.28, all
federal, state, local and foreign tax returns and tax reports required to be
filed by any Company on or before the date hereof have been timely filed with
the appropriate governmental agencies in all jurisdictions in which such returns
and reports are required to be filed and all amounts shown as owing thereon have
been paid. All taxes (including, without limitation, income, accumulated
earnings, property, sales, use, franchise, excise, license, value added, fuel,
employees' income withholding and social security taxes) which have become due
or payable or are required to be collected by any Company or are otherwise
attributable to any periods ending on or before the Effective Time and all
interest and penalties thereon, whether disputed or not, have been paid or will
be paid in full on or prior to the Effective Date or are adequately reflected on
the Balance Sheet or the Companies' books and records in accordance with GAAP.
Except as set forth on SCHEDULE 2.28, all deposits required by law to be made by
any Company with respect to employees' withholding taxes have been duly made,
and as of the Effective Time all such deposits due will have been made. Each
Company has delivered to the Buyer true and complete copies of all of such
Company's federal and state income tax returns for the fiscal periods ended
December 31, 1997, 1996 and 1995 and all reports and results of income tax
audits, if any, related thereto. Except as set forth on SCHEDULE 2.28, no
examination of any tax return of any Company is currently in progress. There
are no outstanding agreements or waivers extending the statutory period of
limitations applicable to any such tax return.
SECTION 2.29 LITIGATION. Except as set forth on SCHEDULE 2.29 and other
than routine customer complaints, there is no (i) action, suit, claim,
proceeding or investigation which has been served upon any of the Companies or,
to the best knowledge of the Seller, threatened against or affecting any Company
(whether or not such Company is a party or prospective party thereto), at law or
in equity, or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) arbitration proceeding pending relating to any Company or
(iii) governmental inquiry pending or, to the best knowledge of the Seller,
threatened against or involving any Company, and there is no basis for any of
the foregoing. None of the Companies has received any written opinion or
memorandum or written legal advice from legal counsel to the effect that it is
exposed, from a legal standpoint, to any liability or disadvantage which may be
material to the business, prospects, financial condition, operations, property
or affairs of any Company. There are no outstanding orders, writs, judgments,
injunctions or decrees served upon any Company by any court, governmental agency
or arbitration tribunal against such Company. None of the
13
<PAGE>
Companies is in default with respect to any order, writ, injunction or decree
known to or served upon it from any court or of any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. Except as disclosed on SCHEDULE 2.29
and except ordinary collection of accounts receivable claims, actions or
suits which individually do not exceed Five Thousand Dollars ($5,000) and in
the aggregate do not exceed Fifteen Thousand Dollars ($15,000), there is no
action or suit by any of the Companies pending or threatened against others.
SECTION 2.30 ENVIRONMENTAL MATTERS.
(a) COMPLIANCE. Each Company and all Leased Parcels are in compliance
with all applicable laws, rules, regulations, orders, ordinances, judgments and
decrees of all governmental authorities with respect to all environmental
statutes, rules and regulations. Except as set forth on SCHEDULE 2.30, none of
the Companies has received notice of, nor does the Seller has knowledge of, any
past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans of any of the Companies or the Companies'
predecessors, either collectively, individually or severally, which may
interfere with or prevent continued compliance with, or which may give rise to
any common law or legal liability or otherwise form the basis of any claim,
action, suit, proceeding, hearing, or investigation, based on or related to the
disposal, storage, handling, manufacture, processing, distribution, use,
treatment or transport, or the emission, discharge, release or threatened
release into the environment, of any Substance. As used in this Section 2.30,
the term "Substance" or "Substances" shall mean any pollutant, contaminant,
hazardous substance, hazardous material, hazardous waste or toxic waste, as
defined in any presently enacted federal, state or local statute or any
regulation that has been promulgated pursuant thereto. No part of any of the
Leased Parcels has been listed or proposed for listing on the National
Priorities List established by the United States Environmental Protection
Agency, or any other corresponding list by any state or local authorities.
(b) ENVIRONMENTAL SUBSTANCE LIABILITY. No event has occurred or
condition exists or operating practice is being employed that could give rise to
liability on the part of any of the Companies, either at the present time or in
the future, for any losses, liabilities, damages (whether consequential or
otherwise), settlements, penalties, interest, expenses and costs of responses,
including any such liability on account of the right of any governmental or
private entity or person, and including closure expenses, costs of assessment,
containment, removal, or response (other than monitoring or transportation or
disposal of materials required to be transported or disposed of in the ordinary
course of business consistent with past practice) arising under any rule or
federal, state, or local statute, or any regulation that has been promulgated
pursuant thereto, or common law, as a result of or in connection with, or
alleged to be as a result of or in connection with, the following (collectively
the "Hazardous Activities"):
(A) the handling, storage, use, transportation or disposal of
any Substances in or near or from the Leased Parcels;
(B) the handling, storage, use, transportation or disposal
of any Substances by any of the Companies or their
predecessors which Substances were a product, by-product
or otherwise resulted from
14
<PAGE>
the operations conducted by or on behalf of any of the
Companies or their predecessors;
(C) any intentional or unintentional emission, discharge or
release of any Substances in or near or from facilities
into or upon the air, surface water, ground water or land
or any disposal, handling, manufacturing, processing,
distribution, use, treatment, or transport of such
Substances in or near or from facilities by or on behalf
of any of the Companies or their predecessors; or
(D) the presence of any toxic or hazardous building materials
(including but not limited to friable asbestos or similar
substances) in any facilities of any of the Companies,
including but not limited to the inclusion of such
materials in the exterior and interior walls, floors,
ceilings, tile, insulation or any other portion of
building structures.
(c) ENVIRONMENTAL PERMITS. Each Company has obtained and holds all
registrations, permits, licenses, and approvals issued by or on behalf of any
federal, state or local governmental body or agency if any ("Environmental
Permits") that are required in connection with the operation by such Company of
the Leased Parcels, the discharge or emission of Substances by such Company from
the Leased Parcels or the generation, treatment, storage, transportation, or
disposal of any such Substances by such Company. Such Environmental Permits,
which are described on SCHEDULE 2.30, are currently effective and sufficient for
the operation of the Leased Parcels and the business of each Company as
currently conducted and intended to be conducted. Each Company is in compliance
with all terms and conditions of the Environmental Permits, and is also in
compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules, and timetables contained in
those laws or provisions or contained in any regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder and applicable to any of the Companies.
(d) DELIVERIES. The Seller has delivered to the Buyer true and
complete copies and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by the Seller pertaining to Substances or
Hazardous Activities in, on, or under the Leased Parcels or concerning
compliance by the Seller or any other Person for whose conduct they are or may
be held responsible, with environmental statutes, rules and regulations.
SECTION 2.31 BROKER'S OR FINDER'S FEES. No agent, broker, person or
firm acting on behalf of the Seller or any of the Companies is, or will be,
entitled to any commission or broker's or finder's fees from the Seller or any
of the Companies, or from any person controlling, controlled by or under common
control with the Seller or any of the Companies, in connection with any of the
transactions contemplated herein.
SECTION 2.32 INVENTORY. All inventory of the Companies, whether or not
reflected in the Financial Statements or Balance Sheet, consists of a quality
and quantity usable
15
<PAGE>
and salable in the ordinary course of business, except for obsolete items and
items of below-standard quality, all of which have been written off or
written down to net realizable value in the Financial Statements or the
Balance Sheet, as the case may be. All inventories not written off have been
priced at the lower of cost or market on a weighted average basis. The
quantities of each item of inventory (whether raw materials, work-in-process,
or finished goods) are not excessive, but are reasonable in the present
circumstances of the Companies.
SECTION 2.33 YEAR-2000 COMPLIANCE.
(a) SCHEDULE 2.33 contains a true and complete list of all Systems (as
hereinafter defined) and all steps taken to make each System Year-2000 Compliant
(as hereinafter defined).
(b) As used throughout this Agreement, the following definitions shall
have the following meanings:
(1) "External Systems" shall mean all services which are provided
to any of the Companies by third parties and which are
dependent on information technology, including, but not
limited to, any external payroll, accounting, or tax
filing services or any checking, savings, or other
financial services.
(2) "Internal Systems" shall mean all technology products and
systems generally operated or controlled in-house by any
of the Companies, or their respective employees, agents,
or independent contractors including, but not limited to,
computers, computer networks, telephone systems, voicemail
systems, intercom systems, pager systems, and software
applications.
(3) "Licensed Systems" shall mean all products and systems
developed by or for any of the Companies which are
licensed, sold, distributed, or otherwise transferred by
such Company to third parties.
(4) "System" or "Systems" shall mean any, all, or any combination
of any Internal System, External System, or Licensed System.
(5) "Year-2000 Compliant" shall mean, with respect to each
System, that such System is designed to be used before,
during, and after the calendar year 2000 A.D. and will
accurately accept date input and process, store, and
output date data and date-related data, including, without
limitation, calculating, comparing, sorting, and sequencing
such data and calculating leap years before, during, and
after the calendar year 2000 A.D. without any manual
intervention.
16
<PAGE>
SECTION 2.34 PURCHASE FOR INVESTMENT; RESTRICTED SECURITIES. The Seller
represents and warrants (a) that he is acquiring shares of Buyer Common Stock
and Buyer Preferred Stock, as hereinafter defined, for investment and not with a
present view toward, or for sale in connection with, any distribution thereof,
nor with any present intention of distributing or selling the shares of Buyer
Common Stock and Buyer Preferred Stock so acquired; and (b) he acknowledges that
(i) the shares of Buyer Common Stock and Buyer Preferred Stock are not and may
not be registered under the Securities Act of 1933, as amended (the "1933 Act"),
and (ii) that the Buyer does not file periodic reports with the Securities and
Exchange Commission pursuant to the requirements of Section 12 or 15(d) of the
Securities Exchange Act of 1934, as amended.
SECTION 2.35 DISCLOSURE. All Documents delivered or to be delivered by
or on behalf of the Seller or any of the Companies in connection with this
Agreement and the transactions contemplated hereby are true, complete and
correct in all material respects. Neither this Agreement, nor any of the other
Documents contains any untrue statement of a material fact or omits a material
fact necessary to make the statements made by the Seller herein or therein, in
light of the circumstances in which made, not misleading. There is no fact
known to the Seller which materially and adversely affects the business,
prospects or financial condition of any of the Companies or their properties or
assets, which has not been set forth in the Documents.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE BUYER
As an inducement to the Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, the Buyer represents and
warrants to the Seller as follows:
SECTION 3.1 ORGANIZATION. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is duly qualified to transact business as a foreign corporation in each
jurisdiction in which the failure to so qualify would have a material adverse
impact on the Buyer's ability to purchase the Common Stock pursuant to this
Agreement and perform its obligations under this Agreement.
SECTION 3.2 CORPORATE POWER AND AUTHORITY. The Buyer has the corporate
power and authority to execute, deliver and perform this Agreement and the other
Documents. The execution, delivery and performance of the Documents
contemplated hereby and the consummation of the transactions contemplated hereby
and thereby have been duly authorized and approved by all necessary corporate
action of the Buyer. The Documents to be executed and delivered by the Buyer
have been duly executed and delivered by, and constitute the legal, valid and
binding obligation of the Buyer enforceable against the Buyer in accordance with
their terms.
SECTION 3.3 VALIDITY, ETC. Neither the execution and delivery by the
Buyer of this Agreement and the other Documents, the consummation by the Buyer
of the transactions contemplated hereby or thereby, nor the performance by the
Buyer of this Agreement and such other agreements in compliance with the terms
and conditions hereof and thereof will (i) violate, conflict with or result in
any breach of any trust agreement, articles of incorporation, bylaw, judgment,
decree, order, statute or regulation applicable to the Buyer, (ii) violate,
conflict with or
17
<PAGE>
result in a breach of or default (or give rise to any right of termination,
cancellation or acceleration) under any law, rule or regulation or any
judgment, decree, order, governmental permit, license or order or any of the
terms, conditions or provisions of any mortgage, indenture, note, license,
agreement or other instrument to which the Buyer is a party, or (iii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable
to the Buyer.
SECTION 3.4 CAPITAL STOCK. The authorized capital stock of the Buyer
consists of (a) 100,000,000 shares of $.001 par value common stock ("Buyer
Common Stock"), of which 13,503,967 shares were issued and 13,430,188 shares
were outstanding as of October 15, 1998 and (b) 50,000,000 shares of $.001 par
value preferred stock ("Buyer Preferred Stock"), of which (i) 4,000,000 shares
have been designated as "10% Cumulative Convertible Series A Preferred Stock" of
which 2,980,000 shares were issued and outstanding as of October 15, 1998
("Buyer Series A Preferred Stock") and (ii) 4,000,000 shares have been
designated as 10% Cumulative Convertible Series B Preferred Stock" of which no
shares were issued and outstanding as of December 1, 1998 ("Buyer Series B
Preferred Stock"). (collectively, Buyer Common Stock and Buyer Series A and
Series B Preferred Stock are referred to as "Buyer Capital Stock"). All of the
issued and outstanding shares of Buyer Capital Stock are, and all of the shares
of Buyer Common Stock and Buyer Preferred Stock to be issued pursuant to this
Agreement, when issued in accordance with the terms of this Agreement, will be,
duly and validly issued and outstanding and fully paid and nonassessable. None
of the outstanding shares of Buyer Capital Stock has been, and none of the
shares of Buyer Common Stock or Buyer Preferred Stock to be issued in connection
with this transaction will be, issued in violation of any preemptive rights of
the current or past shareholders of the Buyer. The shares of Buyer Capital
Stock to be issued to the Seller pursuant to this transaction shall be free and
clear of all liens and encumbrances.
SECTION 3.5 DISCLOSURE STATEMENT. The Buyer's Disclosure Statement,
dated October 23, 1998, which has been previously delivered to the Seller is
true, complete and correct in all material respects.
SECTION 3.6 ACQUISITION OF STOCK FOR INVESTMENT. The Buyer is
acquiring the shares of Common Stock for investment and not with a view toward,
or for sale in connection with, any distribution thereof, nor with any present
intention of distributing or selling such shares of Common Stock. The Buyer
agrees that such shares of Common Stock may not be sold, transferred, offered
for sale, pledged, hypothecated or otherwise disposed of without registration
under the Securities Act of 1933, as amended, except pursuant to an exemption
from registration available under such Act. The Buyer will not sell, offer to
sell or solicit offers to buy any of the shares of Common Stock in violation of
the Securities Act of 1933 or the securities law of any state. The Buyer
understands that the shares of Common Stock have not been registered under
federal or any state's securities laws.
SECTION 3.7 BROKER'S OR FINDER'S FEES. No agent, broker, person or
firm acting on behalf of the Buyer is, or will be, entitled to any commission or
broker's or finder's fees from the Buyer, or from any person controlling,
controlled by or under common control with the Buyer, in connection with any of
the transactions contemplated herein.
18
<PAGE>
SECTION 3.8 GOVERNMENTAL APPROVALS. No registration or filing with, or
consent or approval of or other action by, any Federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Buyer of this Agreement.
SECTION 3.9 DISCLOSURE. All Documents delivered or to be delivered by
or on behalf of the Buyer in connection with this Agreement and the transactions
contemplated hereby are true, complete and correct in all material respects.
Neither this Agreement, nor any of the other Documents contains any untrue
statement of a material fact or omits a material fact necessary to make the
statements made by the Buyer herein or therein, in light of the circumstances in
which made, not misleading. There is no fact known to the Buyer which may have
a material adverse effect on the Buyer's ability to pay its obligations under
this Agreement, which has not been set forth in the Documents.
SECTION 3.10 DUE DILIGENCE. The Buyer has called to the attention of
the Seller on or prior to the execution of this Agreement any of the
representations or warranties of the Seller set forth in the Agreement or the
Schedules which, to the knowledge of the Buyer, is false, untrue, incomplete or
inaccurate in any manner.
ARTICLE IV. COVENANTS AND AGREEMENTS
SECTION 4.1 BEST EFFORTS. The Seller and the Buyer shall each use
their best efforts to procure upon reasonable terms and conditions all consents
and approvals, completion of all filings, all registrations and certificates,
and satisfaction of all other requirements prescribed by law which are necessary
for the consummation of the transactions contemplated by this Agreement and the
Buyer's ownership and operation of each Company's Business after the Effective
Date. Prior to the Effective Date, the Seller will use its best efforts
consistent with past practices to preserve each Company's relationships with its
employees, customers and others having business relationships with such Company.
SECTION 4.2 TAX RETURNS. The Seller shall cause each Company to
prepare and timely file, at its sole expense, all of such Company's required tax
returns for all periods ending on or prior to the Effective Date. The Seller
shall be responsible for the payment of, and will indemnify, defend and hold the
Buyer harmless against all taxes due or assessed which relate to the operations
of each Company for all periods ending on or prior to the Effective Date except
as set forth in SECTION 4.3 below.
SECTION 4.3 SECTION 338(h)(10) ELECTION. The Buyer and the Seller
shall make a simultaneous joint election under Section 338(h)(10) of the Code
(the "Election") for each Company on Internal Revenue Service Form 8023 in
accordance with the instructions to the form and any similar state law
provisions in all applicable states, with respect to the sale and purchase of
the Seller's shares in the Companies pursuant to this Agreement, and each party
shall provide to the others all necessary information to permit such election to
be made. Such election shall be made not later than the 15th day of the ninth
month beginning after the month in which the Effective Date occurs. The Buyer
and the Seller shall, as promptly as practicable following
19
<PAGE>
the Effective Date, take all actions necessary and appropriate (including
filing such forms, returns, schedules and other documents as may be required)
to effect and preserve a timely election. All taxes arising pursuant to
Section 1374 of the Code as a result of the Election shall be the liability
and responsibility of the Companies and all other taxes attributable to the
Election shall be the liability and responsibility of the Seller. The Buyer
shall secure the obligations of the Companies under this Section 4.3 by
causing PNC Bank, N.A., to issue a standby, irrevocable, non-transferable
documentary letter of credit (the "Letter of Credit") for the benefit of the
Seller, in the amount of [$1,000,000], and bearing an expiration date of
April 30, 1999. The Letter of Credit shall permit the Seller to draw against
it only after April 15, 1999, and only if the Companies fail to satisfy their
obligations under this Section 4.3 on or prior to April 15, 1999.
Simultaneously with the tender to the Seller of a certified check made
payable to the Internal Revenue Service in an amount sufficient to satisfy
the foregoing obligations, the Seller shall return the original Letter of
Credit to the Buyer. In connection with the Elections, within sixty (60)
days following the Effective Date, the Buyer and the Seller shall act
together in good faith to determine and agree upon the "deemed sale price" to
be allocated to each asset of each Company in accordance with Treasury
Regulation Section 1.338(h)(10)-1(f) and the other regulations under Section
338 of the Code.
SECTION 4.4 LEASED PREMISES.
(a) The Seller acknowledges that Thomas has entered into (i) that
certain Building Lease dated April 10, 1997, by and between Thomas, as Landlord,
and HomeFirst National Inc. ("HomeFirst"), as Tenant, and (ii) that certain
Sublease dated June 1, 1998, by and between Thomas, as Sublessor, and TriStar
Business Communities, L.L.C. ("TriStar"), as Sublessee (hereinafter,
collectively, the "Subleases"). The Subleases cover a portion of the premises
located at 13397 Lakefront Drive, Earth City, Missouri leased to Thomas by the
Seller under that certain Lease dated December 30, 1996, by and between the
Seller, as Landlord and Thomas, as Tenant.
(b) From and after the Effective Date, the Seller agrees to act as
managing agent for Thomas in the performance of all obligations which Thomas is
otherwise obligated to perform under the Subleases, including, without
limitation (i) the collection of rents from TriStar and HomeFirst; and (ii) the
arrangements for and supervision of maintenance of the common areas of the
premises described in the preceding paragraph. The Seller agrees to notify
Thomas monthly of the aggregate amounts receivable from TriStar and HomeFirst
pursuant to the Subleases and to credit that amount against all amounts due the
Seller by Thomas under the Lease.
(c) The Seller also agrees to provide to Thomas by February 15 of each
year during the term of the Lease, a report of all amounts and expenses which
Thomas has paid to the Seller pursuant to the Lease for the immediately
preceeding twelve (12) month period ending December 31, which amounts are
calculated based on the "Tenant's Proportionate Share," as such term is used
throughout the Lease (the "TPS Expenses"). At any time within six (6) months
after Thomas has received such report, Thomas may cause an audit to be made of
the Seller's records with respect to the amounts the seller has collected for
TPS Expenses. Such audit shall be made by a certified public accountant
acceptable to the Seller and Thomas. In the event such
20
<PAGE>
audit shows that the foregoing report reflects an overpayment by Thomas of
TPS Expenses in excess of five percent (5%) of the actual TPS Expenses
collected, all fees and expenses charged by the certified public accountant
making the audit shall be paid by the Seller; otherwise, such fees and
expenses shall be paid by Thomas. In the event such audit shows the TPS
Expenses paid to be greater than the amount due from Thomas, the excess shall
be applied to the next installment due under the Lease for such amount or, if
paid with respect to the least year of the term of the Lease, refunded to
Thomas.
(d) Thomas acknowledges that the right to all rent under the Lease has
been assigned to The Ohio National Life Insurance Company ("Ohio National") as
security for a loan (the "Loan") made by Ohio National to the Selller. The
Seller agrees to use his best efforts to obtain the consent of Ohio National to
a division of the Lease whereunder Thomas, HomeFirst and TriStar are liabile
only for that portion of the premises that they occupy, respectively. The new
lease with Thomas shall be in the form attached hereto as EXHIBIT A. In the
event that Ohio National does not consent to such division of the Lease, the
Seller agrees to prepay the Loan on or before December 31, 2004, and to enter
into a new lease substantially in the form attached hereto as EXHIBIT A.
(e) Notwithstanding anything contained in the Lease to the contrary,
Thomas shall have the option to terminate the Lease on May 1, 2007, by giving
the Seller at least thirty (30) days prior written notice.
SECTION 4.5 CONDUCT OF BUSINESS IN THE ORDINARY COURSE. The Seller
shall cause each of the Companies to conduct their business only in the ordinary
course. By way of amplification and not limitation, except as otherwise
provided herein, the Seller shall cause the Companies, without the prior written
consent of the Buyer, not to do any of the following: (i) borrow or agree to
borrow any material amount of funds or incurred any liability or obligation of
any nature (whether accrued, absolute, contingent or otherwise), or guarantee or
agree to guarantee any obligations of others, (ii) cancel any indebtedness owing
to any of them or any claims that any of them might possess, waive any material
rights of substantial value or sell, lease, encumber, transfer or otherwise
dispose of, or agree to sell, lease, encumber, or otherwise dispose of their
respective assets or permit any of their respective assets to be subjected to
any mortgage, pledge, lien, security interest, encumbrance, restriction or
charge of any kind, (iii) make any capital expenditure or commitment therefor,
(iv) declare or pay any dividend or make any distribution on any shares of their
respective capital stock, or redeem, purchase or otherwise acquire any shares of
their respective capital stock or any option, warrant or other right to purchase
or acquire any such shares, (v) increase their respective indebtedness for
borrowed money or make any loan to any Person, (vi) write off as uncollectible
any notes or accounts receivable, except write-offs in the ordinary course of
business charged to applicable reserves, (vii) make any material change in any
method of accounting or auditing practice, (viii) otherwise conduct their
respective business or enter into any transaction, except in the usual and
ordinary manner, or (ix) agree, whether or not in writing, to do any of the
foregoing.
SECTION 4.6 PRESERVATION OF BUSINESS. The Seller shall cause each of
the Companies to use their best efforts to preserve the possession and control
of all of their assets and Business, to preserve the goodwill of their customers
and others with whom they have
21
<PAGE>
business relations, and to do nothing to impair their ability to keep and
preserve their Business as it exists on the date of this Agreement.
SECTION 4.7 NOTIFICATION OF MATERIAL CHANGES AND LITIGATION.
The Seller shall provide the Buyer with prompt written notice,
accompanied by a detailed description and analysis, (a) of any material adverse,
or to the best knowledge of the Seller, potentially material adverse change in
the condition, earnings or business of any of the Companies, (b) of any event or
condition of any character (whether actual or, to the best knowledge of the
Seller, threatened) pertaining to the financial condition, business or assets of
any of the Companies that has materially and adversely affected, or has a
substantial possibility of materially and adversely affecting, any of such
financial condition, business or assets, or causing any of such business to be
carried on materially less profitably than prior to the date of this Agreement,
and (c) of all claims, regulatory proceedings and litigation (whether actual or,
to the best knowledge of the Seller, threatened and whether or not material)
against or possibly involving any fo the Companies or (where such actual or
threatened or claims, regulatory proceedings or litigation arise in connection
with actions taken or alleged to be taken by any officer, employer or director
of any of the Companies) in any capacity as an officer, employee or director of
such Company. Such adverse or potentially adverse material changes or such
claims, proceedings or litigation shall include, without limitation, any adverse
or potentially adverse material change in or any litigation arising in
connection with any item or matter reported on any schedule, exhibit or document
delivered by the Seller to the Buyer in connection with this Agreement.
SECTION 4.8 AUDITED FINANCIAL STATEMENTS. The Seller has furnished to
the Buyer, on or prior to the Closing Date and at the Seller's expense (up to a
maximum amount of $50,000), audited consolidated financial statements of the
Companies for the two (2) fiscal years ending December 31, 1997 and 1996.
SECTION 4.9 REPORTING REQUIREMENTS. With respect to any (i) shares of
any class of stock of the Buyer acquired by the Seller hereunder or (ii) stock
options or interests in employee benefit plans of a class or type issued to the
Seller as an employee of the Buyer or any of its subsidiaries, or (iii) any
securities issued or issuable with respect to any of the foregoing securities by
way of a stock dividend or stock split or in connection with a combination of
shares, reclassification, recapitalization, merger or consolidation or
reorganization (collectively, the securities listed in clauses (i), (ii) and
(iii) in this paragraph, the "Registrable Securities") the Buyer shall timely
comply with the registration, reporting and disclosure requirements (including,
without limitation, the requirements of Rule 15c2-11(a)(5)) in Rule 144(c) or
any other similar exemptive provisions) of the Securities and Exchange
Commission and the Buyer acknowledges and agrees that one purpose of the
requirements contained in this Section 4.6 is to enable the Seller to rely on
the fulfillment of such requirements by the Buyer should the Seller ever wish to
dispose of any of the Registrable Securities without registration under the
Securities Act of 1933 in reliance upon Rule 144 (or any other similar exemptive
provisions).
SECTION 4.10 LITIGATION SUPPORT. In the event and for so long as any
party actively is contesting or defending against any claim, demand, suit, or
action in connection with
22
<PAGE>
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or
prior to the Effective Date involving any of the Companies, the other party
will cooperate with such party and such party's counsel in the contest or
defense, make available such party's personnel, and provide such testimony
and access to books and records as shall be necessary in connection with the
contest or defense, all at the sole cost and expense of the contesting or
defending party (unless the contesting or defending party is entitled to
indemnification therefor as provided in this Agreement).
SECTION 4.11 POST CLOSING MERGER. Effective at 12:01 a.m. on January 1,
1999, the Buyer shall cause Castle and SHI to be merged with and into Thomas.
ARTICLE V. CONDITIONS TO THE BUYER'S OBLIGATIONS
The obligation of the Buyer to make payments to the Seller pursuant to
Section 1.2 hereof and to consummate the other transactions contemplated hereby
is subject to the satisfaction, on or before the Effective Date, of the
following conditions each of which may be waived by the Buyer in its sole
discretion:
SECTION 5.1 INTRA-COMPANY DEBT. All indebtedness of the Seller and all
other directors, officers and employees of any of the Companies to any of the
Companies shall have been repaid in full and the Seller shall have delivered to
the Buyer a certificate, dated the Closing Date, to such effect.
SECTION 5.2 REPRESENTATIONS, WARRANTIES AND COVENANTS.
The representations and warranties of the Seller herein contained shall
be true in all respects as stated herein, both when made and with the same
effect as though made again as of the Effective Date except to the extent of
changes permitted by the terms of this Agreement. The Seller shall have
performed all obligations and complied with all covenants required by this
Agreement to be performed or complied with by the Seller prior to the Effective
Date. In addition, the Seller shall deliver to the Buyer a certificate dated as
of the Effective Date, to the effect that, except as disclosed in the
certificate, he does not know of any breach of any representation or warranty
made by the Seller in this Agreement or any failure to perform any covenant made
by the Seller herein or to satisfy any conditions to the Seller's obligations to
effect the transactions contemplated by this Agreement.
SECTION 5.3 CONSENTS. Except as set forth on SCHEDULE 5.2, all
requisite governmental approvals and consents of third parties identified on
such schedule or otherwise identified by the Seller as required to be received
to prevent any material license, permit or agreement relating to the Business
from terminating prior to its scheduled termination, as a result of the
consummation of the transactions contemplated hereby, shall have been obtained.
SECTION 5.4 NON-COMPETITION AGREEMENT. The Seller shall have entered
into a Non-Competition Agreement with the Buyer in substantially the form
attached hereto as EXHIBIT B (the "Non-Competition Agreement").
23
<PAGE>
SECTION 5.5 EMPLOYMENT AGREEMENT. The Seller shall have entered into
an Employment Agreement with the Company in substantially the form attached
hereto as EXHIBIT C (the "Employment Agreement").
SECTION 5.6 REGISTRATION RIGHTS AGREEMENT. The Seller shall have
entered into a Registration Rights Agreement with the Buyer in substantially the
form attached hereto as EXHIBIT D (the "Registration Rights Agreement").
SECTION 5.7 NO ACTIONS, SUITS OR PROCEEDINGS. As of the Effective
Date, no action, suit, investigation or proceeding brought by any person,
corporation, governmental agency or other entity shall be pending or, to the
best knowledge of the Seller, threatened, before any court or governmental body
(i) to restrain, prohibit, restrict or delay, or to obtain damages or a
discovery order in respect of this Agreement or the consummation of the
transactions contemplated hereby, or (ii) which has had or may have a materially
adverse effect on the condition, financial or otherwise, or prospects of any of
the Companies. No order, decree or judgment of any court or governmental body
shall have been issued restraining, prohibiting, restricting or delaying, the
consummation of the transactions contemplated by this Agreement. No insolvency
proceeding of any character including without limitation, bankruptcy,
receivership, reorganization, dissolution or arrangement with creditors,
voluntary or involuntary, affecting any of the Companies shall be pending, and
none of the Companies shall have taken any action in contemplation of, or which
would constitute the basis for, the institution of any such proceedings and the
Seller shall deliver to the Buyer a certificate, dated the Effective Date, to
such effect.
SECTION 5.8 OPINION OF COUNSEL TO THE SELLER. The Buyer shall have
received from Riezman & Blitz, P.C., counsel to the Seller, an opinion, dated as
of the Effective Date, in form and substance reasonably satisfactory to the
Buyer, and to the following effect:
(a) Each Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Missouri. Each Company is
qualified to do business as a foreign corporation and is in good standing in the
states set forth on SCHEDULE 2.4. Each Company has the corporate power and
authority to own, lease, operate and hold its properties and to carry on its
business as now conducted;
(b) This Agreement and the other Documents have been duly and validly
executed and delivered by the Seller and constitute the legal, valid and binding
obligation of the Seller, enforceable against the Seller in accordance with
their terms, except to the extent that the enforceability thereof may be subject
to or affected by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, or other laws relating to or affecting the rights of
creditors generally.
(c) Thomas has authorized capital consisting of 30,000 shares of
common stock, with par value of $1.00 per share, of which 16,875 shares are
issued and outstanding and _______ shares are held as treasury stock. Castle
has authorized capital consisting of 30,000 shares of Common Stock, with par
value of $1.00 per share, of which 100 shares are issued and
24
<PAGE>
outstanding and no shares are held as treasury stock. SHI has authorized
capital consisting of 30,000 shares of Common Stock, with par value of $1.00
per share, of which 375 shares are issued and outstanding and no shares are
held as treasury stock;
(d) Each of the Non-Competition Agreement and the Employment Agreement
has been duly executed and delivered by, and constitutes the legal, valid and
binding obligation of the Seller, enforceable against him in accordance with its
terms, except to the extent that the enforceability thereof may be subject to or
affected by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other laws relating to or affecting the rights of
creditors generally.
SECTION 5.9 CLOSING DOCUMENTS. The Seller shall have delivered all of
the resolutions, certificates, documents and instruments required by this
Agreement.
SECTION 5.10 APPROVAL OF THE BUYER AND ITS COUNSEL. All actions,
proceedings, consents, instruments and documents required to be delivered by, or
at the behest or direction of, the Seller hereunder or incident to their
performance hereunder, and all other related matters, shall be reasonably
satisfactory as to form and substance to the Buyer and its counsel.
ARTICLE VI. CONDITIONS TO THE SELLER'S OBLIGATIONS
The obligation of the Seller to transfer the Common Stock to the Buyer
and to consummate the other transactions contemplated hereby is subject to the
satisfaction, on or before the Effective Date, of the following conditions, each
of which may be waived by the Seller in his sole discretion:
SECTION 6.1 REPRESENTATIONS, WARRANTIES AND COVENANTS.
The representations and warranties of the Buyer herein contained shall be
true in all respects as stated herein, both when made and with the same effect
as though made again as of the Effective Date except to the extent of changes
permitted by the terms of this Agreement or except for breaches of
representations and warranties which would not have a material adverse effect on
the Buyer's ability to pay its obligations under this Agreement. The Buyer
shall have performed all obligations and complied with all covenants required by
this Agreement to be performed or complied with by the Buyer prior to the
Effective Date. In addition, the Buyer shall have delivered to the Seller its
certificate dated as of the Effective Date and signed by one of its officers, to
the effect that, except as disclosed in the certificate, he does not know of any
breach of any representation or warranty made by the Buyer in this Agreement, or
of any failure to perform any covenant made by the Buyer herein or to satisfy
any condition to the Buyer's obligations to effect the transactions contemplated
by this Agreement which would have a material adverse effect on the Buyer's
ability to pay its obligations under this Agreement.
SECTION 6.2 NO ACTIONS, SUITS OR PROCEEDINGS. As of the Effective
Date, no action, suit, investigation or proceeding brought by any person,
corporation, governmental agency or other entity shall be pending or, to the
knowledge of the parties to this Agreement, threatened, before any court or
governmental body to restrain, prohibit, restrict or delay, or to
25
<PAGE>
obtain damages or a discovery order in respect of this Agreement or the
consummation of the transactions contemplated hereby. No order, decree or
judgment of any court or governmental body shall have been issued restraining,
prohibiting, restricting or delaying, the consummation of the transactions
contemplated by this Agreement. No insolvency proceeding of any character
including without limitation, bankruptcy, receivership, reorganization,
dissolution or arrangement with creditors, voluntary or involuntary,
affecting the Buyer shall be pending, and the Buyer shall not have taken any
action in contemplation of, or which would constitute the basis for, the
institution of any such proceedings and the Buyer shall have delivered to the
Seller a certificate, dated the Effective Date, to such effect.
SECTION 6.3 EMPLOYMENT AGREEMENT. Thomas shall have entered into the
Employment Agreement.
SECTION 6.4 NON-COMPETITION AGREEMENT. The Buyer shall have entered
into the Non-Competition Agreement.
SECTION 6.5 REGISTRATION RIGHTS AGREEMENT. The Buyer shall have
entered into the Registration Rights Agreement.
SECTION 6.6 OPINION OF STITES & HARBISON. The Seller shall have
received from Stites & Harbison, counsel to the Buyer, an opinion dated as of
the Effective Date, in form and substance reasonably satisfactory to the Seller,
and to the following effect:
(a) The Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. The Buyer is qualified
to transact business as a foreign corporation in each jurisdiction in which the
failure to so qualify would have a material adverse impact on the Buyer's
ability to pay its obligations under this Agreement;
(b) The execution, delivery and performance of the Agreement and the
other Documents and the consummation of the transactions contemplated hereby and
thereby have been duly and validly executed and delivered by the Buyer and
constitute the legal, valid and binding obligations of the Buyer enforceable
against the Buyer in accordance with their terms except to the extent that the
enforceability thereof may be subject to or affected by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other laws
relating to or affecting the rights of creditors generally;
(c) The Buyer has authorized capital consisting of (a) 100,000,000
shares of $.001 par value common stock, of which 13,503,967 shares were issued
and 13,430,188 shares were outstanding as of October 15, 1998 and (b) 50,000,000
shares of $.001 par value preferred stock, of which (i) 4,000,000 shares have
been designated as "10% Cumulative Convertible Series A Preferred Stock" of
which 2,980,000 shares were issued and outstanding as of October 15, 1998 and
(ii) 400,000 shares have been designated as 10% Cumulative Convertible Series B
Preferred Stock" of which no shares were issued and outstanding as of December
1, 1998; and
(d) As of the Effective Date, the Buyer Series B Preferred Stock is
convertible into Buyer Common Stock on a share for share basis.
26
<PAGE>
SECTION 6.7 CLOSING DOCUMENTS. The Buyer shall have delivered all of
the resolutions, certificates, documents and instruments required by this
Agreement.
SECTION 6.8 APPROVAL OF THE SELLER AND ITS COUNSEL.
All actions, proceedings, consents, instruments and documents required to
be delivered by, or at the behest or direction of, the Buyer hereunder or
incident to its performance hereunder, and all other related matters, shall be
reasonably satisfactory as to form and substance to the Seller and its counsel.
ARTICLE VII. THE CLOSING, THE FUNDING AND CERTAIN DELIVERIES
SECTION 7.1 TIME AND PLACE OF CLOSING. Upon the terms and subject to
the satisfaction or waiver of the conditions contained in this Agreement, the
closing of the transactions contemplated by this Agreement (the "Closing") shall
take place at the offices of Riezman & Blitz, P.C., 7700 Bonhomme Avenue, 7th
Floor, Clayton, Missouri on the date hereof (the "Closing Date"). The
transactions contemplated by this Agreement shall be effective at 12:01 a.m.
(the "Effective Time") on January 1, 1999 (the "Effective Date"). Pursuant to
the request of the parties, the consideration set forth in Section 1.2 above,
this Agreement and the other Documents shall be delivered on January 4, 1999
(the "Funding Date"). Between the Closing Date and the Funding Date, this
Agreement and the other Documents shall be held in escrow by the Seller's
counsel, to be delivered to the Buyer and its counsel on the Funding Date.
SECTION 7.2 CLOSING DELIVERIES BY THE SELLER. On the Closing Date, the
Seller will deliver or cause the Companies to deliver to the Buyer the
following:
(a) Stock certificates representing all of the issued and outstanding
shares of Common Stock owned by the Seller, accompanied by stock powers duly
executed in favor of the Buyer or duly executed instruments of transfer and any
other documents that are necessary to transfer to the Buyer good and marketable
title to all issued and outstanding shares of Common Stock;
(b) The stock books, stock ledgers, minute books, and other corporate
records of the Companies;
(c) Resignations dated as of the Effective Date of all of the
directors and officers of the Companies as designated by the Buyer;
(d) All required consents of third parties to the sale, conveyance,
transfer, assignment and delivery of the Common Stock or any assets of the
Companies hereunder;
(e) A certificate of the Secretary of each Company certifying as of
the Closing Date (i) a true, correct, and complete copy of the Articles of
Incorporation of such Company and all amendments thereto as in effect on the
Closing Date; (ii) a true, correct, and complete copy of
27
<PAGE>
the bylaws of such Company and all amendments thereto as in effect on the
Closing Date; and (iii) Certificates of Good Standing from the Missouri
Secretary of State and from any state in which such Company is qualified to
transact business as a foreign corporation;
(f) The affidavit of the Seller certifying as to its non-foreign
status in accordance with Section 1445(b)(2) of the Code;
(g) The Non-Competition Agreement required by Section 5.4 above;
(h) The Employment Agreement required by Section 5.5 above;
(i) The Registration Rights Agreement required by Section 5.6 above;
(j) A General Release from the Seller which releases each Company from
any and all claims, known or unknown, contingent or direct, which it may have
against any Company as of the Closing Date, other than claims arising under this
Agreement and the other Documents and the transactions contemplated hereby; and
(k) All other documents, instruments and writings required to be
delivered by the Seller at or prior to the Closing Date pursuant to this
Agreement or otherwise required in connection herewith.
SECTION 7.3 FUNDING DELIVERIES BY THE SELLER. On the Funding Date, the
Seller will deliver or cause the Companies to deliver the following to the
Buyer:
(a) The certificate of the Seller, dated as of the Effective Date,
required by Sections 5.2 and 5.6 above;
(b) The Opinion of the Seller's Counsel required by Section 5.8 above;
SECTION 7.4 CLOSING DELIVERIES BY THE BUYER. On the Closing Date,
the Buyer will deliver the following to or for the account of the Seller:
(a) The Employment Agreement required by Section 6.3 above;
(b) The Non-Competition Agreement required by Section 6.4 above;
(c) The Registration Rights Agreement required by Section 6.5 above;
(d) A certificate of an officer of the Buyer certifying as of the
Closing Date (i) a true, correct, and complete copy of the Certificate of
Incorporation of the Buyer and all amendments thereto as in effect on the
Closing Date; (ii) a true, correct, and complete copy of the bylaws of the Buyer
and all amendments thereto as in effect on the Closing Date; (iii) a true,
correct, and complete copy of the resolutions approved and adopted by the Board
of Directors of the Buyer authorizing the transactions contemplated herein;
(iv) Certificate of Good Standing
28
<PAGE>
from the Delaware Secretary of State; and (v) the incumbency of the duly
authorized officers of the Buyer; and
(e) All other documents, instruments and writings required to be
delivered by the Buyer at or prior to the Closing Date pursuant to this
Agreement or otherwise required in connection herewith.
SECTION 7.5 FUNDING DELIVERIES BY THE BUYER. On the Funding Date,
the Buyer will deliver the following to or for the account of the Seller:
(a) The consideration required by Section 1.2 above;
(b) The Letter of Credit required by Section 4.3 above;
(c) The certificate of the Buyer, dated as of the Effective Date,
required by Sections 6.1 and 6.2 above; and
(d) The Opinion of the Buyer's Counsel required by Section 6.6 above;
ARTICLE VIII. [INTENTIONALLY OMITTED]
ARTICLE IX. SURVIVAL; INDEMNIFICATION AND OFFSET
SECTION 9.1 SURVIVAL. All representations and warranties in this
Agreement and the other Documents shall survive the Closing of the purchase of
the Common Stock contemplated hereby and any investigation at any time made by
or on behalf of any party for a period of three years and all such
representations and warranties shall expire on the third anniversary of the
Effective Date, except that (a) claims, if any, asserted in writing prior to
such third anniversary identified as a claim for indemnification pursuant to
this Article IX shall survive until finally resolved and satisfied in full; (b)
any Year-2000 Indemnification Obligations (as hereinafter defined) shall survive
until February 1, 2003 and until finally resolved and satisfied in full if
asserted on or prior to February 1, 2003; and (c) tax or environmental claims
arising from a breach of Section 2.28 or Section 2.30, respectively, shall
survive for the full period of the applicable statute of limitations, and until
finally resolved and satisfied in full if asserted on or prior to the expiration
of any such period. The representations and warranties shall not be affected or
otherwise diminished by any investigation at any time by or on behalf of the
party for whose benefit such representations and warranties were made. All
covenants in this Agreement shall continue in full force and effect until
discharged, waived or otherwise satisfied.
SECTION 9.2 INDEMNIFICATION BY THE SELLER. Subject to the terms
herein, the Seller shall indemnify, defend, and hold the Companies and the Buyer
and the respective officers, directors, and employees of the foregoing, and
their successors and assigns (the "Seller's Indemnitees") harmless from, against
and with respect to any claim, liability, obligation, loss, damage, assessment,
judgment, cost or expense of any kind or character, including reasonable
29
<PAGE>
attorneys' fees (the "Damages"), arising out of or in any manner incident,
relating or attributable to:
(a) Any inaccuracy in any representation or breach of any
warranty of the Seller contained in this Agreement;
(b) Any failure by the Seller to perform or observe, or to have
performed or observed, in full, any covenant, agreement or
condition to be performed or observed by it under this
Agreement;
(c) Reliance by the Buyer on any books or records of any Company
or written information furnished to the Buyer pursuant to
this Agreement by or on behalf of the Seller or the
Companies in the event that such books and records or
written information are false or materially inaccurate; or
(d) Liabilities or obligations of, or claims against, any Company
or the Buyer (whether absolute, accrued, contingent or
otherwise) relating to, or arising out of, the operation
of the Business prior to the Effective Date or facts and
circumstances relating specifically to the Business, the
Leased Parcels, or the Companies existing at or prior to
the Closing Date, including but not limited to matters set
forth on SCHEDULE 2.29, whether or not such liabilities,
obligations or claims were known on such date, excluding only
liabilities set forth in the Balance Sheet and liabilities
and obligations incurred since the date thereof in the
ordinary course of business and consistent with past
practice.
Provided, however, the Seller's Indemnitees shall not be entitled to
indemnification or offset hereunder until Damages in total exceed $50,000 and
then only to the extent of aggregate Damages in excess of $50,000; provided
further, however, this limitation or "basket" shall not apply to any Damages
arising in connection with the representations and warranties as set forth in
Sections 2.1, 2.2, 2.28, 2.29 and 2.30 hereof, respectively. Indemnification
claims under this Agreement shall be limited to a maximum amount of One Million
Dollars ($1,000,000) (the "Indemnification Cap") except for claims arising in
connection with the representations and warranties set forth in Sections 2.1,
2.2 or 2.3 hereof, respectively.
SECTION 9.3 NOTICE TO THE SELLER, ETC. If any of the matters as to
which the Seller's Indemnitees are entitled to receive indemnification under
Section 9.2 should entail litigation with or claims asserted by parties other
than the Seller, the Seller shall be given prompt notice thereof and shall have
the right, at his expense, to control such claim or litigation upon prompt
notice to the Buyer of his election to do so. To the extent requested by the
Seller, the Buyer, at its expense, shall cooperate with and assist the Seller,
in connection with such claim or litigation. The Buyer shall have the right to
appoint, at its expense, single counsel to consult with and remain advised by
the Seller in connection with such claim or litigation. The Seller shall have
final authority to determine all matters in connection with such claim or
litigation; PROVIDED, HOWEVER, that the Seller shall not settle any third party
claim without the consent of the Buyer, which shall not be unreasonably denied
or delayed.
30
<PAGE>
If any of the matters as to which the Seller's Indemnities are entitled
to receive indemnification under Section 9.2 should entail litigation with or
claims asserted by the Buyer, the Seller shall be given prompt notice thereof.
SECTION 9.4 INDEMNIFICATION BY THE BUYER. The Buyer shall indemnify,
defend, and hold the Seller and his heirs, executors, and legal representatives
(the "Buyer's Indemnitees") harmless from, against and with respect to any
Damages, arising out of or in any manner incident, relating or attributable to:
(a) Any inaccuracy in any representation or breach of warranty
of the Buyer contained in this Agreement;
(b) Any failure by the Buyer to perform or observe, or to have
performed or observed, in full, any covenant, agreement or
condition to be performed or observed by it under any of the
Documents;
(c) Reliance by the Seller on any books or records of the Buyer
or reliance by the Seller on any written information
furnished to the Seller pursuant to this Agreement by or on
behalf of the Buyer in the event that such books and records
or written information are false or inaccurate; or
(d) The operation of the Business subsequent to the Effective
Date.
Provided, however, the Buyer's Indemnitees shall not be entitled to
indemnification hereunder until Damages in total exceed $50,000 and then only to
the extent of aggregate damages in excess of $50,000; provided further, however,
this limitation or "basket" shall not apply to any Damages arising in connection
with the representations and warranties as set forth in Section 3.2 hereof.
Indemnification claims under this Agreement shall be limited to the
Indemnification Cap. Notwithstanding anything to the contrary in this Section
9.4, the Buyer's Indemnitees shall be entitled to recover Damages from the Buyer
on a dollar for dollar basis regardless of whether Damages exceed the
Indemnification Cap and without any "basket" in an action with respect to (i)
the Buyer's refusal or failure to pay or deliver any part of the consideration
set forth in Sections 1.2 and 1.3 of this Agreement, or (ii) the Buyer's refusal
or failure to pay or deliver compensation to the Seller in accordance with the
Employment Agreement, or (iii) the Buyer's refusal or failure to pay or deliver
to the Seller any dividends paid to other similarly situated holders, taking
into account the number of shares of stock then owned by the Seller.
SECTION 9.5 NOTICE TO THE BUYER, ETC. If any of the matters as to
which the Buyer's Indemnitees are entitled to receive indemnification under
Section 9.4 should entail litigation with or claims asserted by parties other
than the Buyer, the Buyer shall be given prompt notice thereof and shall have
the right, at its expense, to control such claim or litigation upon prompt
notice to the Seller of its election to do so. To the extent requested by the
Buyer, the Seller, at his expense, shall cooperate with and assist the Buyer, in
connection with such claim or litigation. The Seller shall have the right to
appoint, at his expense, single counsel to
31
<PAGE>
consult with and remain advised by the Buyer in connection with such claim or
litigation. The Buyer shall have final authority to determine all matters in
connection with such claim or litigation; PROVIDED, HOWEVER, that the Buyer
shall not settle any third party claim without the consent of the Seller,
which shall not be unreasonably denied or delayed.
If any of the matters as to which the Buyer's Indemnities are entitled to
receive indemnification under Section 9.4 should entail litigation with or
claims asserted by the Seller, the Buyer shall be given prompt notice thereof.
SECTION 9.6 SURVIVAL OF INDEMNIFICATION. The obligations to indemnify
and hold harmless pursuant to this Article IX shall survive the Closing of the
purchase of the Common Stock contemplated hereby for a period of three years
from the Effective Date, notwithstanding any investigation at any time made by
or on behalf of any party, except that (a) claims, if any, asserted in writing
prior to such third anniversary identified as a claim for indemnification
pursuant to this Article IX shall survive until finally resolved and satisfied
in full; (b) any Year-2000 Indemnification Obligations (as hereinafter defined)
shall survive until February 1, 2003 and until finally resolved and satisfied in
full if asserted on or prior to February 1, 2003; and (c) tax or environmental
claims arising from a breach of Section 2.28 or Section 2.30, respectively,
shall survive for the full period of the applicable statute of limitations, and
until finally resolved and satisfied in full if asserted on or prior to the
expiration of any such period. As used in this Article 9, the term "Year-2000
Indemnification Obligations" shall mean the Seller's obligation to indemnify,
defend, and hold the Seller's Indemnitees harmless from, against and with
respect to any Damages arising out of or in any manner incident, relating or
attributable to (i) any claim or allegation that any Licensed System is not
Year-2000 Compliant and (ii) any claim arising from a breach of Section 2.33.
SECTION 9.7 OFFSET. The Seller acknowledges and agrees that the Buyer
shall be entitled to offset any indemnity claim under Section 9.2 against any
payment due to such Seller under Sections 1.2 and 1.3 hereof, at the Buyer's
sole option.
SECTION 9.8 SOLE REMEDY. Notwithstanding anything contained herein to
the contrary, in the absence of fraud or intentional misrepresentation, the sole
and exclusive remedy of the Buyer against the Seller pursuant to this Agreement
for a breach of a representation, warranty or covenant is the Buyer's
indemnification rights under this Article IX.
ARTICLE X. MISCELLANEOUS
SECTION 10.1 KNOWLEDGE OF THE SELLER. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to the
best knowledge of the Seller, the Seller confirms that he has made due and
diligent inquiry of each Company's President and Mitch Wexler as to the matters
that are the subject of such representations and warranties.
SECTION 10.2 KNOWLEDGE OF THE BUYER. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to the
best knowledge of the Buyer, the Buyer confirms that it has made due and
diligent inquiry of its Chief Executive
32
<PAGE>
Officer and Chief Financial Officer as to the matters that are the subject of
such representations and warranties.
SECTION 10.3 "PERSON" DEFINED. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or other department or agency
thereof.
SECTION 10.4 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) sent by recognized overnight courier, (iii) made by telecopy or facsimile
transmission, or (iv) sent by registered or certified mail, return receipt
requested, postage prepaid.
If to the Buyer:
ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
Attn: Stephen A. Hoffmann, Chief Executive Officer
Fax No: (502) 412-0301
With a copy to:
Stites & Harbison
400 W. Market Street, Suite 1800
Louisville, Kentucky 40202
Attn: Ralston W. Steenrod, Esq.
Fax No: (502) 587-6391
If to the Seller:
Mr. Rodney H. Thomas
13397 Lakefront Drive
Earth City, Missouri 63045
Fax No: (314) 739-6965
With a copy to:
Riezman & Blitz, P.C.
7700 Bonhomme Avenue, 7th Floor
St. Louis, Missouri 63105
Attn: Richard B. Rothman, Esq.
Fax No: (314) 727-6458
33
<PAGE>
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof to
the receiving party at the address of such party set forth above, (ii) if sent
by overnight courier, on the next business day following the day such notice is
delivered to the courier service, (iii) if made by telecopy or facsimile
transmission, at the time that receipt thereof has been acknowledged by
electronic confirmation or otherwise, or (iv) if sent by registered or certified
mail, on the fifth business day following the day such mailing is sent. The
address of any party herein may be changed at any time by written notice to the
parties.
SECTION 10.5 ENTIRE AGREEMENT. This Agreement and the other Documents
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in the other Documents shall affect, or be used to
interpret, change or restrict, the express terms and provisions of this
Agreement.
SECTION 10.6 MODIFICATIONS AND AMENDMENTS. The terms and provisions of
this Agreement may be modified or amended only by written agreement executed by
all parties hereto.
SECTION 10.7 ASSIGNMENT/BINDING EFFECT. Neither this Agreement, nor any
right hereunder, may be assigned by any of the parties hereto without the prior
written consent of the other parties. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns.
SECTION 10.8 PARTIES IN INTEREST. Nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement. Nothing in this
Agreement shall be construed to create any rights or obligations except among
the parties hereto. Notwithstanding anything contained herein to the contrary,
the Companies shall be regarded as third-party beneficiaries of this Agreement.
SECTION 10.9 GOVERNING LAW. This Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with and
governed by the internal laws of the State of Missouri without giving effect to
the conflict of law principles thereof.
SECTION 10.10 ARBITRATION. Any dispute or difference between the parties
hereto arising out of or relating to this Agreement shall be finally settled by
arbitration in accordance with the Commercial Rules of the American Arbitration
Association by a panel of three qualified arbitrators. The Seller and the Buyer
shall each choose an arbitrator and the third shall be chosen by the two so
chosen. If either the Seller or the Buyer fails to choose an arbitrator within
30 days after notice of commencement of arbitration or if the two arbitrators
fail to choose a third arbitrator within 30 days after their appointment, the
American Arbitration Association shall, upon the request of any party to the
dispute or difference, appoint the arbitrator or arbitrators to constitute or
complete the panel as the case may be. Arbitration proceedings hereunder may be
initiated by either the Seller or the Buyer making a written request to the
American Arbitration
34
<PAGE>
Association, together with any appropriate filing fee, at the office of the
American Arbitration Association in St. Louis, Missouri. All arbitration
proceedings shall be held in St. Louis, Missouri. Any order or determination
of the arbitral tribunal shall be final and binding upon the parties to the
arbitration and may be entered in any court having jurisdiction.
SECTION 10.11 SEVERABILITY. In the event that any arbitral tribunal of
competent jurisdiction shall finally determine that any provision, or any
portion thereof, contained in this Agreement shall be void or unenforceable in
any respect, other than the provisions regarding payment of consideration or
compensation to the Seller, then such provision shall be deemed limited to the
extent that such arbitral tribunal determines it enforceable, and as so limited
shall remain in full force and effect. In the event that such arbitral tribunal
shall determine any such provision, or portion thereof, wholly unenforceable,
the remaining provisions of this Agreement shall nevertheless remain in full
force and effect.
SECTION 10.12 INTERPRETATION. The parties hereto acknowledge and agree
that: (i) the rule of construction to the effect that any ambiguities are
resolved against the drafting party shall not be employed in the interpretation
of this Agreement, and (ii) the terms and provisions of this Agreement shall be
construed fairly as to all parties hereto and not in favor of or against any
party, regardless of which party was generally responsible for the preparation
of this Agreement.
SECTION 10.13 HEADINGS AND CAPTIONS. The headings and captions of the
various subdivisions of this Agreement are for convenience of reference only and
shall in no way modify, or affect, or be considered in construing or
interpreting the meaning or construction of any of the terms or provisions
hereof.
SECTION 10.14 RELIANCE. The parties hereto agree that, notwithstanding
any right of any party to this Agreement to investigate the affairs of any other
party to this Agreement, the party having such right to investigate shall have
the right to rely fully upon the representations and warranties of the other
party expressly contained herein.
SECTION 10.15 EXPENSES. Each party shall pay its own fees and expenses
(including the fees of any attorneys, accountants, appraisers or others engaged
by such party) incurred in connection with this Agreement and the transactions
contemplated hereby whether or not the transactions contemplated hereby are
consummated.
SECTION 10.16 GENDER. All pronouns and any variation thereof shall be
deemed to refer to the masculine, feminine, neuter, singular, or plural as the
identity of the person or entity or the context may require.
SECTION 10.17 PUBLICITY. Except by the mutual agreement between the
Seller and the Buyer, no party shall issue any press release or otherwise make
any public statement with respect to the execution of, or the transactions
contemplated by, this Agreement except as may be required by law.
35
<PAGE>
SECTION 10.18 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by different parties hereto on separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
36
<PAGE>
IN WITNESS WHEREOF, the Buyer has caused this Agreement to be executed by
its duly authorized officer and the Seller executed this Agreement all as of the
day and year first above written.
BUYER:
THERMOVIEW INDUSTRIES, INC.
By: /s/ Stephen A. Hoffmann
-----------------------------------
Stephen A. Hoffmann,
Chief Executive Officer
SELLER:
/s/ Rodney H. Thomas
--------------------------------------
RODNEY H. THOMAS
<PAGE>
FURNITURE AND FIXTURE LEASE
THIS FURNITURE AND FIXTURE LEASE is made and entered into as of the 1st
day of January, 1999 (the "Effective Date"), by and between Investors Property
Holding I, LLC, a Missouri limited liability company (hereinafter referred to as
"Lessor"), and THOMAS CONSTRUCTION, INC., a Missouri corporation (hereinafter
referred to as "Lessee").
WHEREAS, Lessee is leasing or in the future will lease pursuant to a
real estate lease (the "Real Estate Lease") the premises (the "Premises") at
13397 Lakefront Drive, Earth City, Missouri 63045 from an affiliate of Lessor;
and
WHEREAS, Lessee desires to lease from Lessor certain furniture and
fixtures (collectively referred to as the "Leased Property") described on
Exhibit A hereto from Lessor for use in connection with Lessee's occupancy of
the Premises; and
NOW, THEREFORE, in consideration of the foregoing premises, all of
which are incorporated herein by this reference, the agreements of the parties
and other good and valuable consideration, the receipt of which is hereby
acknowledged, Lessor and Lessee agree as follows:
1. DESCRIPTION OF LEASED PROPERTY. Lessor hereby leases to Lessee
and Lessee hereby leases from Lessor the Leased Property set forth and more
fully described on EXHIBIT A, attached hereto and incorporated herein by this
reference (hereinafter collectively referred to as the "Leased Property").
2. TERM AND RENEWAL OPTIONS.
A. The initial term of this Lease shall be for five
years commencing on the Effective Date.
B. The term of this Lease may be extended in accordance
with this paragraph, at the option of Lessee, for two successive periods of
three (3) Lease Years each, each such additional three (3) Lease Year terms
being herein sometimes referred to as a "Renewal Term". In order to exercise
Lessee's option to extend, Lessee must not be in default (after the expiration
of all applicable cure periods) with respect to any of the terms, conditions or
provisions of this Lease at the time of Lessee's exercise of each option and the
named Lessee under this Lease must not have assigned this Lease except pursuant
to the terms and conditions of this Lease. In order to exercise Lessee's option,
Lessee must give Lessor written notice of Lessee's exercise of the option not
later than three (3) months prior to the commencement of the Renewal Term to
which the option applies. Time is of the essence and failure of Lessee to
deliver notice of its exercise of the option to extend within the time specified
shall be deemed a failure by Lessee to exercise such option and said option and
all subsequent options shall lapse.
C. Upon the expiration of the term of this Lease or the
termination of this Lease, Lessee shall return the Leased Property to Lessor in
as good condition as at the time this Lease is entered into, normal wear and
tear excepted. Notwithstanding the expiration of the term of this Lease or the
termination of this Lease pursuant to any other section of this Lease, any
obligations of one party to the other that have arisen prior to the expiration
or termination, as the
<PAGE>
case may be, and are not satisfied in full as of the expiration or
termination, as the case may be, of this Lease shall remain in full force and
effect until satisfied in full.
3. RENT.
A. During the first eighteen months following the
Effective Date the Lessee is not obligated to pay any base rent for the Leased
Property. However, during said period the Lessee shall pay all taxes and
insurance applicable to said Leased Property during said period, and shall
maintain said Leased Property in good repair.
B. For the last three and one half years of the initial
term of this Lease, Lessee agrees to pay to Lessor, as base rent for the rental
of the Leased Property, the sum of Five Thousand Dollars ($5,000.00) per month
payable monthly in advance due on the first day of each month.
C. Base Rent during the first three year renewal period
shall be equal to one hundred ten percent (110%) of the base rent applicable
during the immediately preceding period.
D. Base Rent during the second three year renewal period
shall be equal to one hundred eight percent (108%) of the base rent applicable
during the immediately preceding period.
E. In addition to the rental payments provided for in
the preceding paragraph, Lessee shall, before the due date thereof, pay to the
appropriate taxing authority any personal property taxes levied on the Leased
Property.
4. LESSEE'S ADDITIONAL AGREEMENTS. LESSEE FURTHER COVENANTS AND
AGREES AS FOLLOWS:
A. Neither the Leased Property, nor any interest
therein, shall be sold, mortgaged, sublet or otherwise disposed of, nor any
liens or encumbrances permitted to be placed thereon, nor shall this Lease be
assigned by Lessee, without the express written consent of Lessor, which consent
may be arbitrarily withheld. For purposes of this Section 4.A, an assignment
shall include any merger, reorganization or consolidation of Lessee and/or any
transfer of a controlling interest in Lessee.
B. So long as title has not transferred to Lessee,
Lessee shall maintain the Leased Property in the same condition as when
received, ordinary wear and tear resulting from careful use excepted.
C. Lessee shall, during the term of this Lease, keep the
Leased Property insured for full replacement value, without reduction for
physical depreciation, against loss and damage of every kind and nature and
Lessor shall be named the insured with respect to the Leased Property. Lessee
shall deliver to Lessor certificates evidencing such insurance prior to the
commencement of this Lease, and evidence of renewal of such insurance prior to
any expiration thereof. Each Certificate of Insurance shall require thirty (30)
days notice to Lessor prior to the termination or non-renewal of any such
insurance. To the extent Lessor is not compensated by such insurance policies
for any damage or loss to the Leased Property, Lessee
2
<PAGE>
will pay Lessor for any and all loss or damage to the Leased Property
sustained during the term of this Lease from whatever cause.
If any Leased Property is destroyed or damaged, Lessee shall promptly
notify Lessor of such damage or destruction and deliver to Lessor all evidence
and/or documents reasonably requested by Lessor to substantiate such destruction
or damage. Within ten (10) days after receipt of all insurance proceeds and/or
any additional payment from Lessee payable with respect to such Leased Property,
Lessor, in its sole discretion, shall notify Lessee of its election to (a)
repair such Leased Property, (b) replace such Leased Property or (c) terminate
this Lease with respect to such Leased Property. In any such event, this Lease
shall remain in full force and effect with respect to the remainder of the
Leased Property.
D. If requested by Lessor, Lessee shall cause to be
affixed to each Leased Property a metal plate inscribed with the following
legend: "PROPERTY OF [insert Lessor's name], ST. LOUIS, MO." and shall take all
other action as may be reasonably requested by Lessor to advise the public of
Lessor's ownership of the Leased Property.
E. Lessee shall comply with all laws and governmental
regulations with respect to the lease of Leased Property and the billing
thereof.
F. Lessee at Lessee's expense shall be responsible for
all repair and maintenance of the Leased Property and shall keep the Leased
Property in good repair.
G. Lessee hereby agrees to defend, pay, indemnify and
save free and harmless Lessor from and against any and all losses, claims,
demands, fines, suits, actions, proceedings, orders, decrees and judgments of
any kind or nature by or in favor of anyone whomsoever and from and against any
and all costs and expenses, including reasonable attorneys' fees, arising
directly or indirectly out of or from or on account of, or occasioned wholly or
in part through, the use, operation, maintenance or moving of any of the Leased
Property by Lessee, any customer of Lessee, or any employee, agent, licensee,
invitee or contractor of Lessee or of any customer of Lessee. This section shall
not require the Lessee to indemnify for the willful or wanton misconduct or
negligence of Lessor or of persons associated with Lessor.
H. Lessee agrees that Lessee shall not sell or lease the
Leased Property.
5. DEFAULT.
A. Subject to the notice and right to cure provided in
Section 5.B, it is understood and agreed that if: (i) Lessee fails to make any
payment to Lessor required by any provision of this Lease when due, or (ii)
Lessee violates any of the other terms and provisions of this Lease to be
performed by Lessee, or (iii) an event of default occurs under the Real Estate
Lease, Lessor may at Lessor's option declare all rents owing through the end of
the term of this Lease to be immediately due and payable and/or terminate this
lease without prejudice to Lessor's right to collect past and future rents. With
respect to any claim by Lessor for rents following a default by Lessee, Lessee
shall be entitled to a credit for any net rents received by Lessor if Lessor has
leased the Leased Property to another lessee following termination of this
Lease. Lessor may exercise any and/or all of the rights granted in this Section
5.A without
3
<PAGE>
prejudice to any right or claim of Lessor for arrearage of rent or on account
of any preceding breach of this Lease. In addition, should Lessee fail to pay
any amount payable to Lessor hereunder when due, such past due amount shall
bear interest from the date such payment was due at the rate of five points
over the "prime rate" as published in the Wall Street Journal (hereinafter
referred to as "Default Rate of Interest") until such payment and all accrued
interest are paid in full. Lessee shall also pay to Lessor all costs of
collection, including Lessor's attorneys' fees and court costs incurred by
Lessor as a result of Lessee's default under this Lease and/or Lessee's
failure to pay for the Leased Property if Lessee exercises its purchase
option, whether suit is instituted or not.
B. Notwithstanding anything to the contrary, Lessee
shall not be in default or violation of this Lease if Lessee completely cures
(i) any failure to pay rent or any other monetary amount owed to Lessor within
five (5) calendar days after written notice from Lessor of Lessee's failure to
pay such amount, provided that Lessor shall not be obligated to give Lessee a
payment default notice and cure rights more than once in any 12 consecutive
month period, and (ii) any other default under this Lease within ten (10)
business days after written notice from Lessor of such default.
6. TRUE LEASE. This is a true lease and not a security
transaction. However, if requested by Lessor, Lessee agrees to execute uniform
commercial code financing statements confirming that this is a lease.
7. RELATIONSHIP OF PARTIES. The relationship between Lessor and
Lessee shall be that of a lessor of goods and a lessee thereof. This Lease shall
not be construed to create a partnership, joint venture, franchisor-franchisee,
manufacturer-distributor, agency or other business relationship other than that
of a lessor of goods and lessee thereof. It is further understood and agreed
that (i) title to the Leased Property herein leased and to all replacements or
substitutions therefor is and shall remain in Lessor throughout the term of this
Lease, and (ii) the Leased Property shall not be deemed to become a part of any
building by being placed therein or affixed thereto.
8. NOTICES. Any and all notices required or desired to be given
by any party to this Lease shall be in writing and shall be personally delivered
by hand or deposited with the U.S. Postal Service, registered or certified,
return receipt requested, postage fully prepaid, to the parties hereto as set
forth in this Section or to such other address or addresses as any party may
designate in writing:
To Lessor: Investors Property Holding I, LLC
13397 Lakefront Drive
Earth City, Missouri 63045
Attention: Rodney H. Thomas
To Lessee: Thomas Construction, Inc.
C/o ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
Attn: Stephen A. Hoffmann, Chief Executive
4
<PAGE>
Any change of address by one party pursuant to this Section shall not be
effective until notice of same is given to the other parties. In the event of
any interruption and/or delay in the service of the U.S. Postal Service, all
notices pursuant to this Section shall be personally delivered by hand to all
parties hereto. For purposes of this Lease, except for personal delivery, notice
shall be deemed received on the date of receipt appearing on the return receipt
and provided by the United States Postal Service or on the date receipt thereof
is refused.
9. NO CONSEQUENTIAL DAMAGES. Neither Lessor nor Lessee shall be
liable to the other for any incidental or consequential damages caused by either
breaching this Lease.
10. LIMITATION ON WARRANTIES. The Leased Property is leased in its
"AS IS" condition, and LESSOR MAKES NO EXPRESS OR IMPLIED WARRANTIES CONCERNING
THE CONDITION OF THE LEASED PROPERTY. LESSOR MAKES NO IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A SPECIFIC PURPOSE IN CONNECTION WITH ANY LEASE
OR SALE OF LEASED PROPERTY TO LESSEE.
11. RIGHT OF ACCESS. Lessee irrevocably authorizes the Lessor to
enter any premises where the Leased Property are located at any time for the
purposes of: (i) inspection of the Leased Property, (ii) repair or replacement
of the Leased Property, (iii) removal of the Leased Property upon the expiration
or termination of this Lease, and (iv) for any other purpose authorized by this
Lease. Lessee shall keep Lessor advised as to the location of the Leased
Property at all times. The Leased Property shall not be removed from the
Premises without the prior written consent of Lessor. Before delivering the
Leased Property to premises owned or controlled by third parties, Lessee shall
obtain written consent from such third party authorizing both Lessor and Lessee,
or either one of them, to enter the premises at any time for the purposes of:
(i) inspection of the Leased Property, (ii) repair or replacement of the Leased
Property, (iii) removal of the Leased Property upon the expiration or
termination of this Lease, and (iv) for any other purpose authorized by this
Lease. Lessee also assigns to Lessor all rights such third party has granted to
Lessee with respect to entering premises and repairing and removing Leased
Property. Lessee is obligated to pay Lessor the fair market value of the Leased
Property in the event that said Leased Property is not delivered into the
exclusive possession of Lessor within a reasonable time after the termination or
expiration of this Lease.
12. LIABILITY INSURANCE. Lessee shall during the term of this
Lease carry general liability insurance in an amount of not less than
$500,000.00 per occurrence covering all liability that Lessee shall have for
personal injury or property damage arising from its rental of the Leased
Property. Lessor shall be named as an additional named insured on said liability
insurance. Lessee at the commencement of the Lease and thereafter on request
shall provide Lessor with a certificate from its insurance company evidencing
that Lessee has complied with this section of the Lease. Lessor is to receive 30
days advance notice of the cancellation of said insurance.
5
<PAGE>
13. ALTERATIONS AND REPLACEMENT PARTS.
Lessee shall not make and shall not permit its sublessees to make any
alterations to the Leased Property without the prior written consent of Lessor.
All replacement parts added to that Leased Property at any time by
Lessor or Lessee or others shall be deemed to be part of the Leased Property and
shall be the property of the owner of the Leased Property.
14. MISCELLANEOUS.
A. This Lease contains the entire agreement between the
parties hereto with respect to the leasing of the Leased Property described
herein and no agreement contrary to any of the terms herein set forth has been
entered into.
B. This Lease has been entered into and shall be
construed and interpreted under the laws and rules of the State of Missouri.
C. Each party hereto hereby covenants, warrants, and
represents that such party has full authority to enter into and execute this
agreement and carry out its terms and conditions, and that, when executed, this
Lease shall be a binding obligation on such party, enforceable in accordance
with its terms.
D. This Lease shall be binding upon and shall inure to
the benefit of the respective successors and assigns of the parties hereto.
Notwithstanding the foregoing, no assignment of this Lease by Lessee shall be
valid except with the prior written consent of Lessor.
E. The headings to the Sections of this Lease are purely
for the purpose of reference and shall have no substantive or legal effect.
F. If any term or provision of this Lease is declared
invalid, unenforceable, and/or illegal by a court of competent jurisdiction, all
of the other terms and provisions of this Lease shall remain in full force and
effect except to the extent modified by said declaration.
G. Lessee agrees and acknowledges that all payments are
to be made at Lessor's place of business in the County of St. Louis, Missouri
and that this Lease is subject to approval by Lessor at Lessor's place of
business in the County of St. Louis, Missouri.
15. ARBITRATION.
(a) BINDING ARBITRATION. All disputes between the Lessor
and the Lessee arising under this Agreement, shall be resolved by binding
arbitration in accordance with this Section if either party by written notice to
the other party requests that a specific dispute be resolved by arbitration.
Such arbitration shall be conducted in accordance with the following procedures.
(b) VOLUNTARY APPOINTMENT. The Lessor and the Lessee
shall appoint a single Arbitrator who is not affiliated with either the Lessor
or the Lessee. Such Arbitrator shall render a decision within thirty (30) days
of such appointment.
6
<PAGE>
(c) APPOINTMENT BY ARBITRATORS. If the Lessor and the
Lessee cannot agree on a single Arbitrator within twenty (20) days after an
election to submit the matter to arbitration, then the Lessor and the Lessee
shall each appoint one Arbitrator within ten (10) days following such twenty
(20) day period. The two appointed Arbitrators shall within ten (10) days of
such referral appoint a third Arbitrator, and if such Arbitrators are not able
to agree on such third Arbitrator, then, on five (5) days notice in writing to
the other Arbitrator, either Arbitrator shall apply to the branch of the
American Arbitration Association in St. Louis, Missouri to designate and appoint
such third Arbitrator. The three Arbitrators shall reach a decision within
twenty (20) days after the appointment of the third Arbitrator.
(d) FAILURE TO APPOINT. If either the Lessor or the
Lessee fails to appoint an Arbitrator, then the single Arbitrator designated by
the other party shall act as the sole Arbitrator to resolve such dispute. The
decision and award of such sole Arbitrator shall be binding upon the parties.
(e) FEES AND EXPENSES. The fees and expenses of the
Arbitrators shall be paid by the party whose position is not adopted by the
Arbitrators. The award of any Arbitrators made in accordance with this Section
shall be binding on the parties and enforceable in any court of competent
jurisdiction.
(f) PROCEEDINGS. All proceedings by the Arbitrators shall
be conducted in accordance with the Uniform Arbitration Act as enacted in the
State of Missouri, except to the extent the provisions of such Act are modified
by this Agreement or the mutual agreement of the parties. Unless Otherwise
agreed, all arbitration proceedings shall be conducted in St. Louis, Missouri.
(g) ARBITRATION DECISIONS. In all arbitration proceedings
submitted to any Arbitrators, the Arbitrators shall be required to agree upon
and approve the substantive position advocated by one party with respect to each
disputed item. The Arbitrator(s) shall exclusively determine whether a
particular dispute falls within the scope of their authority.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as
of the date first above written.
THIS LEASE CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
INVESTORS PROPERTY HOLDING I, LLC
("Lessor")
By: /s/ RODNEY H. THOMAS
------------------------------
Title: Rodney H. Thomas, Member
7
<PAGE>
THOMAS CONSTRUCTION, INC.
("Lessee")
By: /s/ STEPHEN A. HOFFMANN
---------------------------
Title: Vice President
8
<PAGE>
L E A S E
This LEASE is entered into by and between Landlord and Tenant pursuant
to the following terms and conditions:
1. SUMMARY:
(a) Date of Lease: December 30, 1996
(b) Landlord: Rodney H. Thomas and Dawn S. Thomas, his wife, as tenants by
the entirety
Address: 4283 Shoreline Drive, Earth City, Missouri 63045
(c) Tenant: Thomas Construction, Inc., a Missouri corporation
Address: 4283 Shoreline Drive, Earth City, Missouri 63045
(d) [This subparagraph is intentionally blank]
(e) Premises: the building and all land, including the parking lot,
landscaped areas and other common areas, known and numbered as 13397
Lakefront Drive, Earth City, Missouri 63045
(f) Term: seventeen (17) years, unless sooner terminated in accordance with
this Lease or applicable law
(g) Commencement Date: upon issuance of an occupancy permit for the
Premises. At such time, Landlord and Tenant shall execute a certificate
evidencing the actual Commencement Date. Expiration Date: seventeen
(17) years following the commencement Date.
(h) Rental: Four Hundred Forty-Nine Thousand Five Hundred Eighty-Seven
Dollars ($449,587) annually; Thirty-Seven Thousand Four Hundred
Sixty-Five Dollars Fifty-Eight Cents ($37,465.58) monthly
<PAGE>
Beginning with the third year following the Commencement Date and
every three (3) years thereafter, rent shall be adjusted for the CPI
[see Para. 5(b)]
(i) Use of Premises: offices, showroom, telemarketing and related uses for
home improvement sales and marketing, mortgage sales and brokering
(j) Tenant's Proportionate Share shall be deemed to be one hundred percent
(100%)
2. CONTINGENCIES. This Lease shall be of no force or effect until such
time as Landlord notifies Tenant of Landlord's acceptance of this Lease by
delivering a signed copy to Tenant or otherwise. No act of Landlord other than
execution of this Lease shall be deemed to create a lease or to grant Tenant any
interest in the Premises or other property of Landlord, including an option
therein.
3. LEASE. Upon the contingencies of Paragraph 2 above being met, this
Lease shall and will become effective without further action by Landlord or
Tenant, and Tenant will lease from Landlord and Landlord will lease to Tenant
the Premises for and in consideration of the rents, covenants and agreements
hereinafter mentioned and hereby agreed to be paid, kept and performed by
Tenant, with covenant for quiet enjoyment.
4. USE OF PREMISES. (a) The Premises may be used and occupied by Tenant
during the Term, subject to the conditions herein contained, exclusively for
purposes set forth in Paragraph 1(i) above; provided all necessary licenses and
permits are first obtained by Tenant, at Tenant's sole cost and expense.
(b) Tenant agrees to conduct its activities in, upon and about the
Premises in compliance with all Rules now in force or hereafter enacted.
5. RENTAL. (a) During the Term, Tenant shall pay to Landlord total rent
equal to the sum of the annual rentals set forth in Paragraph 1(h) above in the
monthly installments set forth
2
<PAGE>
therein without setoff or deduction, on the first day of each month. If the
Commencement Date shall be a day other than the first day of the month,
rental shall be prorated for the first and last months of Term.
(b) Beginning with the annual rent for the three (3) year period
starting three (3) years after the Commencement Date, the annual rent shall
equal the amount set forth in Paragraph 1(h) for such year above multiplied by a
factor, the denominator of which is the CPI for the month three (3) months prior
to the Commencement Date and the numerator of which is the CPI for the same
month three (3) years later. Beginning with the annual rent for the three (3)
year period starting six (6) years after the Commencement Date, the annual rent
shall equal the amount set forth in Paragraph 1(h) for such year above
multiplied by a factor, the denominator of which is the CPI for the month three
(3) months prior to the Commencement Date and the numerator of which is the CPI
for the same month six (6) years later. Beginning with the annual rent for the
three (3) year period starting nine (9) years after the Commencement Date, the
annual rent shall equal the amount set forth in Paragraph 1(h) for such year
above multiplied by a factor, the denominator of which is the CPI for the month
three (3) months prior to the Commencement Date and the numerator of which is
the CPI for the same month nine (9) years later. Beginning with the annual rent
for the three (3) year period starting twelve (12) years after the Commencement
Date, the annual rent shall equal the amount set forth in Paragraph 1(h) for
such year above multiplied by a factor, the denominator of which is the CPI for
the month three (3) months prior to the Commencement Date and the numerator of
which is the CPI for the same month twelve (12) years later. Beginning with the
annual rent for the two (2) year period starting fifteen (15) years after the
Commencement Date, the annual rent shall equal the amount set forth in Paragraph
1(h) for such year above multiplied by a factor, the denominator of which is the
CPI
3
<PAGE>
for the month three (3) months prior to the Commencement Date and the
numerator of which is the CPI for the same month fifteen (15) years later.
(c) At Landlord's cost, during the period from January 1, 1997 until
the Commencement Date, Landlord shall provide the Tenant the space currently
occupied by Tenant at 4283 Shoreline Drive, Earth City, Missouri 63045, and
shall hold Tenant harmless from and indemnify it from any rental charges related
to such premises.
6. COVENANTS OF LANDLORD. Landlord covenants and agrees that Landlord
holds title to the Premises and has full power and authority to lease the same
and the improvements erected thereon, and that Tenant shall have quiet and
peaceable possession of the Premises during the Term so long as there is no
Event of Default. This covenant and all other covenants of Landlord contained in
this Lease shall be binding upon Landlord and his successors and assigns only
with respect to breaches occurring during their respective ownership of
Landlord's interest hereunder. Further, with respect to any services to be
furnished by Landlord to Tenant or any other obligation of Landlord under this
Lease, Landlord shall in no event be liable for failure to furnish the same when
prevented or delayed in doing so as a result of strikes, lockouts, labor
disputes, breakdown, accident, Rule, or failure to supply, or, after Landlord
has exercised due diligence, inability to obtain supplies, parts or employees
necessary to furnish such services or do such work, or because of war or other
similar emergency, or for other causes beyond Landlord's reasonable control, or
for any delays caused by Tenant's Agents, and in no event shall Landlord ever be
liable to Tenant for any indirect or consequential damages, nor shall the same
affect the obligation of Tenant to pay rent hereunder and perform all of the
other covenants and agreements hereunder on the part of Tenant required to be
performed.
4
<PAGE>
7. REAL ESTATE AGENTS AND COMMISSIONS. Tenant and Landlord represent
that neither has utilized the services of a real estate broker or other person
who is or may be entitled to any payment in connection with the procurement of
the Premises or this Lease.
8. LANDLORD'S REGULATIONS. Tenant agrees to abide by such reasonable
written regulations which Landlord may promulgate from time to time.
9. CONDITION OF PREMISES. Landlord shall construct the Premises
substantially in compliance with the plans prepared by Boland Associates.
10. SIGNS, FIXTURES AND EQUIPMENT. (a) Tenant shall, at Tenant's sole
cost and expense, provide, install, erect and thereafter maintain proper
identifying signs on the exterior of the Premises of such size, color and design
as may be usual, but said signs and the location thereof must be approved by
Landlord prior to installation. No signs or lettering shall be installed, placed
or painted on the exterior of the Premises unless first approved by Landlord.
(b) Tenant shall install and maintain all fixtures and equipment
necessary to comply with all Rules. Landlord shall have no responsibility for
any loss of or damage to any of the Tenant's fixtures or property so installed
or left on or about the Premises.
(c) In the event Tenant shall have performed all covenants of this
Lease, Tenant may remove such equipment and signs, if any, prior to the end of
the Term except those firmly attached to the Premises; provided, however, that
Tenant shall repair any damage to the Premises caused by such removal.
11. SUBLEASING AND ASSIGNMENT. Tenant shall not sublease or assign its
interest in the Lease without the prior written approval of Landlord. Landlord
and Tenant shall convert the lease between Landlord and HomeFirst National, Inc.
("HomeFirst") dated January 23, 1997, to a sublease and/or assignment between
Tenant and HomeFirst in accordance with the terms of
5
<PAGE>
said lease. No subleasing or assignment will relieve Tenant from liability
for the payment of rental or the performance of any other covenant of this
Lease. No sublessee or assignee shall have any right to sublease or assign
its interest without the prior written approval of Landlord. No waiver of any
condition contained in this Paragraph shall operate as a waiver or
acquiescence to any further subleases or assignments.
12. INSURANCE AND INDEMNITY. (a) Tenant shall keep all personal
property upon the Premises in which it has an interest insured in the full
replacement cost thereof, naming Landlord as an additional insured.
(b) Tenant shall maintain, during the Term, and for any period which it
may occupy the Premises before the Commencement Date, policies of Insurance
having the following minimum coverages and limits: (i) comprehensive general
liability with a combined single limit of One Million Dollars ($1,000,000.00)
for bodily injury and property damage, or alternatively One Mill Dollar
($1,000,000.00) limit per occurrence general aggregate for bodily injury and
property damage covering all owned, non-owned and hired automobiles; (iii)
workers' compensation insurance containing statutory coverage and employer's
liability with limits of One Hundred Thousand Dollars ($100,000.00) for each
accident, Five Hundred Thousand Dollars ($500,000.00) for disease and One
Hundred Thousand Dollars ($100,000.00) for disease of each employee; (iv)
umbrella excess liability with a combined single limit of One Million Dollars
($1,000,000.00) for bodily injury and property damage; and (v) insurance upon
all plate glass in the Premises.
(c) All policies of insurance shall: (i) be carried with an Insurance
Carrier as defined below; (ii) be noncancellable and nonmodifiable except upon
thirty (30) days' prior written notice given to Landlord; (iii) name Landlord as
an additional insured; (iv) be evidenced by a
6
<PAGE>
duplicate original or certificate of such policy of insurance delivered to
Landlord by Tenant; and (v) contain a waiver of any right of subrogation
which the Insurance Carrier or others may have against Landlord. If any such
policy of insurance is canceled or modified without the written consent of
Landlord and not replaced by Tenant prior to the effective date of
cancellation or modification, Landlord may, but shall not be required to,
place such coverage in an Insurance Carrier and the premium therefor shall be
reimbursed to Landlord immediately upon demand as additional rent hereunder.
(d) Tenant shall indemnify and save harmless Landlord's Agents from and
against all claims of whatever nature arising from any act, omission or
negligence of Tenant's Agents, arising out of or from any accident, criminal
act, injury or damage whatsoever caused to any person, or the property of any
person, occurring in or about the Premises, where such accident, criminal act,
injury or damage results or is claimed to have resulted from any act or omission
on the part of Tenant or Tenant's Agents, whether or not such accident, injury
or damage arises or is alleged to arise in part through the negligence of
Landlord's Agents. This indemnity and hold harmless agreement shall include
indemnity against all losses, costs, fees (including attorney's fees), expenses
and liabilities in or in connection with any such claim or proceeding brought
thereon or in the defense thereof.
(e) Tenant waives any and all right of recovery against Landlord's
Agents by reason of any such loss or injury which is covered by the terms of any
policy of insurance carried or required to be carried by Tenant, including such
as may arise from the negligence of Landlord's Agents. Tenant further waives any
and all right of recovery against Landlord's Agents by reason of any loss to the
Premises which is insured against under any policy carried or required to be
carried by Tenant.
7
<PAGE>
(f) Landlord shall not be liable to Tenant's Agents for injury to their
person or loss of or damage to their property resulting from criminal acts,
fire, explosion, falling plaster, steam, or from breakage, stoppage or leakage
of gas, electricity, water, sewer pipes or plumbing, or from rain, snow, or
leaks from any part of the Premises or from the pipes, appliances or plumbing
works, or from the roof, street or subsurface, or from any other place or by
dampness, or business interruption losses arising from any cause, except such as
shall occur by reason of Landlord's willful failure to fulfill his obligations
under this Lease. Landlord shall not be liable for any such damage caused by the
public, occupants of property adjacent to the Premises or Tenant's Agents, and
Tenant shall not hold Landlord's Agents harmless from all such liabilities.
(g) As additional rental, Tenant shall pay to Landlord Tenant's
Proportionate Share of all premiums paid by Landlord for insurance of Landlord's
interest in the Premises. Landlord may, at his sole option, charge Tenant with
one-twelfth (1/12) of the amount of such annual insurance premiums monthly based
upon a reasonable estimate prepared by Landlord of the amount owed during the
forthcoming year. Said amount shall be paid by Tenant with its monthly premium
payment. In the event that the amount actually owed by Landlord for such
insurance premiums shall exceed the estimated amount, Tenant shall pay the
amount of such excess immediately upon demand from Landlord as additional rent.
In the event that the amount actually owed for such insurance premiums shall be
less than the amount estimated, Landlord shall credit the difference to the
account of Tenant.
(h) Tenant further agrees that Tenant will not do or suffer to be done,
or keep or suffer to be kept, or omit to do anything necessary in, upon or about
the Premises which may prevent obtaining insurance on terms generally applicable
to the Premises (including, by way of example and not by way of limitation,
fire, extended coverage and liability insurance) or which
8
<PAGE>
may make void or voidable any such insurance, or which may create any extra
premiums for or increase the rate of any such insurance. If anything shall be
done, kept or omitted to be done in, upon or about the Premises which shall
create any extra premiums for or increase in rate of any such insurance,
Tenant will pay the increased cost of the same to Landlord upon demand as
additional rental.
(i) In no event shall Landlord's Agents be liable to Tenant's Agents
for any consequential damages arising from or alleged to arise from any act or
omission of Landlord's Agents.
13. TAXES. (a) As additional rental, Tenant shall pay to Landlord
Tenant's Proportionate Share of all Taxes. Landlord may, at his sole option,
charge Tenant with one-twelfth (1/12) of the amount of the Taxes monthly based
upon a reasonable estimate prepared by Landlord of the amount owed during the
forthcoming year. Said amount shall be paid by Tenant with its monthly rent
payment. In the event that the amount actually owed for Taxes shall exceed the
estimated amount, Tenant shall pay the amount of such excess immediately upon
demand from Landlord as additional rent. In the event that the amount actually
owed for Taxes shall be less than the amount estimated, Landlord shall credit
the difference to the account of Tenant.
(b) In the event that Landlord contests the amount of any Tax resulting
in a refund of any Tax previously paid by Tenant, Landlord shall credit to
Tenant the proportion of such refund, after all expenses of such contest,
including attorney's fees, representing the amount previously paid by Tenant.
14. MAINTENANCE, REPAIRS AND SECURITY. (a) During the Term, Tenant
shall maintain, repair and replace the Premises and all portions thereof at its
sole cost and expense,
9
<PAGE>
including without limitation all portions of any exterior and interior walls
of the Premises, heating and air conditioning units serving the Premises,
electrical and plumbing systems serving the Premises, and all items which
shall be installed by Tenant. Landlord's Agents may enter upon the Premises
at all reasonable times in order to inspect the Premises. In the event Tenant
shall fail to provide such maintenance, repair and replacement, in addition
to all other remedies, Landlord may but shall have no obligation to perform
such maintenance, repairs and replacement, and the cost thereof shall be
immediately due and payable by Tenant as additional rent upon demand by
Landlord.
(b) During the Term, Tenant shall, at its sole cost and expense, take
good and ordinary care of the Premises or any area adjacent thereto and not
cause or allow, debris, cartons or crates to accumulate on the Premises. Tenant
shall provide a metal-enclosed container for the deposit of debris at the rear
of the Premises, and also provide for the emptying of the container, at Tenant's
sole cost.
(c) At its sole cost and expense, Tenant shall provide all janitorial
services and necessary security systems and services for the Premises.
(d) Tenant shall surrender the Premises at the end of the Term in as
good condition as received, ordinary wear and tear excepted.
15. ALTERATIONS, ADDITIONS AND IMPROVEMENTS. (a) With the prior written
approval of Landlord, Tenant may, from time to time, make any alterations,
additions or improvements to the Premises, install or remove signs and erect or
remove any non-structural wall or partition. Any such work shall be done by
Tenant in a good and workmanlike manner without impairing the structural
soundness of the Premises. All salvage shall belong to Tenant, but all permanent
additions shall become part of the Premises subject to this Lease. At no expense
to Landlord,
10
<PAGE>
Landlord shall cooperate with Tenant in securing the necessary permits and
authority to perform any work permitted under this Lease. Tenant agrees that
all alterations, additions and improvements made by Tenant pursuant to this
Paragraph shall conform to every Rule and to the applicable requirements of
all Insurance Carriers on the Premises, and any board of underwriters, rating
bureau or similar organization, and that such alterations, additions and
improvements shall be compatible with the general architectural design and
style of the Premises.
(b) At the end of the Term, Tenant, if requested by Landlord, at
Tenant's sole cost and expense, shall restore the Premises to its condition at
the Commencement Date, repairing any and all damage, normal wear and teach
excepted.
16. LIENS. Tenant shall not cause or permit liens of any character to
be filed against the Premises or any other property in which Landlord may have
an interest, for any cause whatsoever, including in connection with any
remodeling, maintenance, alterations, additions or improvements, and if any such
lien shall be filed and not discharged within five (5) days, Tenant shall post a
bond in an amount adequate to discharge in full said lien or liens and interest
thereon with a bonding company approved by Landlord.
17. UTILITIES AND OPERATING COSTS. (a) Tenant shall pay for all
utilities in serving the Premises, including but not limited to gas,
electricity, water, heat and sewer. If the Premises shall not be separately
metered, Tenant shall pay to Landlord such amount as Landlord shall reasonably
allocate to the Premises, considering the proportion the square footage of the
Premises bears to the total area metered and all other factors considered
relevant by Landlord in Landlord's reasonable judgment. Any amount paid by
Landlord on account of utility usage by the Premises shall be additional rental
payable by Tenant to Landlord immediately upon demand by Landlord.
11
<PAGE>
(b) During the Term, Tenant shall pay to Landlord, as additional rent,
an annual charge which shall be Tenant's Proportionate Share of Landlord's
annual gross cost and expense of operating the Premises, including the common
areas and parking area thereof. Without limiting the foregoing, there shall be
included in such gross cost and expense, the cost of operating, managing,
replacing, maintaining, cleaning, lighting and repairing all parts of the
Premises not otherwise made Tenant's sole responsibility pursuant to Paragraph
14 above, including the roof, foundation, heating, air conditioning, plumbing
and electrical systems, landscaping, grass cutting and maintenance, guttering,
window cleaning and replacement, asphalting and line painting the parking lot,
and policing the Premises. Landlord may, at his sole option, charge Tenant with
one-twelfth (1/12) of the amount of such gross cost and expense monthly based
upon a reasonable estimate prepared by Landlord of the amount owed during the
forthcoming year. Said amount shall be paid by Tenant with its monthly rent
payment. In the event that the amount actually owed for such gross cost and
expense shall exceed the estimated amount, Tenant shall pay the amount of such
excess immediately upon demand from Landlord as additional rent. In the event
that the amount actually owed for such gross cost and expense shall be less than
the amount estimated, Landlord shall credit the difference to the account of
Tenant.
18. DAMAGE TO THE PREMISES. (a) In the event that fifty percent (50%)
or more of the total square footage of the Premises shall be totally or
substantially destroyed by fire, explosion, tornado or other act of God, then
either Tenant or Landlord shall have the right, by giving written notice to the
other within thirty (30) days after such occurrence, to terminate this Lease,
and all rents and other charges shall be adjusted to the date of such
destruction. If such notice is not given, then Landlord shall promptly proceed
to restore the Premises to its condition prior to the
12
<PAGE>
date of such destruction and shall complete said restoration within one
hundred eighty (180) days of such destruction.
(b) If, however, such damage shall be to less than fifty percent (50%)
of the total square footage of the Premises, then the Landlord shall promptly,
but not more than ninety (90) days, repair such damage restore the Premises to
substantially the same condition as before the date of such occurrence. In that
event, Landlord shall, within thirty (30) days from the date of such occurrence,
determine if the Premises can be restored to a condition substantially similar
to its condition prior to such occurrence within the ninety (90) day period. If
Landlord determines that the Premises cannot be restored to a substantially
similar condition within the said period, then Landlord may, by written notice,
terminate this Lease within thirty (30) days of Landlord's determination.
(c) During any period between the occurrence and restoration of the
Premises, as provided in subparagraph (a) or (b) of this Paragraph above, rent
shall abate proportionately to the square footage of the Premises that is unfit
for use by Tenant until the earlier of: (i) the date such restorations are
completed; or (ii) the actual use by Tenant of such area.
(d) If any such damage to the Premises be to such a slight extent as
not to interfere substantially with Tenant's occupancy and use, Tenant, at
Tenant's expense, shall cause such damage to be repaired or restored, but no
abatement in rental shall be allowed to Tenant.
(e) In no event shall Landlord be required to expend an amount greater
than the amount of insurance proceeds received by Landlord on account of any
damage or destruction in the repair or restoration thereof.
13
<PAGE>
19. EMINENT DOMAIN. In the event the Premises or any part thereof be
acquired or condemned by eminent domain for any public or quasi-public use or
purpose, the following provisions shall be controlling:
(a) If the whole of the Premises shall be so taken, then and in that
event, the Term shall cease and terminate from the date of title vesting in such
proceeding.
(b) If any part of the Premises shall be so taken and such partial
taking or condemnation shall render the Premises unsuitable for the operations
of Tenant, or if more than fifty percent (50%) of the Premises is so taken, then
and in either event, the Term shall cease and terminate from the date of title
vesting in such proceeding and Tenant shall have no claim against Landlord for
the value of any otherwise unexpired portion of the Term. In the event the
partial taking is of less than fifty percent (50%) of the Premises and not
extensive enough to render the Premises unsuitable for the operations of Tenant,
then Landlord shall promptly restore the Premises to a condition comparable to
its condition at the time of such taking less the portion so taken, and this
Lease shall thereafter continue in full force and effect with a reduction in the
rent proportionate to the area of the Premises so taken.
(c) In the event of any taking as hereinbefore provided, either whole
or partial, Tenant shall not be entitled to any part of the award as damages or
otherwise for such taking and Landlord shall receive the full amount of such
award, Tenant hereby expressly waiving any right or claim to any part thereof;
provided, however, Tenant shall be entitled to receive and retain such amounts
which may be awarded specifically to Tenant in any such proceedings because of
the taking of Tenant's trade furniture, fixtures and leasehold improvements
which have not become a part of the Premises. It is understood that in the event
of the end of the Term as aforesaid, neither Landlord nor Tenant shall have any
claim against the other for the value of any
14
<PAGE>
otherwise unexpired portion of the Term and Tenant shall have not right or
claim to any part of the award on account thereof.
20. "FOR LEASE" SIGNS. During the last four (4) months of the Term,
Landlord may place a conspicuous sign designating the Premises as "For Lease" in
any usual manner.
21. DEFAULT. (a) In any Event of Default, besides other rights or
remedies he may have, Landlord shall have the immediate right to reenter the
Premises and remove all persons and property from the Premises, without service
of notice or resort to legal process and without being deemed guilty of trespass
or becoming liable for any loss or damage which may be occasioned thereby.
(b) Should Landlord elect to reenter the Premises, as herein provided,
or should he take possession pursuant to legal proceedings or pursuant to any
law or notice provided for by law, Landlord may either terminate this Lease or
he may from time to time without terminating this Lease, make such alterations
and repairs as may be necessary in order to relet the Premises for such purposes
as Landlord shall, in Landlord's sole discretion, deem advisable and relet the
Premises or any part thereof as the agent for and in the name of Tenant, for
such term or terms (which may be for a period extending beyond the Term) and at
such rental or rentals and upon such other terms and conditions as Landlord in
his sole discretion may deem advisable. Upon each such reletting, all rentals
received by Landlord shall be applied: first, to payment of any indebtedness
other than rent due hereunder from Tenant to Landlord; second, to the payment of
any costs and expenses of such reletting, including brokerage fees and
attorney's fees and of costs of such alterations and repairs; third, to amounts
required by this Lease to be paid by Tenant to
15
<PAGE>
Landlord which are due and unpaid; and the residue, if any, shall be held by
Landlord and applied in payment of future amounts required by this Lease to
be paid by Tenant to Landlord as the same may become due and payable. If the
rentals received from such reletting during any month shall be less than the
required payments to be paid during that month by Tenant under this Lease,
Tenant shall pay any such deficiency to Landlord immediately upon demand.
(c) No such reentry or taking possession of the Premises by Landlord
shall be construed as an election on his part to terminate this Lease unless a
written notice of such intention be given to Tenant. Notwithstanding any such
reletting without termination, Landlord may at any time thereafter elect to
terminate this Lease for such previous breach. Should Landlord at any time
terminate this Lease for any breach, in addition to any other remedies he may
have, he may recover from Tenant all damages he may incur by reason of such
breach, including the cost of recovering the Premises, reasonable attorney's
fees, and including the worth at the time of such termination of the excess, if
any, of the amount of rent reserved in this Lease for the remainder of the Term
over the then reasonable rental value of the Premises for the remainder of the
Term, all of which amounts shall be immediately due and payable from Tenant to
Landlord.
(d) In the event that Landlord shall proceed to exercise the remedies
under any subparagraph of this Paragraph above and the Tenant shall believe that
Landlord's efforts are inadequate, Tenant shall immediately notify Landlord of
the same in a writing specifying the nature of Landlord's inadequate efforts,
stating with specificity the nature of any additional action which Tenant deems
necessary or advisable in the circumstances.
(e) In any Event of Default, Landlord's further performance of any
covenant to be performed by Landlord shall be excused, and Tenant shall have no
claim against Landlord for
16
<PAGE>
Landlord's failure to perform any covenant hereunder, the performance of
which becomes due subsequent to the Event of Default.
22. SUBORDINATION. Landlord reserves the right to subject and
coordinate this Lease at all times to the lien of any mortgage or mortgages
hereinafter placed upon any portion of the Premises, and Tenant agrees to
execute such instruments as may be necessary to evidence such subordination;
provided, however, such subordination, if any, shall permit Tenant the continued
rights of peaceable possession and enjoyment of the Premises during the Term,
for so long as Tenant continues to comply with all of the terms, conditions and
payments required of Tenant hereunder. In addition, should Landlord sell or
otherwise alienate the Premises, and in the event Tenant is not in default under
the terms of this Lease, no person acquiring an interest in the Premises, except
those acquiring through Tenant, shall disturb Tenant in the quiet enjoyment of
the Premises.
23. NOTICES. Any notice required to be given by either party to the
other party under this Lease or otherwise shall be served personally or mailed
by United States certified mail to said party at the address shown in Paragraph
1(b) above if to Landlord or Paragraph 1(c) above if to Tenant, or to such other
address as a party shall notify the other from time to time.
24. NO WAIVER. Landlord's failure to seek redress of any Event of
Default or to insist upon the strict performance of any covenant or condition of
this Lease shall not prevent a subsequent Event of Default, which would have
originally constituted a violation, from having all the force and effect of an
original violation. Use by Landlord of rent with knowledge of an Event of
Default shall not be deemed a waiver of such breach by Landlord. No provision of
this Lease shall be deemed to have been waived by Landlord unless such waiver be
in writing signed by Landlord. No payment by Tenant or receipt by Landlord of a
lesser sum than the rentals
17
<PAGE>
herein stipulated shall, unless otherwise agreed upon specifically in
writing, be deemed to be other than on account of the earliest stipulated
rental.
25. GENDER AND NUMBER. Reference to one gender in this Lease shall be
deemed to encompass the masculine, feminine and neuter, references to the
singular shall encompass the plural and the plural shall encompass the singular,
as appropriate.
26. ENTIRE AGREEMENT. This Lease and the exhibits hereto are the entire
agreement between the parties, and there are no other covenants, express or
implied, or any other terms and conditions, except as contained herein.
27. MODIFICATION. This Lease may not be altered, amended or modified
except by a writing signed by the parties. None of the Landlord's Agents, other
than Landlord personally, may agree to alter, amend or modify this Lease.
28. PARTIES. This Lease shall bind and inure to the benefit of the
parties hereto, their heirs, personal representatives and assigns, except as
specifically prohibited elsewhere herein.
29. HEADINGS. Headings in this Lease are for informational purposes
only and form no part of this Lease. Such headings shall not be referred to in
the interpretation and construction of this lease.
30. SITUS. Suit to enforce or interpret the terms of this Lease shall
be brought only in that Circuit Court for the State of Missouri in the County in
which the Premises are located, or the United States District Court for the
Eastern District of Missouri, Eastern Division, and both parties irrevocably
consent to the jurisdiction of those courts. Further, Landlord may seek to
enforce this Lease or have its terms interpreted by any court having
jurisdiction of Tenant.
31. GOVERNING LAW. This Lease shall be governed and construed in
accordance with the internal laws of the State of Missouri.
18
<PAGE>
32. DEFINITIONS. (a) As used herein, "COMMENCEMENT DATE" shall mean the
first day of the Term.
(b) As used herein, "CPI" shall mean the United States Consumer
Price Index for all Urban Consumers published by the Bureau of Labor
Statistics of the Department of Labor, U.S. City Average All Urban Consumers
(CPI-U) 1982-84 equals 100, or if said Consumer Price Index is no longer
published then a reasonably comparable index.
(c) As used herein, "EVENT OF DEFAULT" shall mean Tenant's failure to
perform any covenant set forth herein to be performed by Tenant, including but
not limited to Tenant's failure to pay rent, insurance premiums or other
assessments when due and Tenant's failure to discharge or bond against any lien
as set forth in Paragraph 16 above. In addition, an "EVENT OF DEFAULT" shall
include: (i) the levying of any execution against any property of Tenant,
including but not limited to Tenant's interest in this Lease; (ii) Tenant's
abandonment or vacation of the Premises; (iii) the filing of a petition in
bankruptcy or for reorganization pursuant to any state or federal insolvency or
bankruptcy law by or against Tenant; (iv) Tenant's making a general assignment
for the benefit of creditors' (v) the appointment or request for an appointment
of a receiver of all or any portion of the assets of Tenant; (vi) Tenant's
making or sending a notice of an intended bulk transfer; (vii) the sale or
disposition of all or a substantial portion of Tenant's property, except
Tenant's inventory in the ordinary course of business; and (viii) the making by
Tenant of any materially false representation in connection with this Lease,
including but not limited to any statement contained in any credit application
or like document submitted to Landlord.
(d) As used herein, "GOVERNMENT" means all governmental authorities,
including federal, state and local and all subdivisions thereof, all agencies or
other authorities having or which claim to have legal jurisdiction over either
the Premises, Tenant or Landlord.
19
<PAGE>
(e) As used herein, "INSURANCE CARRIER" shall mean a reputable
insurance company authorized to do business in the State of Missouri with a
policyholders' rating of not less than "A" in the most current edition of BEST'S
INSURANCE REPORTS, and approved by Landlord.
(f) As used herein, "LANDLORD'S AGENTS" shall include Landlord, its
partners, officers, stockholders, directors, servants, contractors, invitees,
customers, employees and licensees, and any person or entity in a like
relationship to Landlord.
(g) As used herein, "PREMISES" shall mean the premises set forth in
Paragraph 1(e) above.
(h) As used herein, "RULE" means all statutes, ordinances, rules,
orders, codes, requirements and regulations promulgated by any Government, as
the same may be amended from time to time.
(i) As used herein, "TAXES" shall mean any: (i) fee, license fee,
license tax, business license fee, commercial rental tax, levy, charge,
assessment, penalty or tax imposed by any taxing or judicial authority against
the Premises or the land upon which the Premises is located; (ii) tax on
Landlord's right to receive, or the receipt of, rent or income from the
Premises, or against Landlord's business of leasing the Premises; (iii) tax or
charge by any Government for the provision of services to the Premises,
including but not limited to fire protection, streets and maintenance thereof
and sidewalks; (iv) tax imposed on the transaction evidenced by this Lease; and
(v) any amount incurred by Landlord in contesting any tax elsewhere mentioned in
this Paragraph, including court costs and attorney's fees.
(j) As used herein, "TENANT'S AGENTS" shall include Tenant, its
partners, officers, stockholders, directors, servants, contractors, invitees,
customers, employees and licensees, and any person or entity in a like
relationship to Tenant.
20
<PAGE>
(k) As used herein, "TENANT'S PROPORTIONATE SHARE" shall mean the
percent shown in Paragraph 1(j) above.
(l) As used herein, "TERM" shall mean the time beginning with the
Commencement Date and ending on the Expiration Date; provided, however, that the
Term may be terminated earlier by operation of this Lease.
IN WITNESS WHEREOF, the parties have hereunto affixed their hands and
seals the day and year first written above.
Landlord: Tenant:
Thomas Construction, Inc.
/s/ DAWN S. THOMAS
- -------------------------------
Dawn S. Thomas
By: /s/ RODNEY H. THOMAS
-------------------------------
Rodney H. Thomas, President
/s/ RODNEY H. THOMAS
- -------------------------------
Rodney H. Thomas
21
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
on this 23rd day of March, 1999 by and among JOEL S. KRON and JONATHAN D. KRON
(each a "Seller" and collectively the "Sellers") and THERMOVIEW INDUSTRIES,
INC., a Delaware corporation (the "Buyer").
PRELIMINARY STATEMENTS
The Sellers own all of the issued and outstanding shares of Class A
Voting common stock, with no par value per share (the "Arizona Common Stock"),
of Thermo-Shield of America (Arizona), Inc., an Arizona corporation ("TSA
Arizona") and all of the issued and outstanding shares of common stock, with no
par value per share (the "Michigan Common Stock," which together with the
Arizona Common Stock is collectively referred to as the "Common Stock") of
Thermo-Shield of America (Michigan), Inc., a Michigan corporation ("TSA
Michigan," which together with the TSA Arizona is collectively referred to as
the "Companies").
The Companies are engaged in designing, selling and installing state of
the art custom vinyl new and replacement thermal paned windows; replacement
cabinet doors and cabinet refacing supplies; and vinyl siding for the existing
home market (the "Business").
Joel S. Kron ("Kron") is the sole shareholder of Thermo-Shield Company,
Inc., an Illinois corporation ("TSC"), and Thermo-Shield of American
(Wisconsin), Inc., a Wisconsin corporation ("TSA Wisconsin," which together with
TSC is collectively referred to as "Thermo-Shield"). Concurrently with the
transactions contemplated in this Agreement, Buyer and Thermo-Shield have
entered into an Asset Purchase Agreement (the "Asset Purchase Agreement"),
pursuant to which Buyer has agreed to purchase substantially all of the assets
of Thermo-Shield.
The Buyer desires to purchase and the Sellers desire to sell all of the
outstanding shares of Common Stock of the Companies, upon the terms and subject
to the conditions set forth in this Agreement.
In consideration of these preliminary statements and the mutual
covenants, representations, warranties and agreements hereinafter set forth, and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereby agree as follows:
1
<PAGE>
ARTICLE I. PURCHASE AND SALE OF STOCK
SECTION 1.1 PURCHASE OF COMMON STOCK. Upon the terms and subject to the
conditions set forth in this Agreement, on the Closing Date, the Sellers agree
to sell, assign, transfer and deliver to the Buyer, and the Buyer agrees to
purchase (i) 3,000 shares of Arizona Common Stock, which represents all of the
issued and outstanding shares of Arizona Common Stock and (ii) 1,000 shares of
the Michigan Common Stock, representing all of the issued and outstanding shares
of Michigan Common Stock. The certificates representing the Common Stock shall
be duly endorsed in blank, or accompanied by stock powers duly executed in
blank, by the respective Sellers.
SECTION 1.2 PURCHASE PRICE AND POST-CLOSING PAYMENTS. Upon the terms
and subject to satisfaction of the conditions set forth in this Agreement, in
consideration of the aforesaid sale, assignment, transfer and delivery of all of
the issued and outstanding shares of Common Stock, the Buyer will pay to the
Sellers consideration as follows:
(a) A closing payment of $350,000 (the "Cash Payment") shall be
made to the Sellers in cash on the Closing Date (defined below) by certified
check, wire transfer or other means of immediately available funds.
(b) A closing payment of $3,450,000 in the form of a
nonnegotiable promissory note (the "Note") substantially in the form of
EXHIBIT A, which is secured by a pledge of the Common Stock of the Companies
pursuant to a Stock Pledge Agreement in substantially the form attached hereto
as EXHIBIT B, a security interest in the assets of the Companies pursuant to a
Security Agreement in substantially the form attached hereto as Exhibit C, and a
Guaranty in substantially the form attached hereto as EXHIBIT D.
(c) A closing payment of 237,869 shares of Buyer Common Stock
(as defined in Section 3.4) (the "Closing Shares") shall be made to the Sellers
at closing.
(d) A closing payment of 317,148 shares of Buyer Common Stock
(as defined in Section 3.4) (the "Escrow Payment," which together with the Cash
Payment and the Note is collectively referred to as the "Purchase Price") shall
be made to Buyer, as Escrow Agent, under the terms of an Escrow Agreement, in
substantially the form attached hereto as EXHIBIT E (the "Escrow Agreement").
(e) Each Seller shall be entitled to receive a percentage of
the Purchase Price as set forth on SCHEDULE 1.2(e).
(f) The Sellers shall also be entitled to receive a
post-closing earn-out as set forth on SCHEDULE 1.2(f).
[REMAINDER OF PAGE INTENTIONALLY BLANK]
2
<PAGE>
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE SELLERS
As an inducement to the Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, Kron represents and warrants to
the Buyer as follows:
SECTION 2.1 OWNERSHIP OF STOCK. Each Seller owns the shares of Common
Stock listed opposite such Seller's name on Schedule 2.1 hereto, free and clear
of all pledges, security interests, liens, charges, encumbrances, equities,
claims, options or limitations of every kind ("Claims"), and that the delivery
to the Buyer of the Common Stock pursuant to the provisions of this Agreement
will transfer to the Buyer valid title thereto, free and clear of all Claims.
SECTION 2.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each Seller has full
legal power, capacity and authority to execute, deliver and perform this
Agreement and the Exhibits and to deliver the Schedules hereto, and the other
documents and instruments contemplated hereby (collectively, this Agreement, the
Exhibits and Schedules hereto, and the other documents and instruments
contemplated hereby shall constitute the "Documents") and to consummate the
transactions contemplated hereby and thereby. This Agreement and the other
Documents have been duly and validly executed and delivered by such Seller and
constitute valid and binding obligations of such Seller, enforceable against
such Seller in accordance with their terms.
SECTION 2.3 FOREIGN PERSON. Neither Seller is a foreign person as that
term is defined in Section 1445(f)(3) of the Code and applicable regulations.
SECTION 2.4 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. TSA
Arizona is a corporation duly organized, validly existing and in good standing
under the laws of the State of Arizona. TSA Michigan is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Michigan. Each of the Companies is qualified to do business as a foreign
corporation and is in good standing in the states set forth on SCHEDULE 2.4.
The nature of the Business does not require either of the Companies to be
licensed or qualified in any other jurisdiction. The Sellers have made
available to the Buyer complete and correct copies of the Articles of
Incorporation and Bylaws of each of the Companies as are currently in effect.
Except as set forth on SCHEDULE 2.4, each of the Companies has the corporate
power and authority to own, lease, operate and hold its properties and to carry
on its business as now conducted, including the right to use the name
"Thermo-Shield of America" or any derivative thereof.
SECTION 2.5 CAPITALIZATION. TSA Arizona has authorized capital
consisting of (i) 50,000 shares of Class A Voting common stock, with no par
value per share, of which 3,000 shares are issued and outstanding and no shares
are held as treasury stock and (ii) 50,000 shares of Class B Nonvoting Common
Stock, with no par value per share, none of which are outstanding or held as
treasury stock. TSA Michigan has authorized capital consisting of 60,000 shares
of common stock, with no par value per share, of which 1,000 shares are issued
and outstanding and no shares are held as treasury stock. All of the
outstanding shares of Common Stock of the Companies have been duly authorized
and validly issued and are fully paid and nonassessable. None of the
outstanding shares of Common Stock of the Companies have been
3
<PAGE>
issued in violation of any preemptive right. There are no outstanding
options, warrants, rights, calls, commitments, conversion rights, rights of
exchange, plans or other agreements of any character providing for the
purchase, issuance or sale of any shares of capital stock of either of the
Companies, other than as contemplated by this Agreement.
SECTION 2.6 SUBSIDIARIES AND INVESTMENTS. Neither of the Companies has
any subsidiaries nor do they own, directly or indirectly, any capital stock or
other equity or ownership or proprietary interest in any other corporation,
partnership, association, trust, joint venture or other entity.
SECTION 2.7 BOOKS AND RECORDS. The minute books of each of the
Companies, which have been and will be made available to the Buyer and its
representatives, contain accurate records of all meetings of and corporate
actions or written consents by the shareholders and Board of Directors of each
of the Companies set forth in such minute books. Except as set forth on SCHEDULE
2.7, the Companies do not have any of their records, systems, controls, data or
information recorded, stored, maintained, operated or otherwise wholly or partly
dependent upon or held by any means (including any electronic, mechanical or
photographic process, whether computerized or not) which (including all means of
access thereto and therefrom) are not under the exclusive ownership and direct
control of either of the Companies or Thermo-Shield.
SECTION 2.8 FINANCIAL STATEMENTS. The Sellers have previously
furnished to the Buyer, and attached hereto as SCHEDULE 2.8 are, the unaudited
balance sheets of TSA Arizona as of December 31, 1998 and 1997 and the related
statements of income for the calendar years then ended and the unaudited balance
sheet of TSA Arizona (the "Arizona Balance Sheet") as of January 31, 1999 (the
"Balance Sheet Date") and the related statement of income for the [two] months
then ended. All such financial statements (the "Arizona Financial Statements")
have been prepared on a cash basis consistently applied and were prepared from
the books and records of TSA Arizona. Such books and records are complete and
correct in all material respects, accurately reflect all transactions of TSA
Arizona, and have been made available to the Buyer for examination. The Arizona
Financial Statements fairly present the financial position of TSA Arizona as of
the dates thereof.
The Sellers have previously furnished to the Buyer, and attached hereto
as Schedule 2.8 are, the unaudited balance sheets of TSA Michigan as of December
31, 1998 and 1997 and the related statements of income for the calendar years
then ended and the unaudited balance sheet of TSA Michigan (the "Michigan
Balance Sheet," which together with the Arizona Balance Sheet is collectively
referred to as the "Balance Sheets") as of January 31, 1999 and the related
statement of income for the two months then ended. All such financial
statements (the "Michigan Financial Statements," which together with the Arizona
Financial Statements are collectively referred to as the "Financial Statements")
have been prepared on a cash basis consistently applied and were prepared from
the books and records of Michigan. Such books and records are complete and
correct in all material respects, accurately reflect all transactions of
Michigan, and have been made available to the Buyer for examination. The
Michigan Financial Statements fairly present the financial position of Michigan
as of the dates thereof.
4
<PAGE>
Since the Balance Sheet Date, (i) there has been no change in the assets,
liabilities or financial condition of either of the Companies from that
reflected in the Balance Sheets except for changes in the ordinary course of
business consistent with past practice and which have not been materially
adverse, and (ii) none of the business, prospects, financial condition,
operations, property or affairs of either of the Companies have been materially
adversely affected by any occurrence or development, individually or in the
aggregate, whether or not insured against. The Sellers have disclosed to the
Buyer all material facts relating to the preparation of the Financial
Statements.
SECTION 2.9 EMPLOYMENT AND LABOR MATTERS.
(a) SCHEDULE 2.9 lists all employees, independent contractors
and officers of each of the Companies on the date hereof, along with the amount
of the current annual salaries and total compensation paid or due for services
to each employee, independent contractor or officer for the most recent fiscal
year end and the year to date, and a full and complete description of any
commitments to such employees, independent contractors and officers with respect
to compensation payable thereafter. To the best knowledge of the Sellers, (i)
except for Jonathon Kron, no key employee or group of employees has any plans to
terminate employment with either of the Companies, and (ii) no independent
contractor has any plans to terminate its services to either of the Companies
and the Companies have no plans to terminate their relationship with any of
their employees or independent contractors.
(b) Neither of the Companies is a party to or bound by any
collective bargaining agreement with any labor organization, group or
association covering any of their employees, and the Sellers have no knowledge
of any attempt to organize any of the Companies' employees by any Person, unit
or group seeking to act as their bargaining agent. There are no pending or, to
the best of Sellers' knowledge, threatened charges (by employees, their
representatives or governmental authorities) of unfair labor practices or of
employment discrimination or of any other wrongful action with respect to any
aspect of employment of any person employed or formerly employed by either of
the Companies. No union representation election relating to employees of either
of the Companies has been scheduled by any governmental agency or authority, no
organizational effort is being made with respect to any of such employees, and
there is no investigation of either of the Companies' employment policies or
practices by any governmental agency or authority pending or, to the Sellers'
knowledge, threatened. Neither of the Companies is currently, nor have either
of the Companies been, involved in labor negotiations with any unit or group
seeking to become the bargaining unit for any employees of either of the
Companies. Neither of the Companies has experienced any material work
stoppages, and to the best knowledge of the Sellers, no work stoppage is
planned. The Companies have complied with all material laws and regulations
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, employment practices, terms and
conditions of employment, collective bargaining, equal opportunity or similar
laws and the payment of social security and similar taxes, and is not liable for
any material arrears of wages or any material taxes or penalties for failure to
comply with any of the foregoing.
5
<PAGE>
SECTION 2.10 REAL PROPERTY. Neither of the Companies own real property.
SECTION 2.11 POWERS OF ATTORNEY; ABSENCE OF LIMITATIONS ON COMPETITION;
GUARANTEES. Except as set forth in SCHEDULE 2.11, (i) no power of attorney or
similar authorization given by either of the Companies presently is in effect or
outstanding; (ii) no contract or agreement to which either of the Companies is a
party or is bound or to which either of the Companies' properties or assets are
subject limits the freedom of either of the Companies to compete in any line of
business or with any Person; and (iii) neither of the Companies is a party to or
bound by any guarantee of any debt or obligation of any other Person.
SECTION 2.12 SIGNIFICANT SUPPLIERS AND LEAD SOURCES. Set forth on
SCHEDULE 2.12 is a true and correct list of the Companies five largest suppliers
for the twelve (12) month period ending December 31, 1998, and most recent one
(1) month period ending January 31, 1999 together with the amount attributable
to such suppliers expressed in dollars and as a percentage of total supplies
purchased. None of the suppliers identified on Schedule 2.12 has terminated,
materially reduced or threatened to terminate or materially reduce its supply of
products or services to either of the Companies during the period covered by
such schedule. Also, set forth on SCHEDULE 2.12 is a true and correct list of
the Companies' five largest lead sources for the twelve (12) month period ending
December 31, 1998, and one (1) month period ending January 31, 1999 together
with the amount attributable to such customers expressed in number of leads and
as a percentage of totalleads. None of the lead sources identified on Schedule
2.12 has terminated or threatened to terminate its relationship of either of the
Companies during the period covered by such schedule.
SECTION 2.13 GOVERNMENTAL APPROVALS. Except as set forth on SCHEDULE
2.13, no registration or filing with, or consent or approval of or other action
by, any Federal, state or other governmental agency or instrumentality is or
will be necessary for the valid execution, delivery and performance by the
Sellers of this Agreement.
SECTION 2.14 VALIDITY, ETC. Except as set forth on SCHEDULE 2.14,
neither the execution and delivery of this Agreement or the other Documents, the
consummation of the transactions contemplated hereby or thereby, nor the
performance of this Agreement or the other Documents in compliance with the
terms and conditions hereof and thereof by the Sellers will (i) violate,
conflict with or result in any breach of any trust agreement, Articles of
Incorporation, bylaw, judgment, decree, order, statute or regulation applicable
to either of the Companies, (ii) violate, conflict with or result in a breach,
default or termination or give rise to any right of termination, cancellation or
acceleration of the maturity of any payment date of any of the obligations of
either of the Companies or increase or otherwise affect the obligations of
either of the Companies under any law, rule, regulation or any judgment, decree,
order, governmental permit, license or order or any of the terms, conditions or
provisions of any mortgage, indenture, note, license, agreement or other
instrument or obligation related to either of the Companies or to the Sellers'
ability to consummate the transactions contemplated hereby or thereby, except
for such defaults (or rights of termination, cancellation or acceleration) as to
which requisite waivers
6
<PAGE>
or consents have been obtained in writing and provided to the Buyer, or (iii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to either of the Companies.
SECTION 2.15 ABSENCE OF ADVERSE CHANGE; CONDUCT OF BUSINESS. During the
period from the Balance Sheet Date to and including the date of this Agreement,
except as set forth on SCHEDULE 2.15, neither of the Companies have (i) borrowed
or agreed to borrow any material amount of funds or incurred any material
liability or obligation of any nature (whether accrued, absolute, contingent or
otherwise), or guaranteed or agreed to guarantee any obligations of others, (ii)
canceled any indebtedness owing to it or any claims that it might have
possessed, waived any material rights of substantial value or sold, leased,
encumbered, transferred or otherwise disposed of, or agreed to sell, lease,
encumber, or otherwise dispose of its assets or permitted any of its assets to
be subjected to any mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind, (iii) made any capital expenditure or
commitment therefor, (iv) declared or paid any dividend or made any distribution
on any shares of its capital stock, or redeemed, purchased or otherwise acquired
any shares of its capital stock or any option, warrant or other right to
purchase or acquire any such shares, (v) increased its indebtedness for borrowed
money, or made any loan to any Person, (vi) written off as uncollectible any
notes or accounts receivable, except write-offs in the ordinary course of
business charged to applicable reserves, (vii) made any material change in any
method of accounting or auditing practice, (viii) otherwise conducted its
business or entered into any transaction, except in the usual and ordinary
manner, or (ix) agreed, whether or not in writing, to do any of the foregoing.
SECTION 2.16 CERTAIN PRACTICES. None of the Sellers, the Companies, the
Companies' directors or officers, or to the best knowledge of the Sellers, the
Companies' employees has, directly or indirectly, used any corporate funds for
unlawful contributions, gifts, entertainment, or other unlawful expenses
relating to political activity; made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; made any false or
fictitious entry on the books or records of either of the Companies or any
subsidiary; made any bribe, rebate, payoff, influence payment, kickback, or
other unlawful payment; given any favor or gift which is not deductible for
federal income tax purposes; or made any bribe, kickback, or other payment of a
similar or comparable nature, whether lawful or not, to any person or entity,
private or public, regardless of form, whether in money, business or to obtain
special concessions, or to pay for favorable treatment for business secured or
for special concessions already obtained.
SECTION 2.17 COMPLIANCE WITH LAW; LICENSES AND PERMITS. Except as set
forth on SCHEDULE 2.17, the Companies have complied in all material respects
with all laws, ordinances, legal requirements, rules, regulations and orders
applicable to them, their operations, properties, assets, products and services.
Except as set forth on SCHEDULE 2.17, there is no existing law, rule, regulation
or order, and the Sellers are not aware of any proposed law, rule, regulation or
order, whether Federal, state or local, which would prohibit or materially
restrict the Buyer from, or otherwise materially adversely affect the Buyer in,
conducting the Business in the manner heretofore conducted by the Companies in
any jurisdiction in which the Business is now
7
<PAGE>
conducted. Each of the Companies possesses all franchises, permits,
licenses, certificates and consents required from any governmental or
regulatory authority in order for the Companies to carry on their respective
businesses as currently conducted and to own and operate their respective
properties and assets as now owned and operated and all of such licenses and
permits are set forth on SCHEDULE 2.17.
SECTION 2.18 EMPLOYEE BENEFITS.
(a) Set forth on SCHEDULE 2.18 is a list of all pension, profit
sharing, retirement, deferred compensation, stock purchase, stock option,
incentive, bonus, vacation, severance, disability, hospitalization, medical
insurance, life insurance, fringe benefit, welfare and other employee benefit
plans, programs or arrangements pursuant to which either of the Companies or
their respective ERISA Affiliates provide (directly or indirectly, individually
or jointly through others) benefits or compensation to or on behalf of employees
or independent contractors or former employees or former independent contractors
of the Companies or their respective ERISA Affiliates, whether formal or
informal, whether or not written ("Employee Plan"). On request by the Buyer,
the Sellers shall furnish a copy of each Employee Plan and a copy of any related
materials. The Companies will maintain the benefits listed on SCHEDULE 2.18 in
full force and effect through the Effective Date. Except as set forth on
SCHEDULE 2.18, the Buyer shall not have any obligation or liability of any kind
or nature for any compensation or benefits of any kind or nature to the
employees or consultants of the Companies for services rendered prior to the
Effective Date.
(b) Each Employee Plan covering any present or former employee
of the Companies which is subject to the continuation health coverage
requirements of Section 4980B of the Code or Section 601 of ERISA or any
applicable state law has complied with all such requirements for continuation
coverage.
(c) There are no actions, suits or claims pending (other than
routine claims for benefits) or threatened against or with respect to any
Employee Plan or the assets of any Employee Plan.
(d) Each Employee Plan (and the related trust or funding
vehicle, if any) has been administered and maintained in accordance with its
terms and with applicable law. Except as set forth on SCHEDULE 2.18(d), each
Employee Plan which is intended to be qualified under Section 401 of the Code
and each amendment to such plan is subject to a favorable determination letter
from the Internal Revenue Service and each such plan has at all times been
maintained, by its terms and in operation, in accordance with Section 401 of the
Code. The assets of each Employee Plan which is not funded through the general
assets of either of the Companies are at least equal to the liabilities under
such Employee Plan, and all assets of each Employee Plan are shown on the books
and records of such Employee Plan at fair market value. No Employee Plan has
unfunded liabilities that as of the Closing Date are not accurately and fully
reflected on the Company's Balance Sheets.
8
<PAGE>
(e) None of the Companies nor any of their ERISA Affiliates is
or has been a participant in, or is or has been obligated to maintain or to make
contributions to, a multi-employer plan (within the meaning of ERISA Section
3(37) and ERISA Section 4001(a)(3)) or an Employee Plan which is subject to
Title IV of ERISA. None of the Companies nor any of their ERISA Affiliates has
sponsored, contributed to or been obligated under Title I or IV of ERISA to
contribute to a "defined benefit plan" (as defined in ERISA Section 3(35)).
Neither of the Companies is obligated to provide post-retirement medical
benefits or any other unfunded post-retirement welfare benefits to or on behalf
of any persons whatsoever (except the benefits pursuant to the continuation
health coverage requirements under Section 4980B of the Code, ERISA Section 601,
or applicable state law).
(f) None of the Companies nor their ERISA Affiliates is subject
to and, to the best knowledge of the Sellers, no facts exist which could subject
either of the Companies or any of their ERISA Affiliates to, any liability
whatsoever which is directly or indirectly related to any Employee Plan,
including, but not limited to, liability for benefit payments or related claims,
any liability for any tax or related penalty under the Code, or liability for
any damages or penalties arising under Title I or Title IV of ERISA. No
reportable event under Section 4043 of ERISA has occurred or, to the best
knowledge of the Sellers, will occur with respect to such Employee Plan.
(g) Termination of or withdrawal from any Employee Plan
immediately after the Effective Time would not subject either of the Companies
or the Buyer to any liability, tax or penalty whatsoever.
(h) The execution or performance of the transactions
contemplated by this Agreement will not create, accelerate or increase any
obligations under any Employee Plan, including any obligation to make any
payment which would not be deductible as an excess golden parachute payment
under Section 280G of the Code.
(i) All contributions to or under each Employee Plan and all
expenses of each Employee Plan are fully deductible for income tax purposes for
the taxable year for which such contributions are made or such expenses are
paid. All contributions to or under each Employee Plan have been made when due
under the terms of such Employee Plan in accordance with applicable law.
(j) For purposes of this Section 2.18, the term "ERISA" shall
mean the Employee Retirement Income Security Act of 1974, as amended, and the
term "ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Company is treated as a single employer
under Section 414(b), (c), (m), (o) or (t) of the Code.
SECTION 2.19 FIXED ASSETS. SCHEDULE 2.19 contains a true and complete
list of all of the Companies' fixed assets with a net book value of greater than
$1,000.00, whether owned or leased. Except as shown on SCHEDULE 2.19, the
Companies have good and marketable title to all of their respective fixed
assets, free and clear of all claims, liens, mortgages, charges and encumbrances
except as disclosed in the Balance Sheets. All of the Companies' fixed assets,
9
<PAGE>
whether owned or leased, are adequate and usable for the purposes for which they
are currently used, are in good operating condition and repair and have been
properly maintained.
SECTION 2.20 INSURANCE. The Companies are, and will be through the
Closing, insured with insurers in respect of its properties, assets and
businesses as set forth on the attached SCHEDULE 2.20. SCHEDULE 2.20 lists the
insurance coverage carried by the Companies, which insurance will remain in full
force and effect with respect to all events occurring prior to the Effective
Date. Except as set forth on SCHEDULE 2.20, neither of the Companies (i) has
failed to give any notice or present any claim under any such policy or binder
in due and timely fashion, (ii) has received notice of cancellation or
non-renewal of any such policy or binder, (iii) is aware of any threatened or
proposed cancellation or non-renewal of any such policy or binder, (iv) has
received notice of any insurance premium which will be materially increased in
the future, or (v) is aware of any insurance premium which will be materially
increased in the future. There are no outstanding claims under any such policy
which have gone unpaid for more than 45 days, or as to which the insurer has
disclaimed liability.
SECTION 2.21 ACCOUNTS RECEIVABLE; SELLER NOTES. The accounts receivable
and other debts due or recorded in the respective records and books of account
of the Companies as being due to either of the Companies as of the Effective
Date, all of which are set forth on SCHEDULE 2.21, arose in the ordinary course
of business of the Companies, are not subject to any counterclaim or set-off
and, except for $31,000 in notes receivables from sales representatives which
are not reflected on the Balance Sheets, are fully collectible within 90 days
after the Effective Date without resort to litigation and without offset or
counterclaim. All notes payable to any of the Sellers, or any past shareholder
of either of the Companies or any corporation, partnership or other entity owned
or otherwise controlled by either of the Sellers, by either of the Companies and
all notes receivable to the Company from any of the Sellers, or any past
shareholder of either of the Companies or any corporation, partnership or other
entity owned or otherwise controlled by either of the Sellers, have been paid in
full.
SECTION 2.22 OUTSTANDING CONTRACTS. SCHEDULE 2.22 sets forth a
description of all existing contracts, agreements, leases (other than leases of
real property), commitments, licenses and franchises, which involve obligations
or commitments by either of the Companies of $10,000 or more and are not
cancelable by the Companies without penalty within 30 days (collectively
"Contracts"), whether written or oral, relating to the Companies. The Sellers
have delivered or made available to the Buyer true, correct and complete copies
of all of the Contracts specified on SCHEDULE 2.22 which are in writing, and
such schedule sets forth a complete description of all Contracts which are not
in writing. All of the Contracts are in full force and effect and enforceable
in accordance with their terms, except to the extent that the enforceability
thereof may be subject to or affected by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium, or other laws relating to or
affecting the rights of creditors generally. Except as set forth on SCHEDULE
2.22, the Companies and, to the best knowledge of the Sellers, each other party
thereto has materially performed all the obligations required to be performed by
it, has received no notice of default and is not in default (with due notice or
lapse of time or both) under any of the Contracts. Neither of the Companies has
any present expectation or intention of not fully performing all its obligations
under each of the
10
<PAGE>
Contracts, and the Sellers have no knowledge of any breach or anticipated
breach by the other party to any of the Contracts to which either of the
Companies is a party. Except as set forth on SCHEDULE 2.22, none of the
Contracts has been terminated; no notice has been given by any party thereto
of any alleged default by any party thereunder; and the Sellers are not aware
of any intention or right of any party to declare another party to any of the
Contracts to be in default. Except as set forth on SCHEDULE 2.22, there
exists no actual or, to the best knowledge of the Sellers, threatened
termination, cancellation or limitation of the business relationship of
either of the Companies by any party to any of the Contracts.
SECTION 2.23 OUTSTANDING LEASES. SCHEDULE 2.23 sets forth a description
of each agreement by which either of the Companies leases real property (the
"Leased Parcels") used in connection with the Business (collectively, the
"Leases"). The Sellers have delivered or made available to the Buyer true,
correct and complete copies of all of the Leases specified on SCHEDULE 2.23.
All rents due under the Leases have been paid. All of the Leases are in full
force and effect and enforceable in accordance with their terms, except to the
extent that the enforceability thereof may be subject to or affected by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, or other laws relating to or affecting the rights of creditors
generally. Except as set forth on SCHEDULE 2.23, the Companies and to the best
knowledge of the Sellers, each other party thereto has performed all the
obligations required to be performed by them, has received no notice of default
and is not in default (with due notice or lapse of time or both) under any of
the Leases. Neither of the Companies has any present expectation or intention
of not fully performing all its obligations under each of the Leases, and the
Sellers have no knowledge of any breach or anticipated breach by the other party
to any of the Leases. Except as set forth on SCHEDULE 2.23, none of the Leases
has been terminated; no notice has been given by any party thereto of any
alleged default by any party thereunder; and the Sellers are not aware of any
intention or right of any party to declare another party to any of the Leases to
be in default. There exists no actual or, to the best knowledge of the Sellers,
threatened termination, cancellation or limitation of the business relationship
of either of the Companies with any party to any of the Leases.
SECTION 2.24 INTELLECTUAL PROPERTIES. SCHEDULE 2.24 contains an
accurate and complete list of all domestic and foreign letters patent, patents,
patent applications, patent licenses, software licenses and know-how licenses,
trade names, trademarks, copyrights, unpatented inventions, service marks,
trademark registrations and applications, service mark registrations and
applications and copyright registrations and applications, trade secrets or
other confidential proprietary information owned or used by either of the
Companies in the operation of the Business (collectively the "Intellectual
Property"). Except as set forth on SCHEDULE 2.24 and except for commercial
software licensed for use on personal computers, the Companies own the entire
right, title and interest in and to the Intellectual Property, trade secrets and
technology used in the operation of its business and each item constituting part
of the Intellectual Property and trade secrets and technology which is owned by
either of the Companies has been, to the extent indicated in SCHEDULE 2.24, duly
registered with, filed in or issued by, as the case may be, the United States
Patent and Trademark office or such other government entities, domestic or
foreign, as are indicated in SCHEDULE 2.24 and such registrations, filings and
issuances remain in full force and effect. Except as set forth on SCHEDULE
2.24, there have not been and are no
11
<PAGE>>
pending or, to the best knowledge of the Sellers, threatened proceedings or
litigation or other adverse claims affecting or with respect to the
Intellectual Property. There is, to the best knowledge of the Sellers, no
reasonable basis upon which a claim may be asserted against either of the
Companies for infringement of any domestic or foreign letters patent,
patents, patent applications, patent licenses and know-how licenses, trade
names, trademark registrations and applications, common law trademarks,
service marks, service mark registrations or applications, copyrights,
copyright registrations or applications, trade secrets or other confidential
proprietary information. To the best knowledge of the Sellers, no Person is
infringing upon the Intellectual Property.
SECTION 2.25 PROPRIETARY INFORMATION OF THIRD PARTIES. Except as
disclosed on SCHEDULE 2.25, no third party has claimed or, to the best
knowledge of the Sellers, has reason to claim that any Person employed by or
consulting with either of the Companies ("Related Person") has (i) violated
or may be violating any of the terms or conditions of such person's
employment, non-competition or non-disclosure agreement with such third
party, (ii) disclosed or may be disclosing or utilized or may be utilizing
any trade secret or proprietary information or documentation of such third
party, or (iii) interfered or may be interfering in the employment
relationship between such third party and any of its present or former
employees. No third party has requested information from either of the
Companies which suggests that such a claim might be contemplated. Except as
disclosed on SCHEDULE 2.25, to the best knowledge of the Sellers, no Related
Person has employed or proposes to employ any trade secret or any information
or documentation proprietary to any former employer and no Related Person has
violated any confidential relationship which such person may have had with
any third party, in connection with the development or sale of any product or
service of either of the Companies, and none of the Sellers have any reason
to believe there will be any such employment or violation.
SECTION 2.26 TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 2.26, to the best knowledge of Sellers, no director, officer or
shareholder of the Companies, or member of the family of any such person, or any
corporation, partnership, trust or other entity in which any such person, or any
member of the family of any such person, has a beneficial interest greater than
5% or is an officer, director, trustee, partner or holder of any equity interest
greater than 5%, is a party to any transaction with either of the Companies,
including any contract, agreement or other arrangement providing for the
employment of, furnishing of services by, rental of real or personal property
from or otherwise requiring payments or involving other obligations to any such
person or firm.
12
<PAGE>
SECTION 2.27 ABSENCE OF UNDISCLOSED LIABILITIES.
(a) Except as and to the extent of the amounts specifically
reflected or reserved against in the Balance Sheets, or except as set forth on
SCHEDULE 2.27, the Companies have no liabilities or obligations of any nature
whatsoever due or to become due, accrued, absolute, contingent or otherwise,
except for liabilities and obligations incurred since the date thereof in the
ordinary course of business and consistent with past practice. The Sellers do
not know of, and have no reason to know of, any basis for the assertion against
either of the Companies of any liability or obligation not fully reflected or
reserved against in the Balance Sheet.
(b) Neither of the Companies is bound by any agreement, or
subject to any charter or other corporate restriction or any legal requirement,
which has, or in the future can reasonably be expected to have, a material
adverse effect on the business or prospects of either of the Companies.
SECTION 2.28 TAXES. The Companies have timely filed a valid election to
be treated as S corporations in accordance with the provisions of Section 1361
of the Code, effective for TSA Arizona's tax year ending December 31, 1997 and
for TSA Michigan's tax year ending December 31, 1997, and have qualified and
continue to qualify as S corporations for all years and periods thereafter until
the Effective Time. SCHEDULE 2.28 lists all the states and localities with
respect to which either of the Companies are required to file any corporate,
income and/or franchise tax returns and sets forth whether the Companies are
treated as the equivalent of an S corporation by or with respect to each such
state or locality. Neither of the Companies have engaged in any activity which
would disqualify its treatment as an S corporation for those tax purposes.
Except as set forth on SCHEDULE 2.28, all federal, state, local and foreign tax
returns and tax reports required to be filed by either of the Companies on or
before the date hereof have been timely filed with the appropriate governmental
agencies in all jurisdictions in which such returns and reports are required to
be filed and all amounts shown as owing thereon have been paid. Except as set
forth on SCHEDULE 2.28, all taxes (including, without limitation, income,
accumulated earnings, property, sales, use, franchise, excise, license, value
added, fuel, employees' income withholding and social security taxes) which have
become due or payable or are required to be collected by either of the Companies
or are otherwise attributable to any periods ending on or before the Effective
Time and all interest and penalties thereon, whether disputed or not, have been
paid or will be paid in full on or prior to the Closing Date or are adequately
reflected on the Balance Sheets or the Companies' books and records. Except as
set forth on SCHEDULE 2.28, all deposits required by law to be made by either of
the Companies with respect to employees' withholding taxes have been duly made,
and as of the Effective Time all such deposits due will have been made. The
Companies have delivered to the Buyer true and complete copies of all of the
Companies' federal and state income tax returns for the fiscal periods ended
December 31, 1998, 1997 and 1996 and all reports and results of income tax
audits, if any, related thereto. Except as set forth on SCHEDULE 2.28, no
examination of any tax return of either of the Companies is currently in
progress. There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any such tax return.
13
<PAGE>
SECTION 2.29 LITIGATION. Except as set forth on SCHEDULE 2.29, there is
no (i) action, suit, claim, proceeding or investigation pending or, to the best
knowledge of the Sellers, threatened against or affecting either of the
Companies (whether or not either of the Companies is a party or prospective
party thereto), at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceeding pending
relating to either of the Companies or (iii) governmental inquiry pending or, to
the best of Sellers' knowledge, threatened against or involving either of the
Companies, and there is no basis for any of the foregoing. Neither of the
Companies have received any opinion or memorandum or legal advice from legal
counsel to the effect that it is exposed, from a legal standpoint, to any
liability or disadvantage which may be material to the business, prospects,
financial condition, operations, property or affairs of either of the Companies.
There are no outstanding orders, writs, judgments, injunctions or decrees served
upon either of the Companies by any court, governmental agency or arbitration
tribunal against either of the Companies. To the best of Sellers' knowledge,
there are no facts or circumstances which may result in institution of any
action, suit, claim or legal, administrative or arbitration proceeding or
investigation against, involving or affecting either of the Companies or the
transactions contemplated hereby. Neither of the Companies is in default with
respect to any order, writ, injunction or decree known to or served upon it from
any court or of any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign.
Except as disclosed on SCHEDULE 2.29, there is no action or suit by either of
the Companies pending or threatened against others.
SECTION 2.30 ENVIRONMENTAL MATTERS.
(a) COMPLIANCE. The Companies and all Leased Parcels are in
compliance with all applicable laws, rules, regulations, orders, ordinances,
judgments and decrees of all governmental authorities with respect to all
environmental statutes, rules and regulations. Except as set forth on SCHEDULE
2.30, neither of the Companies has received notice of, nor does the Sellers have
knowledge of, any past, present or future events, conditions, circumstances,
activities, practices, incidents, actions or plans of the Companies or the
Companies' predecessors, either collectively, individually or severally, which
may interfere with or prevent continued compliance with, or which may give rise
to any common law or legal liability or otherwise form the basis of any claim,
action, suit, proceeding, hearing, or investigation, based on or related to the
disposal, storage, handling, manufacture, processing, distribution, use,
treatment or transport, or the emission, discharge, release or threatened
release into the environment, of any Substance. As used in this Section 2.30,
the term "Substance" or "Substances" shall mean any pollutant, contaminant,
hazardous substance, hazardous material, hazardous waste or toxic waste, as
defined in any presently enacted federal, state or local statute or any
regulation that has been promulgated pursuant thereto. No part of any of the
Leased Parcels has been listed or proposed for listing on the National
Priorities List established by the United States Environmental Protection
Agency, or any other corresponding list by any state or local authorities.
14
<PAGE>
(b) ENVIRONMENTAL SUBSTANCE LIABILITY. No event has occurred
or condition exists or operating practice is being employed that could give rise
to liability on the part of either of the Companies, either at the present time
or in the future, for any losses, liabilities, damages (whether consequential or
otherwise), settlements, penalties, interest, expenses and costs of responses,
including any such liability on account of the right of any governmental or
private entity or person, and including closure expenses, costs of assessment,
containment, removal, or response (other than monitoring or transportation or
disposal of materials required to be transported or disposed of in the ordinary
course of business consistent with past practice) arising under any rule or
federal, state, or local statute, or any regulation that has been promulgated
pursuant thereto, or common law, as a result of or in connection with, or
alleged to be as a result of or in connection with, the following (collectively
the "Hazardous Activities"):
(A) the handling, storage, use, transportation or
disposal of any Substances in or near or from the
Leased Parcels;
(B) the handling, storage, use, transportation or
disposal of any Substances by either of the
Companies, Thermo-Shield or their predecessors which
Substances were a product, by-product or otherwise
resulted from the operations conducted by or on
behalf of the Companies or their predecessors;
(C) any intentional or unintentional emission, discharge
or release of any Substances in or near or from
facilities into or upon the air, surface water,
ground water or land or any disposal, handling,
manufacturing, processing, distribution, use,
treatment, or transport of such Substances in or
near or from facilities by or on behalf of the
Companies or their predecessors; or
(D) the presence of any toxic or hazardous building
materials (including but not limited to friable
asbestos or similar substances) in any facilities of
the Companies, including but not limited to the
inclusion of such materials in the exterior and
interior walls, floors, ceilings, tile, insulation
or any other portion of building structures.
(c) ENVIRONMENTAL PERMITS. The Companies have obtained and
hold all registrations, permits, licenses, and approvals issued by or on behalf
of any federal, state or local governmental body or agency if any
("Environmental Permits") that are required in connection with the operation by
either of the Companies of the Leased Parcels, the discharge or emission of
Substances by either of the Companies from the Leased Parcels or the generation,
treatment, storage, transportation, or disposal of any such Substances by the
Companies. Such Environmental Permits, which are described on SCHEDULE 2.30,
are currently effective and sufficient for the operation of the Leased Parcels
and the business of the Companies as currently conducted and intended to be
conducted. The Companies are in compliance with all terms and conditions of the
Environmental Permits, and are also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules, and
15
<PAGE>
timetables contained in those laws or provisions or contained in any
regulation, code, plan, order, decree, judgment, notice or demand letter
issued, entered, promulgated or approved thereunder and applicable to either
of the Companies.
(d) DELIVERIES. The Sellers have delivered to the Buyer true
and complete copies of results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by the Sellers pertaining to Substances or
Hazardous Activities in, on, or under the Leased Parcels or concerning
compliance by the Sellers or any other Person for whose conduct they are or may
be held responsible, with environmental statutes, rules and regulations.
SECTION 2.31 BROKER'S OR FINDER'S FEES. No agent, broker, person or
firm acting on behalf of the Sellers or the Companies is, or will be, entitled
to any commission or broker's or finder's fees from the Sellers or the
Companies, or from any person controlling, controlled by or under common control
with the Sellers or either of the Companies, in connection with any of the
transactions contemplated herein.
SECTION 2.32 INVENTORY. All inventory of the Companies, whether or
not reflected in the Financial Statements or Balance Sheets, consists of a
quality and quantity usable and salable in the ordinary course of business,
except for obsolete items and items of below-standard quality, all of which have
been written off or written down to net realizable value in the Financial
Statements or the Balance Sheets, as the case may be. All inventories not
written off have been priced at the lower of cost or market on a first in, first
out basis. The quantities of each item of inventory (whether raw materials,
work-in-process, or finished goods) are not excessive, but are reasonable in the
present circumstances of the Companies.
16
<PAGE>
SECTION 2.33 YEAR-2000 COMPLIANCE.
(a) SCHEDULE 2.33 contains a true and complete list of all
Systems (as hereinafter defined), and each System is Year-2000 Compliant (as
hereinafter defined) to the extent indicated on SCHEDULE 2.33.
(b) As used throughout this Agreement, the following
definitions shall have the following meanings:
(1) "External Systems" shall mean all services which are
provided to the Company by third parties and which are
dependent on information technology, including, but not
limited to, any external payroll, accounting, or tax filing
services or any checking, savings, or other financial
services.
(2) "Internal Systems" shall mean all technology
products and systems generally operated or controlled
in-house by the Company, or its employees, agents, or
independent contractors including, but not
limited to, computers, computer networks, telephone
systems, voicemail systems, intercom systems, pager
systems, and software applications.
(3) "Licensed Systems" shall mean all products and
systems developed by or for the Company which are licensed,
sold, distributed, or otherwise transferred by the Company
to third parties.
(4) "System" or "Systems" shall mean any, all, or any
combination of any Internal System, External System, or
Licensed System.
(5) "Year-2000 Compliant" shall mean, with respect to
each System, that such System is designed to be used
before, during, and after the calendar year 2000 A.D. and
will accurately accept date input and process, store, and
output date data and date-related data, including, without
limitation, calculating, comparing, sorting, and sequencing
such data and calculating leap years before, during, and
after the calendar year 2000 A.D. without any manual
intervention.
SECTION 2.34 PURCHASE FOR INVESTMENT; RESTRICTED SECURITIES. Kron
represents and warrants (a) that he is acquiring shares of Buyer Common Stock,
as hereinafter defined, for investment and not with a present view toward, or
for sale in connection with, any distribution thereof, nor with any present
intention of distributing or selling the shares of Buyer Common Stock so
acquired; (b) that he has no present plan or intention to sell, exchange or
otherwise dispose of any of the shares of Buyer Common Stock that may be
received in connection with this Agreement; and (c) he acknowledges that (i) the
shares of Buyer Common Stock are not and will not be registered under the
Securities Act of 1933, as amended (the "1933 Act"), and (ii) that
17
<PAGE>
the Buyer does not file periodic reports with the Securities and Exchange
Commission pursuant to the requirements of Section 12 or 15(d) of the
Securities Exchange Act of 1934, as amended.
SECTION 2.35 WORKING CAPITAL OF THE THERMO-SHIELD GROUP. As of the
Closing Date, the Companies and Thermo-Shield have sufficient net current assets
to operate their respective businesses for one operating cycle without the need
for any additional working capital from Buyer or any other source.
SECTION 2.36 DISCLOSURE. All Documents delivered or to be delivered by
or on behalf of the Sellers or the Companies in connection with this Agreement
and the transactions contemplated hereby are true, complete and correct in all
material respects. Neither this Agreement, nor any of the other Documents
contains any untrue statement of a material fact or omits a material fact
necessary to make the statements made by any of the Sellers herein or therein,
in light of the circumstances in which made, not misleading. There is no fact
known to the Sellers which materially and adversely affects the business,
prospects or financial condition of the Companies or their properties or assets,
which has not been set forth in the Documents.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE BUYER
As an inducement to the Sellers to enter into this Agreement and to
consummate the transactions contemplated hereby, the Buyer represents and
warrants to the Sellers as follows:
SECTION 3.1 ORGANIZATION. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is duly qualified to transact business as a foreign corporation in each
jurisdiction in which the failure to so qualify would have a material adverse
impact on the Buyer's ability to purchase the Common Stock pursuant to this
Agreement and perform its obligations under this Agreement.
SECTION 3.2 CORPORATE POWER AND AUTHORITY. The Buyer has the corporate
power and authority to execute, deliver and perform this Agreement and the other
Documents. The execution, delivery and performance of the Documents
contemplated hereby and the consummation of the transactions contemplated hereby
and thereby have been duly authorized and approved by all necessary corporate
action of the Buyer. The Documents to be executed and delivered by the Buyer
have been duly executed and delivered by, and constitute the legal, valid and
binding obligation of the Buyer enforceable against the Buyer in accordance with
their terms.
SECTION 3.3 VALIDITY, ETC. Neither the execution and delivery by the
Buyer of this Agreement and the other Documents, the consummation by the Buyer
of the transactions contemplated hereby or thereby, nor the performance by the
Buyer of this Agreement and such other agreements in compliance with the terms
and conditions hereof and thereof will (i) violate, conflict with or result in
any breach of any trust agreement, articles of incorporation, bylaw, judgment,
decree, order, statute or regulation applicable to the Buyer, (ii) violate,
conflict with or
18
<PAGE>
result in a breach of or default (or give rise to any right of termination,
cancellation or acceleration) under any law, rule or regulation or any
judgment, decree, order, governmental permit, license or order or any of the
terms, conditions or provisions of any mortgage, indenture, note, license,
agreement or other instrument to which the Buyer is a party, or (iii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable
to the Buyer.
SECTION 3.4 CAPITAL STOCK. The authorized capital stock of the Buyer
consists of (a) 100,000,000 shares of $.001 par value common stock ("Buyer
Common Stock"), of which 13,917,439 shares were issued and outstanding as of
February 1, 1999 and (b) 50,000,000 shares of $.001 par value preferred stock
("Buyer Preferred Stock"), of which (i) 2,980,000 shares of 10% Cumulative
Convertible Series A Preferred Stock and (ii) 400,000 shares of 10% Cumulative
Convertible Series B Preferred Stock were issued and outstanding as of February
1, 1999 (collectively, Buyer Common Stock and Buyer Preferred Stock are referred
to as "Buyer Capital Stock"). All of the issued and outstanding shares of Buyer
Capital Stock are, and all of the shares of Buyer Common Stock to be issued
pursuant to Schedule 1.2, when issued in accordance with the terms of this
Agreement, will be, duly and validly issued and outstanding and fully paid and
nonassessable. None of the outstanding shares of Buyer Capital Stock has been,
and none of the shares of Buyer Common Stock to be issued in connection with
this transaction will be, issued in violation of any preemptive rights of the
current or past shareholders of the Buyer.
SECTION 3.5 DISCLOSURE STATEMENT. The Buyer's Disclosure Statement,
dated February 25,1999 and supplemented on March 19, 1999, which has been
previously delivered to the Sellers is true, complete and correct in all
material respects.
SECTION 3.6 ACQUISITION OF STOCK FOR INVESTMENT. The Buyer is
acquiring the shares of Common Stock for investment and not with a view toward,
or for sale in connection with, any distribution thereof, nor with any present
intention of distributing or selling such shares of Common Stock. The Buyer
agrees that such shares of Common Stock may not be sold, transferred, offered
for sale, pledged, hypothecated or otherwise disposed of without registration
under the Securities Act of 1933, as amended, except pursuant to an exemption
from registration available under such Act. The Buyer will not sell, offer to
sell or solicit offers to buy any of the shares of Common Stock in violation of
the Securities Act of 1933 or the securities law of any state. The Buyer
understands that the shares of Common Stock have not been registered under
federal or any state's securities laws.
SECTION 3.7 BROKER'S OR FINDER'S FEES. No agent, broker, person or
firm acting on behalf of the Buyer is, or will be, entitled to any commission or
broker's or finder's fees from the Buyer, or from any person controlling,
controlled by or under common control with the Buyer, in connection with any of
the transactions contemplated herein.
SECTION 3.8 GOVERNMENTAL APPROVALS. No registration or filing with, or
consent or approval of or other action by, any Federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Buyer of this Agreement.
19
<PAGE>
SECTION 3.9 DISCLOSURE All Documents delivered or to be delivered by
or on behalf of the Buyer in connection with this Agreement and the transactions
contemplated hereby are true, complete and correct. Neither this Agreement, nor
any of the other Documents contains any untrue statement of a material fact or
omits a material fact necessary to make the statements made by the Buyer herein
or therein, in light of the circumstances in which made, not misleading. There
is no fact known to the Buyer which may have a material adverse effect on the
Buyer's ability to pay its obligations under this Agreement, which has not been
set forth in the Documents.
ARTICLE IV. COVENANTS AND AGREEMENTS
SECTION 4.1 BEST EFFORTS. Each of the Sellers and the Buyer shall use
their best efforts to procure upon reasonable terms and conditions all consents
and approvals, completion of all filings, all registrations and certificates,
and satisfaction of all other requirements prescribed by law which are necessary
for the consummation of the transactions contemplated by this Agreement and the
Buyer's ownership and operation of the Companies' Business after the Closing
Date. Prior to the Closing Date, each of the Sellers will use his best efforts
to preserve each of the Companies' relationships with its employees, independent
contractors, customers and others having business relationships with either of
the Companies.
SECTION 4.2 TAX RETURNS. The Sellers shall cause each of the Companies
to prepare and timely file, at their sole expense, all of the Companies'
required tax returns for all periods ending on or prior to the Effective Date.
The Sellers shall be responsible for the payment of, and will indemnify, defend
and hold the Buyer harmless against all taxes due or assessed which relate to
the operations of the Business for all periods ending on or prior to the
Effective Date.
SECTION 4.3 INVESTIGATIONS. The Sellers shall give the Buyer and its
employees, accountants, attorneys and other authorized representatives full
access during all reasonable times to all the premises, properties, books and
records, and furnish the Buyer with such financial and operating data, analyses
and other information of any kind respecting the Companies' business and
properties as the Buyer shall from time to time request. Any investigation
shall be conducted in a manner which does not unreasonably interfere with
business operations.
SECTION 4.4 PRESERVATION OF BUSINESS. The Sellers shall, in all
material respects, cause the Companies to use their best efforts to preserve the
possession and control of all of their respective assets and Business, to
preserve the goodwill of their respective customers and others with whom it has
business relations, and to do nothing to impair its ability to keep and preserve
its Business as it exists on the date of this Agreement.
SECTION 4.5 SECTION 338(h)(10) ELECTION. The Buyer and the Sellers
shall make a simultaneous joint election (the "Election") under Section
338(h)(10) of the Code for each of the Companies on Internal Revenue Service
Form 8023 in accordance with the instructions to the
20
<PAGE>
form and any similar state law provisions in all applicable states, with
respect to the sale and purchase of the Common Stock pursuant to this
Agreement, and each party shall provide to the others all necessary
information to permit such election to be made. Such election shall be made
not later than the 15th day of the ninth month beginning after the month in
which the Closing Date occurs. The Buyer and the Sellers shall, as promptly
as practicable following the Closing Date, take all actions necessary and
appropriate (including filing such forms, returns, schedules and other
documents as may be required) to effect and preserve a timely election. All
taxes attributable to the election made pursuant to this Section 4.5 shall be
the liability of the Sellers. In connection with such election, within sixty
(60) days following the Closing Date, the Buyer and the Sellers shall act
together in good faith to determine and agree upon the "deemed sale price" to
be allocated to each asset of the Companies in accordance with Treasury
Regulation Section 1.338(h)(10)-1(f) and the other regulations under Section
338 of the Code.
SECTION 4.6 LANDLORDS' CONSENTS. The Sellers shall cause, on or before
the expiration of thirty (30) days after the Closing Date, the Companies to
obtain from their respective landlords (to the extent required under the
pertinent premises leases) written consent to the assignment of said leases to
the Buyer which assignment is deemed to have resulted from the transactions
contemplated by this Agreement.
SECTION 4.7 AUDITED FINANCIAL STATEMENTS. The Sellers shall furnish to
the Buyer, as soon as practical, audited financial statements of the Companies
for the three (3) fiscal years ending December 31, 1998, 1997 and 1996. The
Buyer and the Sellers shall each pay one-half of the expenses associated with
the foregoing audited financial statements.
ARTICLE V. CONDITIONS TO THE BUYERS OBLIGATIONS
The obligation of the Buyer to make deliveries to the Sellers pursuant to
Section 1.2 hereof and to consummate the other transactions contemplated hereby
is subject to the satisfaction, on or before the Closing Date, of the following
conditions each of which may be waived by the Buyer in its sole discretion:
SECTION 5.1 INTRA-COMPANY DEBT. All indebtedness of each of the
Sellers and all other shareholders, former shareholders, directors, officers and
employees of the Companies to either of the Companies and of either of the
Companies to either of the Sellers, Thermo-Shield or any other entity controlled
by either of the Sellers shall have been repaid in full and the Sellers shall
have delivered to the Buyer a certificate, dated the Closing Date, to such
effect.
SECTION 5.2 CONSENTS. Except for the consents of the landlords
provided for in Section 4.6 above and except as set forth on SCHEDULE 5.2, all
requisite governmental approvals and consents of third parties identified on
such schedule or otherwise identified by the Sellers as required to be received
to prevent any material license, permit or agreement relating to the Business
from terminating prior to its scheduled termination, as a result of the
consummation of the transactions contemplated hereby, shall have been obtained.
21
<PAGE>
SECTION 5.3 NON-COMPETITION AGREEMENT. Each of Sellers shall have
entered into a Non-Competition Agreement with the Buyer in substantially the
form attached hereto as EXHIBIT B (the "Non-Competition Agreement").
SECTION 5.4 EMPLOYMENT AGREEMENT. Joel S. Kron shall have entered into
an Employment Agreement with TShield Illinois, LLC ("New Thermo-Shield") in
substantially the form attached hereto as EXHIBIT C (the "Employment
Agreement").
SECTION 5.5 OPINION OF COUNSEL TO THE SELLERS. The Buyer shall have
received from Jonathon D. Kron counsel to the Sellers, an opinion, dated as of
the Closing Date, in form and substance reasonably satisfactory to the Buyer,
and to the following effect:
(a) TSA Arizona is a corporation duly organized, validly
existing and in good standing under the laws of the State of Arizona and TSA
Michigan is a corporation duly organized, validly existing and in good standing
under the laws of the State of Michigan. The Companies are qualified to do
business as a foreign corporation and are in good standing in the states set
forth on SCHEDULE 2.4. The nature of the Business does not require either of
the Companies to be licensed or qualified in any other jurisdiction. Each of
the Companies has the corporate power and authority to own, lease, operate and
hold its properties and to carry on its business as now conducted;
(b) Each of the Sellers has full legal power, capacity and
authority to execute and deliver this Agreement and the other Documents and to
consummate the transactions contemplated hereby and thereby, and this Agreement
and the other Documents have been duly and validly executed and delivered by
each of the Sellers and constitute the legal, valid and binding obligation of
the Sellers, enforceable against each of the Sellers in accordance with their
terms;
(c) TSA Arizona has authorized capital consisting of (i) 50,000
shares of Class A Voting common stock, with no par value per share, of which
3,000 shares are issued and outstanding and no shares are held as treasury
stock, (ii) and 50,000 shares of Class B Nonvoting common stock none of which
are issued or outstanding or held as treasury stock. TSA Michigan has
authorized capital consisting of 60,000 shares of common stock, with no par
value per share, of which 1,000 shares are issued and outstanding and no shares
are held as treasury stock. All of the outstanding shares of the Companies have
been duly authorized and validly issued and are fully paid and nonassessable.
None of the outstanding shares of Common Stock of either of the Companies have
been issued in violation of any preemptive right. There are no outstanding
options, warrants, rights, calls, commitments, conversion rights, rights of
exchange, plans or other agreements of any character providing for the purchase,
issuance or sale of any shares of capital stock of either of the Companies,
other than as contemplated by this Agreement;
(d) The Companies have no subsidiaries and do not own, directly
or indirectly, any capital stock or other equity or ownership or proprietary
interest in any other corporation, partnership, association, trust, joint
venture or other entity;
22
<PAGE>
(e) No registration or filing with, or consent or approval of
or other action by, any Federal, state or other governmental agency or
instrumentality is or will be necessary for the valid execution, delivery and
performance by any of the Sellers of this Agreement;
(f) There is no (i) action, suit, claim, proceeding or
investigation pending or, to the best knowledge of the Sellers' counsel,
threatened against or affecting either of the Companies (whether or not either
of the Companies is a party or prospective party thereto), at law or in equity,
or before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
(ii) arbitration proceeding pending relating to either of the Companies or
(iii) governmental inquiry pending or threatened against or involving either of
the Companies, and, to the best knowledge of the Sellers' counsel, there is no
basis for any of the foregoing. Neither of the Companies have received any
opinion or memorandum or legal advice from legal counsel to the effect that they
are exposed, from a legal standpoint, to any liability or disadvantage which may
be material to the business, prospects, financial condition, operations,
property or affairs of either of the Companies. There are no outstanding
orders, writs, judgments, injunctions or decrees served upon either of the
Companies by any court, governmental agency or arbitration tribunal against
either of the Companies. To the best knowledge of the Sellers' counsel, there
are no facts or circumstances which may result in institution of any action,
suit, claim or legal, administrative or arbitration proceeding or investigation
against, involving or affecting either of the Companies or the transactions
contemplated hereby. Neither of the Companies are in default with respect to
any order, writ, injunction or decree known to or served upon it from any court
or of any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign.
There is no action or suit by either of the Companies pending or threatened
against others;
(g) Each of the Non-Competition Agreements has been duly
executed and delivered by, and constitutes the legal, valid and binding
obligation of each of the Sellers, enforceable against him in accordance with
its terms. The Employment Agreement has been duly executed and delivered by,
and constitutes the legal, valid and binding obligations of Joel S. Kron,
enforceable against him in accordance with its terms; and
(h) The execution and delivery of this Agreement and the other
Documents, the consummation of the transactions contemplated hereby and thereby,
and the performance of the Agreement and such other agreements in compliance
with the terms and conditions hereof and thereof by the Sellers will not, to the
best knowledge of counsel, (i) violate, conflict with or result in any breach of
any trust agreement, articles of incorporation, bylaw, judgment, decree, order,
statute or regulation applicable to either of the Companies, (ii) violate,
conflict with or result in a breach, default or termination or give rise to any
right of termination, cancellation or acceleration of the maturity of any
payment date of any of the obligations of either of the Companies or increase or
otherwise affect the obligations of either of the Companies under any law, rule,
regulation or any judgment, decree, order, governmental permit, license or order
or any of the terms, conditions or provisions of any mortgage, indenture, note,
license, agreement or other instrument or obligation related to either of the
Companies or to the Sellers' ability to consummate the transactions contemplated
hereby or thereby, except for such defaults (or rights of termination,
cancellation or acceleration) as to which requisite waivers or consents have
been obtained in writing and provided
23
<PAGE>
to the Buyer, or (iii) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to either of the Companies.
SECTION 5.6 CLOSING DOCUMENTS. The Sellers shall have delivered all of
the resolutions, certificates, documents and instruments required by this
Agreement.
SECTION 5.7 TSA MICHIGAN SHAREHOLDER AGREEMENT. TSA Michigan and its
shareholders shall have terminated that certain Shareholders Agreement, dated
February 17, 1997 (the "Michigan Shareholders Agreement"), as of an effective
date prior to Closing.
SECTION 5.8 EMPLOYMENT MATTERS. Each of the Companies shall have
delivered new INS forms I-9 and IRS forms W-4 for each of their current
employees.
SECTION 5.9 THERMO-SHIELD TRANSACTIONS. The transactions contemplated
in the Asset Purchase Agreement shall have closed simultaneously with the
transactions contained herein.
SECTION 5.10 APPROVAL OF THE BUYER AND ITS COUNSEL. All actions,
proceedings, consents, instruments and documents required to be delivered by, or
at the behest or direction of, the Sellers hereunder or incident to their
performance hereunder, and all other related matters, shall be reasonably
satisfactory as to form and substance to the Buyer and its counsel.
ARTICLE VI. CONDITIONS TO THE SELLERS' OBLIGATIONS
The obligation of the Sellers to transfer the Common Stock to the Buyer
and to consummate the other transactions contemplated hereby is subject to the
satisfaction, on or before the Closing Date, of the following conditions, each
of which may be waived by the Sellers in their sole discretion:
SECTION 6.1 EMPLOYMENT AGREEMENT. New Thermo-Shield shall have entered
into the Employment Agreement.
SECTION 6.2 OPINION OF STITES & HARBISON. The Sellers shall have
received from Stites & Harbison, counsel to the Buyer, an opinion dated as of
the Closing Date, in form and substance reasonably satisfactory to the Sellers,
and to the following effect:
(a) The Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and is duly
qualified to transact business as a foreign corporation in each jurisdiction in
which the failure to so qualify would have a material adverse impact on the
Buyer's ability to pay its obligations under this Agreement;
(b) The Buyer has the corporate power and authority to execute,
deliver and perform the Agreement and the other Documents. The execution,
delivery and performance of the Agreement and the other Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly executed and delivered by the Buyer and
24
<PAGE>
constitute the legal, valid and binding obligations of the Buyer enforceable
against the Buyer in accordance with their terms; and
(c) The execution and delivery of the Agreement and the other
Documents, the consummation of the transactions contemplated hereby and thereby,
and the performance of the Agreement and such other agreements in compliance
with the terms and conditions hereof and thereof by the Buyer will not (i)
violate, conflict with or result in any breach of any trust agreement,
certificate of incorporation, bylaw, judgment, decree, order, statute or
regulation applicable to the Buyer, (ii) violate, conflict with or result in a
breach of or default (or give rise to any right of termination, cancellation or
acceleration) under any law, rule or regulation or any judgment, decree, order,
governmental permit, license or order or any of the terms, conditions or
provisions of any mortgage, indenture, note, license, agreement or other
instrument to which the Buyer is a party, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Buyer.
SECTION 6.3 CLOSING DOCUMENTS. The Buyer shall have delivered all of
the resolutions, certificates, documents and instruments required by this
Agreement.
SECTION 6.4 THERMO-SHIELD TRANSACTIONS. The transactions contemplated
in the Asset Purchase Agreement, shall have closed simultaneously with the
transactions contained herein.
SECTION 6.5 REGISTRATION RIGHTS. The Buyer shall have executed and
delivered a Registration Rights Agreement with Kron substantially in the form
attached hereto EXHIBIT H.
SECTION 6.6 APPROVAL OF THE SELLERS AND THEIR COUNSEL.
All actions, proceedings, consents, instruments and documents required to
be delivered by, or at the behest or direction of, the Buyer hereunder or
incident to its performance hereunder, and all other related matters, shall be
reasonably satisfactory as to form and substance to the Sellers and their
counsel.
ARTICLE VII. THE CLOSING AND CERTAIN CLOSING DELIVERIES
SECTION 7.1 TIME AND PLACE OF CLOSING. Upon the terms and subject to
the satisfaction or waiver of the conditions contained in this Agreement, the
closing of the transactions contemplated by this Agreement (the "Closing") shall
take place at the offices of Stites & Harbison, 400 West Market Street, Suite
1800, Louisville, Kentucky 40202 on the date hereof (the "Closing Date"). The
transactions contemplated by this Agreement shall be effective as of the close
of business (the "Effective Time") on March 1, 1999 (the "Effective Date").
SECTION 7.2 DELIVERIES BY THE SELLERS. At the Closing, the Sellers
will deliver or cause the Company to deliver to the Buyer the following:
(a) Stock certificates representing all of the issued and
outstanding shares of Common Stock owned by the Sellers, accompanied by stock
powers duly executed in favor of
25
<PAGE>
the Buyer or duly executed instruments of transfer and any other documents
that are necessary to transfer to the Buyer good and marketable title to all
issued and outstanding shares of Common Stock;
(b) The stock books, stock ledgers, minute books, and other
corporate records of the Companies;
(c) Resignations dated the Closing Date of all of the directors
and officers of the Companies as designated by the Buyer;
(d) All required consents of third parties to the sale
conveyance, transfer, assignment and delivery of the Common Stock or any assets
of the Companies hereunder;
(e) A certificate of the officer of each of the Companies
certifying as of the Closing Date (i) a true, correct, and complete copy of its
Articles of Incorporation and all amendments thereto as in effect on the Closing
Date; (ii) a true, correct, and complete copy of its bylaws and all amendments
thereto as in effect on the Closing Date; and (iii) Certificates of Good
Standing from the respective Secretary of State of the jurisdiction of its
incorporation and any state in which it is qualified to transact business as a
foreign corporation;
(f) The affidavit of each of the Sellers certifying as to his
non-foreign status in accordance with Section 1445(b)(2) of the Code;
(g) The Certificate of Sellers pursuant to Section 5.1,
including evidence that the $31,000 of debts of the Sellers to the Companies;
the $68,000 of debts of the Companies to Thermo-Shield; and the $80,000 of debts
of the Companies to former shareholders, all of which are reflected on the
Balance Sheets have been paid in full;
(h) The Non-Competition Agreements required by Section 5.3
above;
(i) The Employment Agreement required by Section 5.4 above;
(j) The Opinion of the Sellers' Counsel required by Section 5.5
above;
(k) A General Release from each of the Sellers which releases
the Companies from any and all claims, known or unknown, contingent or direct,
which he may have against either of the Companies or Thermo-Shield as of the
Closing Date, other than claims arising under this Agreement and the other
Documents and the transactions contemplated hereby;
(l) Evidence that the Michigan Shareholders Agreement has been
terminated pursuant to Section 5.8;
(m) The I-9's and W-4's required by Section 5.9;
(n) The Escrow Agreement required by Section 1.2; and
26
<PAGE>
(o) All other documents, instruments and writings required to
be delivered by the Sellers at or prior to the Closing Date pursuant to this
Agreement or otherwise required in connection herewith.
SECTION 7.3 DELIVERIES BY THE BUYER. At the Closing, the Buyer will
deliver the following to or for the account of the Sellers:
(a) The consideration required by Section 1.2 above;
(b) The Stock Pledge Agreement required by Section 1.2(b);
(c) The Security Agreement required by Section 1.2(b);
(d) The Escrow Agreement required by Section 1.2(c);
(e) The Employment Agreement required by Section 6.1 above;
(f) The Opinion of the Buyer's Counsel required by Section 6.2
above;
(g) A certificate of an officer of the Buyer certifying as of
the Closing Date (i) a true, correct, and complete copy of the Certificate of
Incorporation of the Buyer and all amendments thereto as in effect on the
Closing Date; (ii) a true, correct, and complete copy of the bylaws of the Buyer
and all amendments thereto as in effect on the Closing Date; (iii) a true,
correct, and complete copy of the resolutions approved and adopted by the Board
of Directors of the Buyer authorizing the transactions contemplated herein; (iv)
Certificate of Good Standing from the Delaware Secretary of State; and (v) the
incumbency of the duly authorized officers of the Buyer;
(h) The Registration Rights Agreement required by Section 6.5;
and
(i) All other documents, instruments and writings required to
be delivered by the Buyer at or prior to the Closing Date pursuant to this
Agreement or otherwise required in connection herewith.
27
<PAGE>
ARTICLE VIII. [INTENTIONALLY OMITTED]
ARTICLE IX. SURVIVAL; INDEMNIFICATION AND OFFSET
SECTION 9.1 SURVIVAL. All representations and warranties in this
Agreement and the other Documents shall survive the Closing of the purchase of
the Common Stock contemplated hereby and any investigation at any time made by
or on behalf of any party for a period of three years and all such
representations and warranties shall expire on the third anniversary of the
Closing Date, except that (a) claims, if any, asserted in writing prior to such
third anniversary identified as a claim for indemnification pursuant to this
Article IX shall survive until finally resolved and satisfied in full; (b) any
Year-2000 Indemnification Obligations (as hereinafter defined) shall survive
until February 1, 2003 and until finally resolved and satisfied in full if
asserted on or prior to February 1, 2003; and (c) tax or environmental claims
arising from a breach of Section 2.28 or Section 2.30, respectively, shall
survive for the full period of the applicable statute of limitations, and until
finally resolved and satisfied in full if asserted on or prior to the expiration
of any such period. The representations and warranties shall not be affected or
otherwise diminished by any investigation at any time by or on behalf of the
party for whose benefit such representations and warranties were made.
SECTION 9.2 INDEMNIFICATION BY THE SELLERS. Subject to the terms
herein, Kron shall indemnify, defend, and hold the Companies and the Buyer and
the respective officers, directors, and employees of the foregoing, and their
successors and assigns (the "Sellers' Indemnities") harmless from, against and
with respect to any claim, liability, obligation, loss, damage, assessment,
judgment, cost or expense of any kind or character, including reasonable
attorneys' fees (the "Damages"), arising out of or in any manner incident,
relating or attributable to:
(a) Any inaccuracy in any representation or breach of any
warranty of any of the Sellers contained in this Agreement;
(b) Any failure by any of the Sellers to perform or observe, or
to have performed or observed, in full, any covenant,
agreement or condition to be performed or observed by him
under this Agreement except to the extent such failure to
perform or observe is due to the Buyer's actions;
(c) Reliance by the Buyer on any books or records of the
Companies or written information furnished to the Buyer
pursuant to this Agreement by or on behalf of any of the
Sellers or the Companies in the event that such books and
records or written information are false or materially
inaccurate;
(d) Liabilities or obligations of, or claims against, either of
the Companies or the Buyer (whether absolute, accrued,
contingent or otherwise) relating to, or arising out of,
the operation of the Business prior to the Closing Date or
facts and circumstances relating specifically to the
Business, the Leased
28
<PAGE>
Parcels, or the Companies existing at or prior to the
Closing Date, including but not limited to matters set
forth on SCHEDULE 2.29, whether or not such liabilities,
obligations or claims were known on such date, excluding
only liabilities set forth in the Balance Sheets and
liabilities and obligations incurred since the date thereof
in the ordinary course of business and consistent with past
practice; or
(e) Any amounts due Buyer in connection with Thermo-Shield's
obligations under the Asset Purchase Agreement, including
without limitation Section 9.2 thereto.
Provided, however, the Sellers' Indemnities shall not be entitled to
indemnification or offset hereunder until Damages under this Agreement and the
Asset Purchase Agreement in the aggregate exceed $50,000 and then only to the
extent of aggregate Damages in excess of $50,000; provided further, however,
this limitation or "basket" shall not apply to any Damages arising in connection
with the representations and warranties as set forth in Sections 2.1, 2.2, 2.28,
2.29, 2.30 and 2.35 hereof.
SECTION 9.3 NOTICE TO THE SELLERS, ETC. If any of the matters as to
which the Sellers' Indemnitees are entitled to receive indemnification under
Section 9.2 should entail litigation with or claims asserted by parties other
than the Sellers, the Sellers Agent shall be given prompt notice thereof and
Sellers shall have the right, at their expense, to control such claim or
litigation upon prompt notice to the Buyer of their election to do so. To the
extent requested by the Sellers, the Buyer, at its expense, shall cooperate with
and assist the Sellers, in connection with such claim or litigation. The Buyer
shall have the right to appoint, at its expense, single counsel to consult with
and remain advised by the Sellers in connection with such claim or litigation.
The Sellers shall have final authority to determine all matters in connection
with such claim or litigation; provided, however, that the Sellers shall not
settle any third party claim without the consent of the Buyer, which shall not
be unreasonably denied or delayed.
SECTION 9.4 INDEMNIFICATION BY THE BUYER. The Buyer shall indemnify,
defend, and hold the Sellers and their heirs, executors, and legal
representatives (the "Buyer's Indemnitees") harmless from, against and with
respect to any Damages, arising out of or in any manner incident, relating or
attributable to:
(a) Any inaccuracy in any representation or breach of warranty
of the Buyer contained in this Agreement;
(b) Any failure by the Buyer to perform or observe, or to have
performed or observed, in full, any covenant, agreement or
condition to be performed or observed by it under any of
the Documents;
(c) Reliance by the Sellers on any books or records of the
Buyer or reliance by the Sellers on any written information
furnished to the Sellers pursuant to
29
<PAGE>
this Agreement by or on behalf of the Buyer in the event
that such books and records or written information are
false or inaccurate;
(d) The operation of the Business subsequent to the Closing
Date; or
(e) Any amounts due Thermo-Shield in connection with Buyers
obligations under the Asset Purchase Agreement, including
without limitation Section 9.2 thereto.
Provided, however, the Buyer's Indemnitees shall not be entitled to
indemnification hereunder until the aggregate of Damages under this Agreement
and the Asset Purchase Agreement in total exceed $50,000 and then only to the
extent of aggregate Damages in excess of $50,000.
SECTION 9.5 NOTICE TO THE BUYER, ETC. If any of the matters as to which
the Buyer's Indemnitees are entitled to receive indemnification under Section
9.4 should entail litigation with or claims asserted by parties other than the
Buyer, the Buyer shall be given prompt notice thereof and shall have the right,
at its expense, to control such claim or litigation upon prompt notice to the
Sellers of its election to do so. To the extent requested by the Buyer, the
Sellers, at their expense, shall cooperate with and assist the Buyer, in
connection with such claim or litigation. The Sellers shall have the right to
appoint, at his expense, single counsel to consult with and remain advised by
the Buyer in connection with such claim or litigation. The Buyer shall have
final authority to determine all matters in connection with such claim or
litigation; provided, however, that the Buyer shall not settle any third party
claim without the consent of the Sellers, which shall not be unreasonably denied
or delayed.
SECTION 9.6 SURVIVAL OF INDEMNIFICATION. The obligations to indemnify
and hold harmless pursuant to this Article IX shall survive the Closing of the
purchase of the Common Stock contemplated hereby for a period of three years,
notwithstanding any investigation at any time made by or on behalf of any party,
except that (a) claims, if any, asserted in writing prior to such third
anniversary identified as a claim for indemnification pursuant to this Article
IX shall survive until finally resolved and satisfied in full; (b) any Year-2000
Indemnification Obligations (as hereinafter defined) shall survive until
February 1, 2003 and until finally resolved and satisfied in full if asserted on
or prior to February 1, 2003; and (c) tax or environmental claims arising from a
breach of Section 2.28 or Section 2.30, respectively, shall survive for the full
period of the applicable statute of limitations, and until finally resolved and
satisfied in full if asserted on or prior to the expiration of any such period.
As used in this Article 9, the term "Year-2000 Indemnification Obligations"
shall mean the Sellers' obligation to indemnify, defend, and hold the Sellers'
Indemnitees harmless from, against and with respect to any Damages arising out
of or in any manner incident, relating or attributable to (i) any claim or
allegation that any Licensed System is not Year-2000 Compliant and (ii) any
claim arising from a breach of Section 2.33.
SECTION 9.7 OFFSET. The Sellers acknowledge and agree that the Buyer
shall be entitled to offset any indemnity claim under Section 9.2, including
without limitation indemnity
30
<PAGE>
claims arising under the Asset Purchase Agreement pursuant to Section 9.2(e),
against any payment due to such Sellers under Sections 1.2 and 1.3 hereof, at
the Buyer's sole option.
ARTICLE X. MISCELLANEOUS
SECTION 10.1 KNOWLEDGE OF THE SELLERS. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to the
best knowledge of the Sellers, each Seller confirms that he has made due and
diligent inquiry of the Companies' President and other officers as to the
matters that are the subject of such representations and warranties.
SECTION 10.2 KNOWLEDGE OF THE BUYER. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to the
best knowledge of the Buyer, the Buyer confirms that it has made due and
diligent inquiry of its Chief Executive Officer as to the matters that are the
subject of such representations and warranties.
SECTION 10.3 "PERSON" DEFINED. "Person" shall mean and include an
individual, a partnership, a joint venture, a limited liability company, a
corporation, a trust, an unincorporated organization and a government or other
department or agency thereof.
SECTION 10.4 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) sent by recognized overnight courier, (iii) made by telecopy or facsimile
transmission, or (iv) sent by registered or certified mail, return receipt
requested, postage prepaid.
If to the Buyer:
ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
Attn: Stephen A. Hoffmann, Chief Executive Officer
Fax No: (502) 412-0301
With a copy to:
Stites & Harbison
400 W. Market Street, Suite 1800
Louisville, Kentucky 40202
Attn: Ralston W. Steenrod, Esq.
Fax No: (502) 587-6391
31
<PAGE>
If to the Sellers:
Joel S. Kron, Sellers' Agent
661 Glenn Avenue
Wheeling, Illinois 60090
Fax No.: (847) 520-3333
With a copy to:
Jonathon D. Kron, Esq.
6238 Pine Tree Drive
Long Grove, Illinois 60090
Fax No.: (847) 520-3333
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof to
the receiving party at the address of such party set forth above, (ii) if sent
by overnight courier, on the next business day following the day such notice is
delivered to the courier service, (iii) if made by telecopy or facsimile
transmission, at the time that receipt thereof has been acknowledged by
electronic confirmation or otherwise, or (iv) if sent by registered or certified
mail, on the fifth business day following the day such mailing is sent. The
address of any party herein may be changed at any time by written notice to the
parties.
SECTION 10.5 ENTIRE AGREEMENT. This Agreement and the other Documents
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in the other Documents shall affect, or be used to
interpret, change or restrict, the express terms and provisions of this
Agreement.
SECTION 10.6 THE SELLERS' AGENT. Each Seller hereby constitutes and
appoints Joel S. Kron (the "Sellers' Agent") as his attorney-in-fact with full
authority to act for such Seller for the purposes of giving and receiving
notices, requests, consents and other communications pursuant to Section 10.4.
Each Seller agrees to be conclusively bound by any action taken by the Sellers'
Agent, in connection with the agency and power of attorney conferred hereunder.
The Sellers' Agent shall have no liability to any such Seller for any act,
omission or judgment (except in the case of willful misconduct or gross
negligence). This agency and power of attorney may be revoked at any time by
any Seller. The Buyer shall be entitled, in the absence of such notice of
revocation, to rely upon any notice, request, consent, or other communication
from the Sellers' Agent as a duly authorized act on behalf of all the Sellers.
SECTION 10.7 MODIFICATIONS AND AMENDMENTS. The terms and provisions of
this Agreement may be modified or amended only by written agreement executed by
all parties hereto.
32
<PAGE>
SECTION 10.8 ASSIGNMENT/BINDING EFFECT. Neither this Agreement, nor any
right hereunder, may be assigned by any of the parties hereto without the prior
written consent of the other parties. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns.
SECTION 10.9 PARTIES IN INTEREST. Nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement. Nothing in this
Agreement shall be construed to create any rights or obligations except among
the parties hereto, and no person or entity shall be regarded as a third-party
beneficiary of this Agreement.
SECTION 10.10 GOVERNING LAW. This Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with and
governed by the internal laws of the State of Illinois without giving effect to
the conflict of law principles thereof.
SECTION 10.11 ARBITRATION. Any dispute or difference between the parties
hereto arising out of or relating to this Agreement shall be finally settled by
arbitration in accordance with the Commercial Rules of the American Arbitration
Association by a panel of three qualified arbitrators. The Sellers, on one
hand, and the Buyer, on the other hand, shall each choose an arbitrator and the
third shall be chosen by the two so chosen. If either the Sellers or the Buyer
fail to choose an arbitrator within 30 days after notice of commencement of
arbitration or if the two arbitrators fail to choose a third arbitrator within
30 days after their appointment, the American Arbitration Association shall,
upon the request of any party to the dispute or difference, appoint the
arbitrator or arbitrators to constitute or complete the panel as the case may
be. Arbitration proceedings hereunder may be initiated by either the Sellers,
on one hand, or the Buyer, on the other hand, making a written request to the
American Arbitration Association, together with any appropriate filing fee, at
the office of the American Arbitration Association in Chicago, Illinois. All
arbitration proceedings shall be held in Chicago, Illinois. Any order or
determination of the arbitral tribunal shall be final and binding upon the
parties to the arbitration and may be entered in any court having jurisdiction.
SECTION 10.12 SEVERABILITY. In the event that any arbitral tribunal of
competent jurisdiction shall finally determine that any provision, or any
portion thereof, contained in this Agreement shall be void or unenforceable in
any respect, then such provision shall be deemed limited to the extent that such
arbitral tribunal determines it enforceable, and as so limited shall remain in
full force and effect. In the event that such arbitral tribunal shall determine
any such provision, or portion thereof, wholly unenforceable, the remaining
provisions of this Agreement shall nevertheless remain in full force and effect.
SECTION 10.13 INTERPRETATION. The parties hereto acknowledge and agree
that: (i) the rule of construction to the effect that any ambiguities are
resolved against the drafting party shall not be employed in the interpretation
of this Agreement, and (ii) the terms and provisions of this Agreement shall be
construed fairly as to all parties hereto and not in favor of or against any
party, regardless of which party was generally responsible for the preparation
of this Agreement.
33
<PAGE>
SECTION 10.14 HEADINGS AND CAPTIONS. The headings and captions of the
various subdivisions of this Agreement are for convenience of reference only and
shall in no way modify, or affect, or be considered in construing or
interpreting the meaning or construction of any of the terms or provisions
hereof.
SECTION 10.15 RELIANCE. The parties hereto agree that, notwithstanding
any right of any party to this Agreement to investigate the affairs of any other
party to this Agreement, the party having such right to investigate shall have
the right to rely fully upon the representations and warranties of the other
party expressly contained herein.
SECTION 10.16 EXPENSES. Each party shall pay its own fees and expenses
(including the fees of any attorneys, accountants, appraisers or others engaged
by such party) incurred in connection with this Agreement and the transactions
contemplated hereby whether or not the transactions contemplated hereby are
consummated.
SECTION 10.17 GENDER. All pronouns and any variation thereof shall be
deemed to refer to the masculine, feminine, neuter, singular, or plural as the
identity of the person or entity or the context may require.
SECTION 10.18 PUBLICITY. Except by the mutual agreement between the
Sellers and the Buyer, no party shall issue any press release or otherwise make
any public statement with respect to the execution of, or the transactions
contemplated by, this Agreement except as may be required by law.
SECTION 10.19 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by different parties hereto on separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
34
<PAGE>
IN WITNESS WHEREOF, the Buyer has caused this Agreement to be executed by
its duly authorized officer and the Sellers have executed this Agreement all as
of the day and year first above written.
"Buyer"
THERMOVIEW INDUSTRIES, INC.
By: /s/ Nelson E. Clemmens
---------------------------------
Nelson E. Clemmens, President
"Sellers"
/s/ Joel S. Kron
------------------------------------
JOEL S. KRON
/s/ Jonathan D. Kron
------------------------------------
JONATHAN D. KRON
35
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is entered into this
23rd day of March, 1999 by and between THERMOVIEW INDUSTRIES, INC., (the
"Buyer"), a Delaware corporation, THERMO-SHIELD COMPANY, INC., an Illinois
corporation and THERMO-SHIELD OF AMERICA (WISCONSIN), INC., a Wisconsin
corporation (together, the "Sellers").
PRELIMINARY STATEMENTS:
The Sellers are engaged in the business of designing, selling and
installing state of the art custom vinyl new and replacement thermal paned
windows; replacement cabinet doors and cabinet refacing supplies; and vinyl
siding for the existing home market (the "Business");
The Sellers desire to sell or otherwise transfer certain of their
assets related to the Business to Buyer;
The Buyer desires to assign its rights to acquire the Illinois
Transferred Assets (defined below) to T-Shield Illinois, LLC, an Illinois
limited liability company and an affiliate of Buyer to be known as
"Thermo-Shield Company, LLC", and its rights to acquire the Wisconsin
Transferred Assets (defined below) to T-Shield Wisconsin, LLC, a Wisconsin
limited liability company and an affiliate of Buyer to be known as
"Thermo-Shield of America (Wisconsin), LLC; and
Concurrently with the transactions contemplated in this Agreement,
Buyer and Joel S. Kron and Jonathan D. Kron have entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement"), pursuant to which
ThermoView has agreed to purchase all of the issued and outstanding stock of
Thermo-Shield of America (Arizona), Inc., an Arizona corporation and
Thermo-Shield of America (Michigan), Inc., a Michigan corporation.
In consideration of these preliminary statements and the mutual
covenants, representations, warranties and agreements hereinafter set forth,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereby agree as follows:
ARTICLE I. PURCHASE AND SALE OF ASSETS
SECTION 1.1 TRANSFER OF ASSETS.
(a) Upon the terms and subject to the conditions set forth
in this Agreement, at the Effective Time (as hereinafter defined) the Sellers
shall transfer to the Buyer, free and clear of all claims, charges, liens,
contracts, rights, options, security interests, mortgages, encumbrances and
restrictions whatsoever (collectively, "Claims"), all of the assets,
properties
<PAGE>
and rights owned by the Sellers or in which the Sellers have any right or
interest of every type and description, real, personal and mixed, tangible
and intangible, confirmed or contingent, (other than the Excluded Assets as
hereinafter defined), including, without limitation, business agreements, p
roperty, Inventory (as defined in Section 2.29), the Accounts Receivable (as
defined in Section 2.30), including all receivables from employees, goodwill,
supplier lists, customer lists, prepaid insurance, licenses and permits,
processes, service marks, know-how, show-how, trade secrets, software
(including, without limitation, documentation and related source and object
codes), licenses thereto, computers and computer equipment, files and other
records, systems and processes, security deposits, contracts, arrangements
and understandings, oral and written, formal and informal, for work to be
performed and/or services to be provided, real estate and interests therein,
leasehold and other improvements, machines, machinery, equipment, furniture,
fixtures, supplies, all health insurance plans, all rights and claims under
insurance policies and other contracts of whatever nature, all causes of
action, claims and demands of every nature relating to the assumed
Liabilities, Contracts and Leases (as hereinafter defined), the right to use
the names "Thermo-Shield Company, Inc." or "Thermo-Shield of America
(Wisconsin), Inc." or any derivative thereof, and all other assets,
properties and rights of every kind and nature owned by the Sellers,
including the shares of stock of Thermo-Rose Manufacturing Co., Inc., an
Illinois corporation, held by Thermo-Shield Company, Inc., whether or not
specifically referred to in this Agreement (collectively, the "Transferred
Assets"; the separate assets of Thermo-Shield Company, Inc. shall sometimes
hereinafter be referred to herein as the "Illinois Transferred Assets" and
the separate assets of Thermo-Shield of America (Wisconsin), Inc. shall
sometimes hereinafter be referred to as the "Wisconsin Transferred Assets"),
all with the intention that the Business shall be transferred to the Buyer as
a going concern.
(b) Notwithstanding any provision of this Agreement to the
contrary, there shall be excluded from the Transferred Assets and retained by
the Sellers the following assets (the "Excluded Assets"): (i) all cash on
hand and in banks (including all uncollected items); (ii) all other claims
for services provided to customers prior to the Effective Time; (iii) the
Lease and Sublease of Thermo-Shield Company, Inc. relating to the property
located at 160 Lexington Drive, Suite D, Buffalo, Illinois; (iv) Lexus Truck;
(v) life insurance policy of Joel S. Kron; (vi) promissory note of Joel S.
Kron in the principal amount of $127,000 payable to Thermo-Shield Company,
Inc.; (vii) all intercompany promissory notes; and (viii) all contracts,
arrangements and understandings which are not capable of being transferred or
assigned without the approval or consent of any party thereto other than the
Sellers if such approval or consent has not been obtained, subject, however,
to Sections 1.3 and 5.1 herein.
(c) Thermo-Shield Company, Inc. shall transfer the Illinois
Transferred Assets to the Buyer, or its assignee, pursuant to a Bill of Sale
in substantially the form of EXHIBIT A-1, an Assignment and Assumption
Agreement in substantially the form of EXHIBIT B-1, Lease Assignments in
substantially the form of EXHIBIT C-1 and EXHIBIT C-2 and such other
documents and instruments as the Buyer or its counsel may reasonably request.
2
<PAGE>
(d) Thermo-Shield of America (Wisconsin), Inc. shall
transfer the Wisconsin Transferred Assets to the Buyer, or its assignee,
pursuant to a Bill of Sale in substantially the form of EXHIBIT A-2, an
Assignment and Assumption Agreement in substantially the form of EXHIBIT B-2,
a Lease Assignment in substantially the form of EXHIBIT C-3 and such other
documents and instruments as the Buyer or its counsel may reasonably request.
(e) At any time and from time to time after the Closing
Date, at the request of the Buyer and without further consideration, the
Sellers shall execute and deliver such other instruments of sale, transfer,
conveyance, assignment and confirmation as may be reasonably requested in
order to more effectively transfer, convey and assign to the Buyer and to
confirm the Buyer's title to the Transferred Assets.
SECTION 1.2 CONSIDERATION FOR THE TRANSFERRED ASSETS AND SECURITY.
In consideration for the transfer of the Transferred Assets, upon the terms
and subject to the conditions set forth in this Agreement, the Buyer shall
assume the Assumed Liabilities pursuant to Section 1.3 hereof and shall make
a payment of Six Hundred Thousand Dollars ($600,000) to Thermo-Shield
Company, Inc. and One Hundred Thousand Dollars ($100,000) to Thermo-Shield of
America (Wisconsin), Inc. ( together, the "Purchase Price"), which shall be
delivered to the Sellers in the form of a promissory note in substantially
the form attached hereto as EXHIBIT D. Buyer's obligations hereunder shall
be secured by Security Agreements in substantially the form attached hereto
as EXHIBIT E and a Pledge of Membership Interests of T-Shield Illinois, LLC
and T-Shield Wisconsin, LLC in substantially the form attached hereto as
EXHIBIT F.
SECTION 1.3 ASSUMPTION OF LIABILITIES. The only obligations and
liabilities to be assumed by the Buyer in connection with its acquisition of
the Illinois Transferred Assets (the "Illinois Assumed Liabilities") and the
Wisconsin Transferred Assets (the "Wisconsin Assumed Liabilities") are the
obligations and liabilities specifically listed on SCHEDULE 1.3 and
obligations and liabilities arising from the operation of the Business after
the Effective Date, including obligations under executory contracts listed on
SCHEDULE 1.3 arising from the operation of the Business after the Effective
Date (provided such contracts are not in default and are assigned in writing
by the Sellers with the written consent of the other party or parties
thereto, if necessary, and are delivered to the Buyer on or prior to the
Effective Date).
The Buyer shall assume such obligations and liabilities pursuant to
the Assignment and Assumption Agreements substantially in the form of EXHIBIT
B-1 and EXHIBIT B-2 and the Lease Assignments in substantially the form of
EXHIBIT C(1), EXHIBIT C(2), and EXHIBIT C(3). The Sellers shall remain liable
for the payment of all other liabilities and obligations which accrue prior to
or subsequent to the Effective Date. Except for the Illinois Assumed
Liabilities and the Wisconsin Assumed Liabilities in the amount and to the
extent provided in this Section 1.3, the Buyer shall not assume or be
responsible for any other liabilities or obligations which relate in any
manner to the operation of the Business prior to the Effective Date, and the
Sellers shall indemnify, defend, and hold the Buyer harmless from all of such
obligations and liabilities as set forth in Section 9.2 below. Operating
expenses, including without limitation rent payable under real estate and
equipment leases, staff commissions, unpaid vacation and holiday pay and
rebates to customers for which bills are received or payment became due after
the Effective Date with respect to
3
<PAGE>
periods both prior to and after the Effective Date will be allocated to each
of the Sellers on the one hand and the Buyer on the other hand on a pro-rata
basis according to the ratio of pre-Effective Time days to post-Effective
Time days; promptly upon receipt of notice from Buyer of amounts so allocated
to the Sellers, the Sellers shall remit full payment therefor to the Buyer.
SECTION 1.4 ALLOCATION OF PURCHASE PRICE. The considerations paid
and the liabilities assumed by the Buyer pursuant to Sections 1.2 and 1.3
above shall be allocated among the Transferred Assets purchased hereunder as
set forth on SCHEDULE 1.4 attached hereto. The Sellers and the Buyer each
hereby covenant and agree that none of them will take a position on any
income tax return, before any governmental agency, or in any judicial
proceeding that is in any way inconsistent with the allocation set forth on
SCHEDULE 1.4. Each party shall duly and timely file Form 8594 with its
appropriate tax returns.
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE SELLERS
As an inducement to the Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, the Sellers represent and
warrant to the Buyer as follows:
SECTION 2.1 ORGANIZATION AND QUALIFICATION. Thermo-Shield Company,
Inc. is a corporation duly organized, validly existing and in good standing
under the laws of the State of Illinois. Thermo-Shield of America
(Wisconsin), Inc. is a corporation duly organized, validly existing and in
good standing under the laws of the State of Wisconsin. The nature of the
Business or the Transferred Assets does not require the Sellers to be
licensed or qualified in any other jurisdiction. Each of the Sellers has
made available to the Buyer complete and correct copies of its Articles of
Incorporation and By-laws as currently in effect.
SECTION 2.2 CORPORATE POWER AND AUTHORITY. Each of the Sellers has
the corporate power and authority to own and hold its properties and to carry
on its business as now conducted, including in the case of Thermo-Shield
Company, Inc., the right to use the corporate name "Thermo-Shield Company,
Inc." and in the case of Thermo-Shield of America (Wisconsin), Inc. the right
to use the corporate name "Thermo-Shield of America (Wisconsin), Inc." Each
of the Sellers (a) has the corporate power and authority to execute, deliver
and perform this Agreement and the Exhibits and to deliver the Schedules
hereto and other documents and instruments contemplated hereby (collectively
this Agreement, the Exhibits and Schedules hereto, and the other documents
and instruments contemplated hereby shall constitute the "Documents") and to
consummate the transactions contemplated hereby and thereby and (b) has taken
all necessary corporate and shareholder action to authorize and approve the
execution, delivery and performance of this Agreement and the other Documents
and the consummation of the transactions contemplated hereby and thereby.
This Agreement and the other Documents have been duly and validly executed
and delivered by the Sellers and constitute valid and binding obligations of
each of the Sellers, enforceable against the Sellers in accordance with their
terms.
4
<PAGE>
SECTION 2.3 VALIDITY, ETC. Except as set forth on SCHEDULE 2.3, the
execution and delivery of this Agreement or the other Documents, the
consummation of the transactions contemplated hereby or thereby, the
performance of this Agreement or the other Documents and in compliance with
the terms and conditions hereof and thereof by the Sellers will not (i)
violate, conflict with or result in a breach of any trust agreement, Articles
of Incorporation, bylaw, judgment, decree, order, statute or regulation
applicable to either of the Sellers, (ii) violate, conflict with or result in
a breach, default or termination or give rise to any right of termination,
cancellation or acceleration of the maturity of any payment date of any of
the obligations of either of the Sellers or increase or otherwise affect the
obligations of either of the Sellers under any law, rule, regulation or any
judgment, decree, order, governmental permit, license or order or any of the
terms, conditions or provisions of any mortgage, indenture, note, license,
agreement or other instrument or obligation related to either of the Sellers
or to the Sellers' ability to consummate the transactions contemplated hereby
or thereby, except for such defaults (or rights of termination, cancellation
or acceleration) as to which requisite waivers or consents have been obtained
in writing and provided to the Buyer, (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to either of the
Sellers or (iv) result in the creation of any Claim upon the Transferred
Assets.
SECTION 2.4 SUBSIDIARIES AND INVESTMENTS. Neither of the Sellers
has any subsidiaries nor do they own, directly or indirectly, any capital
stock or other equity or ownership or proprietary interest in any other
corporation, partnership, association, trust, joint venture, or other entity.
SECTION 2.5 BOOKS AND RECORDS. The minute books of each of the
Sellers, which have been and will be made available to the Buyer and its
representatives, contain accurate records of all meetings of the corporate
actions or written consents by the shareholders and Board of Directors of
each of the Sellers set forth in such minute books.
SECTION 2.6 FINANCIAL STATEMENTS. The Sellers have previously
furnished to the Buyer, and attached hereto as SCHEDULE 2.6 are (a) the
compiled balance sheet of the Thermo-Shield Company, Inc. as at March 31,
1998 and 1997, the related statements of income and expense for the fiscal
years then ended; (b) the compiled balance sheet of Thermo-Shield of America
(Wisconsin), Inc. as at December 31, 1997 and 1996, the related statements of
income and expense for the fiscal years then ended; and (c) the unaudited
balance sheets of each of the Sellers (the "Balance Sheets") as at January
31, 1999 (the "Balance Sheet Date") and the related statements of income and
expense for the two months then ended. All such financial statements
(collectively, the "Financial Statements") have been prepared in accordance
with the standards established by the American Institute of Certified Public
Accountants and were prepared from the books and records of the Sellers.
Such books and records are complete and correct in all material respects,
accurately reflect all transactions of the Business, and have been made
available to the Buyer for examination. The Financial Statements fairly
present the financial position of each of the Sellers as of the dates thereof
and the results of their operations and cash flows for the periods ended on
the dates thereof. Since the Balance Sheet Date (i) there has been no change
in the assets, liabilities or financial condition of the assets of either of
the Sellers from
5
<PAGE>
that reflected in the Balance Sheets except for changes in the ordinary
course of business consistent with past practice and which have not been
materially adverse, and (ii) none of the business, prospects, financial
condition, operations, property or affairs of either of the Sellers has been
materially adversely affected by any occurrence or development, individually
or in the aggregate, whether or not insured against. Each of the Sellers has
disclosed to the Buyer all material facts relating to the preparation of
their respective Financial Statements.
SECTION 2.7 ABSENCE OF UNDISCLOSED LIABILITIES.
(a) Except as and to the extent of the amounts specifically
reflected or reserved against in the Balance Sheets, or except as set forth
on SCHEDULE 2.7, neither of the Sellers has any liabilities or obligations of
any nature whatsoever due or to become due, accrued, absolute, contingent or
otherwise, except for liabilities and obligations incurred since the date
thereof in the ordinary course of business and consistent with past practice.
Neither of the Sellers knows, or has any reason to know of, any basis for the
assertion against the Sellers of any liability or obligation not fully
reflected or reserved against in the Balance Sheets.
(b) Neither of the Sellers is bound by any agreement, or
subject to any charter or other corporate restriction or any legal
requirement, which has, or in the future can reasonably be expected to have,
a material adverse effect on the business or prospects of either of the
Sellers.
SECTION 2.8 EMPLOYMENT AND LABOR MATTERS.
(a) SCHEDULE 2.8 lists all employees and officers of each of
the Sellers on the date hereof, along with the amount of the current annual
salaries and total compensation paid or due for services to such employee or
officer for the most recent fiscal year end and the year to date, and a full
and complete description of any commitments to such employees and officers
with respect to compensation payable thereafter. To the best knowledge of
the Sellers, except for Jonathan Kron, no key employee or group of employees
has any plans to terminate employment with either of the Sellers.
(b) Neither of the Sellers is a party to or bound by any
collective bargaining agreement with any labor organization, group or
association covering any of its employees, nor do the Sellers have any
knowledge of any attempt to organize either of the Sellers' employees by any
Person, unit or group seeking to act as their bargaining agent. There are no
pending or, to the best knowledge of the Sellers, threatened charges (by
employees, their representatives or governmental authorities) of unfair labor
practices or of employment discrimination or of any other wrongful action
with respect to any aspect of employment of any person employed or formerly
employed by either of the Sellers. No union representation election relating
to employees of either of the Sellers has been scheduled by any governmental
agency or authority, no organizational effort is being made with respect to
any of such employees, and there is no investigation of either of the
Sellers' employment policies or practices by any governmental
6
<PAGE>
agency or authority pending or threatened. Neither of the Sellers is
currently, nor have they been, involved in labor negotiations with any unit
or group seeking to become the bargaining unit for any employees of either of
the Sellers. Neither of the Sellers has experienced any material work
stoppages, and to the best knowledge of Sellers, no work stoppage is planned.
Each of the Sellers has complied with all material laws and regulations
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, employment practices, terms and
conditions of employment, collective bargaining, equal opportunity or similar
laws and the payment of social security and similar taxes, and is not liable
for any material arrears of wages or any material taxes or penalties for
failure to comply with any of the foregoing.
SECTION 2.9 REAL PROPERTY. Neither of the Sellers owns any real
property.
SECTION 2.10 POWERS OF ATTORNEY; ABSENCE OF LIMITATIONS ON
COMPETITION; GUARANTEES.
Except as set forth in SCHEDULE 2.10, (i) no power of attorney or
similar authorization given by either of the Sellers presently is in effect
or outstanding; (ii) no contract or agreement to which either of the Sellers
is a party or is bound or to which either of the Sellers' properties or
assets are subject limits the freedom of either of the Sellers to compete in
any line of business or with any Person; and (iii) neither of the Sellers is
a party to our bound by any guarantee of any debt or obligation of any other
Person.
SECTION 2.11 SIGNIFICANT SUPPLIERS AND CUSTOMERS. Set forth on
SCHEDULE 2.11 is a true and correct list of each of the Sellers' ten largest
suppliers for the twelve month period ending December 31, 1998 and the two
month period ending February 28, 1999, together with the amount of services
attributable to such suppliers expressed in dollars and as a percentage of
total sales and services. None of the suppliers identified on SCHEDULE 2.11
has terminated, materially reduced or threatened to terminate or materially
reduce its supplies to the Sellers during the period covered by such
schedule. Also, set forth on SCHEDULE 2.11 is a true and correct list of the
Sellers' five largest lead sources for the twelve (12) month period ending
December 31, 1998 and two month period ending January 31, 1999, together with
the amount attributable to such lead sources expressed in number of leads and
as a percentage of total leads. None of the customers identified on SCHEDULE
2.11 has terminated or threatened to terminate its relationship of either of
the Sellers during the period covered by such schedule.
SECTION 2.12 GOVERNMENTAL APPROVALS. No registration or filing with,
or consent or approval of or other action by, any Federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Sellers of this Agreement.
SECTION 2.13 ABSENCE OF ADVERSE CHANGE; CONDUCT OF BUSINESS. During
the period from the Balance Sheet Date to and including the date of this
Agreement, except as set forth on SCHEDULE 2.13, neither of the Sellers has
(i) borrowed or agreed to borrow any material amount
7
<PAGE>
of funds or incurred any material liability or obligation of any nature
(whether accrued, absolute, contingent or otherwise), or guaranteed or agreed
to guarantee any obligations of others, (ii) canceled any indebtedness owing
to it or any claims that it might have possessed, waived any material rights
of substantial value or sold, leased, encumbered, transferred or otherwise
disposed of, or agreed to sell, lease, encumber, or otherwise dispose of its
assets or permitted any of its assets to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction or charge of any
kind, (iii) made any capital expenditure or commitment therefor, (iv)
increased its indebtedness for borrowed money or made any loan to any Person,
except advances to employees in the ordinary course of business and
consistent with past practices, which are set forth on SCHEDULE 2.30 (v)
written off as uncollectible any notes or accounts receivable, except
write-offs in the ordinary course of business charged to applicable reserves,
(vi) made any material change in any method of accounting or auditing
practice, except as may be required by Buyer, (vii) otherwise conducted its
business or entered into any transaction, except in the usual and ordinary
manner, or (viii) agreed, whether or not in writing, to do any of the
foregoing.
SECTION 2.14 CERTAIN PRACTICES. Neither of the Sellers, the Sellers'
directors or officers, or to the best knowledge of the Sellers, the Sellers'
employees have, directly or indirectly, used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful expenses relating to
political activity; made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties
or campaigns from corporate funds; violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended; established or maintained any
unlawful or unrecorded fund of corporate monies or other assets; made any
false of fictitious entry on the books or records of either of the Sellers or
any subsidiary; made any bribe, rebate, payoff, influence payment, kickback,
or other unlawful payment; given any favor or gift which is not deductible
for federal income tax purposes; or made any bribe, kickback, or other
payment of a similar or comparable nature, whether lawful or not, to any
person or entity, private or public, regardless of form, whether in money,
business or to obtain special concessions, or to pay for favorable treatment
for business secured or for special concessions already obtained.
SECTION 2.15 COMPLIANCE WITH LAW; LICENSES AND PERMITS. Except as
set forth on SCHEDULE 2.15, each of the Sellers has complied in all material
respects with all laws, ordinances, legal requirements, rules, regulations
and orders applicable to it, its operations, properties, assets, products and
services. Except as set forth on SCHEDULE 2.15, there is no existing law,
rule, regulation or order, and neither of the Sellers is aware of any
proposed law, rule, regulation or order, whether Federal, state or local,
which would prohibit or materially restrict the Buyer from, or otherwise
materially adversely affect the Buyer in, conducting the Business in the
manner heretofore conducted by the Sellers in any jurisdiction in which the
Business is not conducted. Each of the Sellers possesses all franchises,
permits, licenses, certificates, and consents required from any governmental
or regulatory authority in order for the Sellers to carry on their businesses
as currently conducted and to own and operate their properties and assets as
now owned and operated and all of such licenses and permits are set forth on
SCHEDULE 2.15.
SECTION 2.16 EMPLOYEE BENEFITS.
8
<PAGE>
(a) Set forth on SCHEDULE 2.16 is a list of all pension,
profit sharing, retirement, deferred compensation, multiemployer (as defined
under ERISA), stock purchase, stock option, incentive, bonus, vacation,
severance, disability, hospitalization, medical insurance, life insurance,
fringe benefit, welfare and other employee benefit plans, programs or
arrangements pursuant to which either of the Sellers or its ERISA Affiliates
provides (directly or indirectly, individually or jointly through others)
benefits or compensation to or on behalf of employees or independent
contractors or former employees or former independent contractors of either
of the Sellers or its ERISA Affiliates, whether formal or informal, whether
or not written ("Employee Plan"). On request by the Buyer, the Sellers shall
furnish a copy of each Employee Plan and a copy of any related materials.
The Sellers will maintain the benefits listed on SCHEDULE 2.16 in full force
and effect through the Effective Date. The Buyer shall have no obligation or
liability of any kind or nature for any compensation or benefits of any kind
or nature to the employees or independent contractors of the Sellers for
services rendered prior to the Effective Date.
(b) Each Employee Plan covering any present or former
employee of the Sellers which is subject to continuation health coverage
requirements of Section 4980B of the Code or Section 601 of ERISA or any
applicable state law has complied with all such requirements for continuation
coverage.
(c) Each Employee Plan has been administered and maintained
in accordance with its terms and with applicable law. No Employee Plan has
unfunded liabilities that as of the Closing Date are not accurately and fully
reflected on the Sellers' Balance Sheets.
(d) Neither the Sellers nor any of their ERISA Affiliates is
or had been a participant in, or is or has been obligated to maintain or to
make contributions to, a multiemployer plan (within the meaning of ERISA
Section 3(37) and ERISA Section 4001(a)(3) or an Employee Plan which is
subject to Title IV of ERISA. Neither the Sellers nor any ERISA Affiliate
has sponsored, contributed to or been obligated under Title I or IV of ERISA
to contribute to a "defined benefit plan" (as defined in ERISA Section 3(35).
(e) Neither the Sellers nor their ERISA Affiliates have
entered into any contract, agreement or arrangement (whether oral or written)
under which either of the Sellers or their ERISA Affiliates have assumed any
liability relating to their clients' retirement plans, nor have the Sellers
and/or their ERISA Affiliates made any verbal representations that the use of
any employees of the Sellers or their ERISA Affiliates would have no adverse
consequence on such client retirement plans.
(f) Neither of the Sellers nor their ERISA Affiliates is
subject to and, to the best knowledge of the Sellers, no facts exist which
could subject either of the Sellers or any of their ERISA Affiliates to, any
liability whatsoever which is directly or indirectly related to any Employee
Plan, including, but not limited to, liability for benefit payments or
related claims, any liability for any tax or related penalty under the Code,
or liability for any damages or penalties arising under Title I or Title IV
of ERISA.
9
<PAGE>
(g) Termination or withdrawal from any Employee Plan
immediately after the Closing Date would not subject the Buyer to any
liability, tax or penalty whatsoever.
(h) For purposes of this Section 2.16, the term "ERISA"
shall mean the Employee Retirement Income Security Act of 1974, as amended,
and the term "ERISA Affiliate" shall mean each trade or business (whether or
not incorporated) which together with the Sellers is treated as a single
employer under Section 414(b), (c), (m), (o) or (t) of the Code.
SECTION 2.17 FIXED ASSETS. SCHEDULE 2.17 contains a true and
complete list of all of the Transferred Assets which are fixed assets with a
net book value of greater than $1,000.00, whether owned or leased. Except as
shown on SCHEDULE 2.17, each of the Sellers has good and marketable title to
all of its fixed assets, free and clear of all claims, liens, mortgages,
charges and encumbrances except as disclosed in the Balance Sheets. All of
the Sellers' fixed assets, whether owned or leased, are adequate and usable
for the purposes for which they are currently used, are in good operating
condition and repair and have been properly maintained.
SECTION 2.18 INSURANCE. The Sellers are, and will be through the
Effective Date, insured with insurers in respect of their respective
properties, assets and businesses as set forth on the attached SCHEDULE 2.18.
SCHEDULE 2.18 lists the insurance coverage carried by each of the Sellers,
which insurance will remain in full force and effect with respect to all
events occurring prior to the Effective Date. Except as set forth on
SCHEDULE 2.18, neither of the Sellers (i) has failed to give any notice or
present any claim under any such policy or binder in due and timely fashion,
(ii) has received notice of cancellation or non-renewal of any such policy or
binder, (iii) is aware of any threatened or proposed cancellation or
non-renewal of any such policy or binder, (iv) has received notice of any
insurance premium which will be materially increased in the future, (v) is
aware of any insurance premium which will be materially increased in the
future. Thee are no outstanding claims under any such policy which have gone
unpaid for more than 45 days, or as to which the insurer has disclaimed
liability.
SECTION 2.19 OUTSTANDING CONTRACTS. SCHEDULE 2.19 sets forth a
description of all existing contracts, agreements, leases (other than leases
of real property), commitments, licenses and franchises, which involve
obligations or commitments by either of the Sellers of $10,000 or more and
are not cancelable by such Seller without penalty within 30 days
(collectively "Contracts"), whether written or oral, relating to the Sellers.
The Sellers have delivered or made available to the Buyer true correct and
complete copies of all of the Contracts specified on SCHEDULE 2.19 which are
in writing. All of the Contracts are in full force and effect and
enforceable in accordance with their terms, except to the extent that the
enforceability thereof may be subject to or affected by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, or
other laws relating to or affecting the rights of creditors generally.
Except as set forth on SCHEDULE 2.19, each of the Sellers and, to the best
knowledge of the Sellers, each other party thereto has materially performed
all the obligations required to be performed by it, has received no notice of
default and is not in default (with due notice or lapse of time or both)
under any of the Contracts. Neither of the Sellers has any present
expectation or intention of not fully performing all its obligations under
each of the Contracts, and neither of the
10
<PAGE>
Sellers have any knowledge of any breach or anticipated breach by the other
party to any of the Contracts to which either of the Sellers is a party.
Except as set forth on SCHEDULE 2.19, none of the Contracts has been
terminated; no notice has been given by any party thereto of any alleged
default by any party thereunder; and neither of the Sellers is aware of any
intention or right of any party to declare another party to any of the
Contracts to be in default. Except as set forth on SCHEDULE 2.19, there
exists no actual or, to the best knowledge of the Sellers, threatened
termination, cancellation or limitation of the business relationship of
either of the Sellers by any party to any of the Contracts.
SECTION 2.20 OUTSTANDING LEASES. SCHEDULE 2.20 sets forth a
description of each agreement by which the either of the Sellers leases each
parcel of real property (the "Leased Parcels") used in connection with the
Business (collectively, the "Leases"). The Sellers have delivered or made
available to the Buyer true, correct and complete copies of all of the Leases
specified on SCHEDULE 2.20. All rents due under the Leases have been paid.
All of the Leases are in full force and effect and enforceable in accordance
with their terms, except to the extent that the enforceability thereof may be
subject to or affected by applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium, or other laws relating to or
affecting the rights of creditors generally. Except as set forth on SCHEDULE
2.20, each of the Sellers and to the best knowledge of the Sellers, each
other party thereto has performed all the obligations required to be
performed by it, has received no notice of default and is not in default
(with due notice or lapse of time or both) under any of the Leases. Neither
of the Sellers has any present expectation or intention of not fully
performing all its obligations under each of the Leases, and neither of the
Sellers has any knowledge of any breach or anticipated breach by the other
party to any of the Leases. Except as set forth on SCHEDULE 2.20, none of
the Leases has been terminated; no notice has been given by any party thereto
of any alleged default by any party thereunder; and neither of the Sellers is
aware of any intention or right of any part to declare another party to any
of the Leases to be in default. There exists no actual or, to the best
knowledge of the Sellers, threatened termination, cancellation or limitation
of the business relationship of either of the Sellers with any party to any
of the Leases.
SECTION 2.21 INTELLECTUAL PROPERTIES. SCHEDULE 2.21 contains an
accurate and complete list of all domestic and foreign letters patent,
patents, patent applications, patent licenses, software licenses and know-how
licenses, trade names, trademarks, copyrights, unpatented inventions, service
marks, trademark registrations and applications, service mark registrations
and applications and copy right registrations and applications, trade secrets
or other confidential proprietary information owned or used by either of the
Sellers in the operation of the Business (collectively the "Intellectual
Property"). Except as set forth on SCHEDULE 2.21 and except for commercial
software licensed for use on personal computers, the Sellers collectively own
the entire right, title and interest in and to the Intellectual Property and
trade secrets and technology which is owned by such Seller has been, to the
extent indicated in SCHEDULE 2.21, duly registered with, filed in or issued
by, as the case may be, the United States Patent and Trademark office or such
other government entities, domestic or foreign, as are indicated in SCHEDULE
2.21 and such registrations, filings and issuances remain in full force and
effect. There have not been and there are no pending or, to the best
knowledge of the Sellers, threatened proceedings or litigation or other
adverse claims affecting or with respect to the Intellectual
11
<PAGE>
Property. There is, to the best knowledge of the Sellers, no reasonable
basis upon which a claim may be asserted against either of the Sellers for
infringement of any domestic or foreign letters patent, patents, patent
applications, common law trademarks, service marks, service mark
registrations or applications, copyrights, copyright registrations or
applications, trade secrets or other confidential proprietary information. To
the best knowledge of the Sellers, no Person is infringing the Intellectual
Property.
SECTION 2.22 PROPRIETARY INFORMATION OF THIRD PARTIES. Except as
disclosed on SCHEDULE 2.22, no third party has claimed or, to the best
knowledge of the Sellers, has reason to claim that any Person employed by or
consulting with either of the Sellers ("Related Person") has (i) violated or
may be violating any of the terms or conditions of such person's employment,
non-competition or non-disclosure agreement with such third party, (ii)
disclosed or may be disclosing or utilized or may be utilizing any trade
secret or proprietary information or documentation of such third party, or
(iii) interfered or may be interfering in the employment relationship between
such third party and any of its present or former employees. No third party
has requested information from either of the Sellers which suggests that such
a claim might be contemplated. Except as disclosed on SCHEDULE 2.22, to the
best knowledge of the Sellers, no Related Person has employed or proposes to
employ any trade secret or any information or documentation proprietary to
any former employer and no Related Person has violated any confidential
relationship with such person may have had with any third party, in
connection with the development or sale of any service of either of the
Sellers, and neither of the Sellers has reason to believe there will be any
such employment or violation.
SECTION 2.23 TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 2.23, no director, officer or shareholder of either of the Sellers,
or member of the family of any such person, or any corporation, partnership,
trust or other entity in which any such person, or any member of the family
of any such person, has a beneficial interest greater than 5% or is an
officer, director, trustee, partner or holder of any equity interest greater
than 5%, is a party to any transaction with either of the Sellers, including
any contract, agreement or other arrangement providing for the employment of,
furnishing of services by, rental of real or personal property from or
otherwise requiring payments or involving other obligations to any such
person or firm.
SECTION 2.24 TAXES. Each of the Sellers is and has been taxed as a C
Corporation for all periods preceding the Closing Date. SCHEDULE 2.24 lists
all the states and localities with respect to which each of the Sellers is
required to file any corporate, income and/or franchise tax returns. Except
as set forth on SCHEDULE 2.24, all federal, state, local and foreign tax
returns and tax reports are required to be filed by the Sellers on or before
the date hereof have been timely filed with the appropriate governmental
agencies in all jurisdictions in which such returns and reports are required
to be filed and all amounts shown as owing thereon have been paid. All taxes
(including, without limitation, income, accumulated earnings, property,
sales, use, franchise, excise, license, value added, fuel, employees' income
withholding and social security taxes) which have become due or payable or
are required to be collected by either of the Sellers or are otherwise
attributable to any periods ending on or before the Closing Date and all
interest and penalties thereon, whether disputed or not, have been paid or
will be paid in full or
12
<PAGE>
adequately reflected on the Balance Sheets or the Sellers' books and records
in accordance with generally accepted accounting principles on or prior to
the Closing Date. Except as set forth on SCHEDULE 2.24, all deposits required
by law to be made by either of the Sellers with respect to employees'
withholding taxes have been duly made, and as of the Closing Date all such
deposits due will have been made. Each of the Sellers has delivered to the
Buyer true and complete copies of all of its federal and state income tax
returns for the tax years 1997 and 1996 and all reports and results of income
tax audits, if any, related thereto. Except as set forth on SCHEDULE 2.24,
no examination of any tax return of either of the Sellers is currently in
progress. There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any such tax return.
SECTION 2.25 LITIGATION. Except as set forth on SCHEDULE 2.25, there
is no (i) action, suit, claim, proceeding, or investigation pending or, to
the best knowledge of the Sellers, threatened against or affecting either of
the Sellers (whether or not such Seller is a party or prospective party
thereto), at law or in equity, or before or by any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceeding pending
relating to either of the Sellers or (iii) governmental inquiry pending or
threatened against or involving either of the Sellers, and there is no basis
for any of the foregoing. Neither of the Sellers has received any opinion or
memorandum or legal advice from legal counsel to the effect that it is
exposed, from a legal standpoint, to any liability or disadvantage which may
be material to the business, prospects, financial condition, operations,
property or affairs of such Seller. There are no outstanding orders, writs,
judgments, injunctions or decrees served upon the Sellers by any court,
governmental agency or arbitration tribunal against either of the Sellers.
There are no facts or circumstances which may result in institution of any
action, suit, claim or legal, administrative or arbitration proceeding or
investigation against, involving or affecting the either of Sellers or the
transactions contemplated hereby. Neither of the Sellers is in default with
respect to any order, writ, injunction or decrees known to or served upon it
from any court or of any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign. Except as disclosed on SCHEDULE 2.25, there is no action or suit by
either of the Sellers pending or threatened against others.
SECTION 2.26 ENVIRONMENTAL MATTERS.
(a) COMPLIANCE. The Sellers and all Leased Parcels are in
compliance with all applicable laws, rules, regulations, orders, ordinances,
judgments and decrees of all governmental authorities with respect to all
environmental statutes, rules and regulations. Except as set forth on
SCHEDULE 2.26, neither of the Sellers has received notice of, nor do the
Sellers have knowledge of, any past, present or future events, conditions,
circumstances, activities, practices, incidents, actions or plans of the
Sellers or the Sellers' predecessors, either collectively, individually or
severally, which may interfere with or prevent continued compliance with, or
which may give sure to any common law or legal liability or otherwise form
the basis of any claim, action, suit, proceeding, hearing, or investigation,
based on or related to the disposal, storage, handling, manufacture,
processing, distribution, use, treatment or transport, or the
13
<PAGE>
emission, discharge, release or threatened release into the environment, of
any Substance. As used in this Section 2.26, the term "Substance" or
"Substances" shall mean any pollutant, contaminant, hazardous substance,
hazardous material, hazardous waste or toxic waste, as defined in any
presently enacted federal, state or local statute or any regulation that has
been promulgated pursuant thereto. No part of any of the Leased Parcels has
been listed or proposed for listing on the National Priorities List
established by the United States Environmental Protection Agency, or any
corresponding list by any state or local authorities.
(b) ENVIRONMENTAL SUBSTANCE LIABILITY. No event has
occurred or condition exists or operating practice is being employed that
could give rise to liability on the part of the Sellers, either at the
present time or in the future, for any losses, liabilities, damages (whether
consequential or otherwise), settlements, penalties, interest, expenses and
costs of responses, including any such liability on account of the right of
any governmental or private entity or person, and including closure expenses,
costs of assessment, containment, removal, or response (other than monitoring
or transportation or disposal of materials required to be transported or
disposed of in the ordinary course of business consistent with past practice)
arising under any rule of federal, state or local statute, or any regulation
that has been promulgated pursuant thereto, or common law, as a result of or
in connection with, or alleged to be as a result of or in connection with,
the following (collectively the "Hazardous Activities"):
(1) the handling, storage, use, transportation or disposal of any
Substances in or near or from the Leased Parcels;
(2) the handling, storage, use, transportation or disposal of any
Substances by either of the Sellers or its predecessors which
Substances were a product, by-product or otherwise resulted
from the operations conducted by or on behalf of the Sellers or
its predecessors;
(3) any intentional or unintentional emission, discharge or release
of any Substances in or near from facilities into or upon the
air, surface water, ground water or land or any disposal,
handling, manufacturing, processing, distribution, use,
treatment, or transport of such Substances in or near or from
facilities by or on behalf of the Sellers or its predecessors;
or
(4) the presence of any toxic or hazardous building materials
(including but not limited to friable asbestos or similar
substances) in any facilities if the Sellers, including but not
limited to the inclusion of such materials in the exterior and
interior walls, floors, ceilings, tile, insulation or any other
portion of building structures.
14
<PAGE>
(c) ENVIRONMENTAL PERMITS. Each of the Sellers has obtained
and hodls all registrations, permits, licenses, and approvals issued by or on
behalf of any federal, state or local governmental body or agency if any
("Environmental Permits") that are required in connection with the operation
by the Sellers of the Leased Parcels, the discharge or emission of Substances
by the Sellers from the Leased Parcels or the generation, treatment, storage,
transportation, or disposal of any such Substances by the Sellers. Such
Environmental Permits, which are described on SCHEDULE 2.26, are currently
effective and sufficient for the operation of the Leased Parcels and the
business of the Sellers as currently conducted and intended to be conducted.
The Sellers is in compliance with all terms and conditions of the
Environmental Permits, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables contained in those laws or provisions or contained
in any regulation, code, plan, order, decree, judgment, notice or demand
letter issued, entered, promulgated or approved thereunder and applicable to
Sellers.
(d) DELIVERIES. The Sellers have delivered to the Buyer
true and complete copies and results of any reports, studies, analyses,
tests, or monitoring possessed or initiated by either of the Sellers
pertaining to Substances or Hazardous Activities in, on, or under the Leased
Parcels or concerning compliance by either of the Sellers or any other Person
for whose conduct they are or may be held responsible, with environmental
statutes, rules and regulations.
SECTION 2.27 BROKER'S OR FINDER'S FEES. Except as set forth on
SCHEDULE 2.27, no agent, broker, person or firm acting on behalf of either of
the Sellers is, or will be, entitled to any commission or broker's or
finder's fees from of either of the Sellers or from any person controlling,
controlled by or under common control with either of the Sellers in
connection with any of the transactions contemplated herein.
SECTION 2.28 YEAR-2000 COMPLIANCE.
(a) SCHEDULE 2.28 contains a true and complete list of all
Systems (as hereinafter defined), and each System is Year-2000 Compliant (as
hereinafter defined) to the extent indicated on SCHEDULE 2.28.
(b) As used throughout this Agreement, the following
definitions shall have the following meanings:
(1) "External Systems" shall mean all services which are provided
to Sellers by third parties and which are dependent on
information technology, including, but not limited to, any
external payroll, accounting, or tax filing services or any
checking, savings, or other financial services.
(2) "Internal Systems" shall mean all technology products and
systems generally operated or controlled in-house by Sellers,
or its
15
<PAGE>
employees, agents, or independent contractors including, but
not limited to, computers, computer networks, telephone
systems, voice mail systems, intercom systems, pager systems,
and software applications.
(3) "Licensed Systems" shall mean all products and systems
developed by or for Sellers which are licensed, sold,
distributed, or otherwise transferred by Sellers to third
parties.
(4) "System" or "Systems" shall mean any, all or any combination of
any Internal System, External System, or Licensed System.
(5) "Year-2000 Compliant" shall mean, with respect to each System,
that such System is designed to be used before, during, and
after the calendar year 2000 A.D. and will accurately accept
date input and process, store, and output date data and
date-related data, including, without limitation, calculating,
comparing, sorting and sequencing such data and calculating
leap years before, during and after the calendar year 2000 A.D.
without any manual intervention.
SECTION 2.29 INVENTORY. All inventory of each of the Sellers,
whether or not reflected in the financial statements or Balance Sheets,
consists of a quality and quantity usable and salable in the ordinary course
of business, except for obsolete items and items of below-standard quality,
all of which have been written off or written down to net realizable value in
the financial statements or the Balance Sheets, as the case may be (the
"Inventory"). All inventory not written off have been priced at the lower of
cost or market on a first in, first out basis. The quantities of each item
of Inventory (whether raw materials, work-in-process, or finished goods) are
not excessive, but are reasonable in the present circumstances of the Sellers.
SECTION 2.30 ACCOUNTS RECEIVABLE. The accounts receivable and other
debts due or recorded in the respective records and books of account of the
Sellers as being due to the Sellers as of the Effective Time, all of which
are set forth on SCHEDULE 2.30 (the "Accounts Receivable"), arose in the
ordinary course of business of the Sellers, are not subject to any
counterclaim or set-off and, except for notes receivables from sales
representatives approximating an aggregate of $183,097.19 which are not
reflected on the balance sheets, but are fully collectible within 120 days
after the Effective Date without resort to litigation and without offset or
counterclaim.
SECTION 2.31 DISCLOSURE. All Documents delivered or to be delivered by
or on behalf of either of the Sellers in connection with this Agreement and the
transactions contemplated hereby are true, complete and correct in all material
respects. Neither this Agreement, nor any of the other Documents contains any
untrue statement of a material fact or omits a material fact necessary to make
the statements made by either of the Sellers herein or
16
<PAGE>
therein, in light of the circumstances in which made, not misleading. There
is no fact known to either of the Sellers which materially and adversely
affects the business, prospects or financial condition of either of the
Sellers or their respective properties or assets, which has not been set
forth in the Documents.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE BUYER
As an inducement to the Sellers to enter into this Agreement and to
consummate the transactions contemplated hereby, the Buyer represents and
warrants to the Sellers as follows:
SECTION 3.1 ORGANIZATION. The Buyer is a Delaware corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware and is duly qualified to transact business as a foreign
corporation in each jurisdiction in which the failure to so qualify would
have a material adverse impact on the Buyer's ability to purchase the
Business pursuant to this Agreement and perform its obligations under this
Agreement.
SECTION 3.2 CORPORATE POWER AND AUTHORITY. The Buyer has the
corporate power and authority to execute, deliver and perform this Agreement
and the other Documents. The execution, delivery and performance of the
Documents contemplated hereby and the consummation of the transactions
contemplated hereby and thereby have been duly authorized and approved by all
necessary corporate action of the Buyer. The Documents to be executed and
delivered by the Buyer have been duly executed and delivered by, and
constitute the legal, valid and binding obligation of the Buyer enforceable
against the Buyer in accordance with their terms.
SECTION 3.3 VALIDITY, ETC. Neither the execution and delivery by
the Buyer of this Agreement and the other Documents, the consummation by the
Buyer of the transactions contemplated hereby or thereby, nor the performance
by the Buyer of this Agreement and such other agreements in compliance with
the terms and conditions hereof and thereof will (i) violate, conflict with
or result in any breach of any trust agreement, articles of incorporation,
bylaw, judgment, decree, order, statute or regulation applicable to the
Buyer, (ii) violate, conflict with or result in a breach of or default (or
give rise to any right of termination, cancellation or acceleration) under
any law, rule or regulation or any judgment, decree, order, governmental
permit, license or order or any of the terms, conditions or provisions of any
mortgage, indenture, note, license, agreement or other instrument to which
the Buyer is a party, or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Buyer.
SECTION 3.4 BROKER'S OR FINDER'S FEE. No agent, broker, person or
firm acting on behalf of the Buyer is, or will be, entitled to any commission
or broker's or finder's fees from the Buyer, or from any person controlling,
controlled by or under common control with the Buyer, in connection with any
of the transactions contemplated herein.
17
<PAGE>
SECTION 3.5 DISCLOSURE STATEMENT. Buyer's Disclosure Statement,
dated February 25, 1999 and supplemented on March 19, 1999, which has been
previously delivered to the Sellers is true, complete and correct in all
material respects.
SECTION 3.6 DISCLOSURE. All Documents delivered or to be delivered
by or on behalf of the Buyer in connection with this Agreement and the
transactions contemplated hereby are true, complete and correct. Neither
this Agreement, nor any of the other Documents contains any untrue statement
of a material fact or omits a material fact necessary to make the statements
made by the Buyer herein or therein, in light of the circumstances in which
made, not misleading. There is no fact known to the Buyer which may have a
material adverse effect on the Buyer's ability to pay its obligations under
this Agreement, which has not been set forth in the Documents.
ARTICLE IV. COVENANTS AND AGREEMENTS
SECTION 4.1 BEST EFFORTS. Each of the Sellers and the Buyer shall
each use its best efforts to procure upon reasonable terms and conditions all
consents and approvals, completion of all filings, all registrations and
certificates, and satisfaction of all other requirements prescribed by law
which are necessary for the consummation of the transactions contemplated by
this Agreement and the Buyer's ownership and operation of the Sellers'
Business after the Closing Date.
SECTION 4.2 TAX RETURNS. Each of the Sellers shall prepare and
timely file, at its sole expense, all of its required tax returns for all
periods ending on or prior to the Effective Date. Each of the Sellers shall
be responsible for the payment of, and will indemnify, defend and hold the
Buyer harmless against all taxes due or assessed which relate to the
operations of the Business for all periods ending on or prior to the
Effective Date.
SECTION 4.3 PAYMENT OF LIABILITIES. Except for the Assumed
Liabilities, each of the Sellers shall pay and satisfy in full all of its
other obligations and liabilities, of any nature whatsoever, which accrue
prior or subsequent to the Effective Date.
SECTION 4.4 EMPLOYEES. The Buyer and the Sellers have determined
in good faith that the closing of the transactions contemplated by this
Agreement will not result in an "employment loss" within the meaning of the
Workers Adjustment Retraining and Notification Act, 29 U.S.C. Section 2101 ET
SEQ (the "Warn Act"). The Sellers have made all of their employees available
to be hired by the Buyer. Notwithstanding the foregoing and except as
otherwise set forth in this Agreement, the Buyer shall be under no obligation
to hire any such employees. The Buyer and the Sellers understand and
acknowledge that each is an employer subject to the Warn Act. The Sellers
shall be responsible for any Warn Act violations based on or arising from
acts, events or omissions prior to the Closing, and the Buyer shall be
responsible for any Warn Act
18
<PAGE>
violations based on or arising from acts, events or omissions after the
Closing. At the Closing, each of the Sellers shall provide to the Buyer a
list of all employees or former employees terminated by such Seller during
the ninety (90) day period prior to the Closing. The Buyer represents and
warrants that during the first ninety (90) days after the Closing it will not
terminate any employee or employees whose termination would, in the aggregate
with terminations by the Sellers during the ninety (90) day period prior to
the Closing, result in a violation of the Warn Act. Nothing herein shall be
deemed either to affect or to limit in any way the management prerogatives of
the Buyer with respect to employees, or to create or to grant to such
employees any third party beneficiary rights or claims or causes of action of
any kind or nature.
SECTION 4.5 SPECIAL PROVISIONS REGARDING EMPLOYEES OF THE SELLERS.
(a) NEW EMPLOYEES OF THE BUYER. It is the intention of the
Buyer, and the Sellers hereby acknowledge and agree with such position, that
any employees of either of the Sellers that the Buyer hires will be new
employees of the Buyer as of the Effective Date or the date of hire,
whichever is later. Such new employees shall be entitled only to such
compensation and employee benefits as are agreed to by such employees and the
Buyer or as are otherwise provided by the Buyer, in its sole discretion.
(b) HIRING OF EMPLOYEES. The Buyer will use its reasonable
efforts to hire the existing employees of the Sellers engaged in the Business
in connection with its purchase of the Transferred Assets; provided, however,
that the Buyer shall be entitled to review employee records, conduct employee
interviews and employee screening procedures used by the Buyer in its
business, and may refuse to offer employment to any employee of the Sellers
if such employee fails to meet the hiring criteria of the Buyer.
(c) NO CONTRIBUTIONS. After the Closing, neither of the
Sellers shall make any contributions to any Employee Plan on behalf of any
former employee or independent contractor of either of the Sellers who is
employed by the Buyer after the Closing.
(d) COBRA ISSUES. The Buyer shall be a successor employer
of the Sellers solely for the purposes of providing continuation coverage to
the extent required under Code Section 4980B and ERISA Section 601 to
individuals receiving such continuation coverage on the Effective Date and
individuals qualifying (or who would otherwise qualify but for this Section
4.5) for such coverage commencing on or after the Effective Date. The
Sellers shall be liable for any and all liabilities, costs, expenses and fees
whatsoever arising under Code Section 4980B and ERISA Section 601 before the
Effective Date.
SECTION 4.6 CONSENTS OF LANDLORDS. Within thirty (30) days following
closing, Sellers shall have obtained the consent of the landlords to the
assignment of the Leases to Buyer or its affiliate.
19
<PAGE>
ARTICLE V. CONDITIONS TO THE BUYER'S OBLIGATIONS
The obligations of the Buyer to make deliveries to the Sellers
pursuant to Section 1.2 and 1.3 hereof and to consummate the other
transactions contemplated hereby is subject to the satisfactions, on or
before the Closing Date, of the following conditions each of which may be
waived by the Buyer in its sole discretion:
SECTION 5.1 CONSENTS. Except for the landlord consents provided for
in Section 4.6 or except as set forth on SCHEDULE 5.1, all requisite
governmental approvals identified on and consents of third parties identified
on such schedule or otherwise identified by the Sellers as required to be
received to prevent any material license, permit or agreement relating to the
Business from terminating prior to its scheduled termination, as a result of
the consummation of the transactions contemplated hereby, shall have been
obtained and all permits listed in SCHEDULE 2.15 shall have been transferred
or reissued to the Buyer.
SECTION 5.2 OPINION OF COUNSEL TO SELLERS. The Buyer shall have
received from Jonathan D. Kron, counsel to the Sellers, an opinion, dated as
of the Closing Date, in form and substance reasonably satisfactory to the
Buyer, and to the following effect:
(a) Thermo-Shield Company, Inc. is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Illinois. Thermo-Shield of America (Wisconsin), Inc. is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Wisconsin. The nature of the Business or the Transferred Assets
does not require the Sellers to be licensed or qualified in any other
jurisdiction;
(b) Each of the Sellers has the corporate power and
authority to own and hold its properties and to carry on its business as now
conducted. Each of the Sellers has the corporate power and authority to
execute, deliver and perform the Agreement and the other Documents. The
execution, delivery and performance of the Agreement and the other Documents
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized and approved by all necessary corporate action of the
Sellers. The Agreement and each of the other Documents to be executed and
delivered by the Sellers have been duly executed and delivered by, and
constitute the legal, valid and binding obligations of the Sellers,
enforceable against the Sellers in accordance with their terms;
(c) There is no (i) action, suit, claim, proceeding or
investigation pending or, to the best knowledge of Counsel, threatened against
or affecting the Sellers (whether or not the Sellers is a party or prospective
party thereto), at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceeding pending
relating to the Sellers or (iii) governmental inquiry pending or threatened
against or involving the Sellers, and, to the best knowledge of counsel, there
is no basis for any of the foregoing. The Sellers has not received any opinion
or memorandum or legal advice from legal counsel to the effect that it is
exposed, from a legal standpoint, to any liability or disadvantage which may be
material to the business,
20
<PAGE>
prospects, financial condition, operations, property or affairs of the
Sellers. There are no outstanding orders, writs, judgments, injunctions or
decrees served upon the Sellers by any court, governmental agency or
arbitration tribunal against the Sellers. To the best knowledge of counsel,
there are no facts or circumstances which may result in institution of any
action, suit, claim or legal, administrative or arbitration proceeding or
investigation against, involving or affecting the Sellers or the transactions
contemplated hereby. The Sellers is not in default with respect to any
order, writ, injunction or decree known to or served upon it from any court
or of any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign.
There is no action or suit by the Sellers pending or threatened against
others;
(d) The execution and delivery of this Agreement and the
other Documents, the consummation of the transactions contemplated hereby and
thereby, and the performance of the Agreement and such other agreements in
compliance with the terms and conditions hereof and thereof by the Sellers
will not (i) violate, conflict with or result in any breach of any trust
agreement, articles of incorporation, bylaw, judgment, decree, order, statute
or regulation applicable to the Sellers, (ii) violate, conflict with or
result in a breach, default or termination or give rise to any right of
termination, cancellation or acceleration of the maturity of any payment date
of any of the obligations of the Sellers or increase or otherwise affect the
obligations of the Sellers under any law, rule, regulation or any judgment,
decree, order, governmental permit,, license or order or any of the terms,
conditions or provisions of any mortgage, indenture, note, license, agreement
or other instrument or obligation related to the Sellers or to the Sellers'
ability to consummate the transactions contemplated hereby or thereby, except
for such defaults (or rights of termination, cancellation or acceleration) as
to which requisite waivers or consents have been obtained in writing and
provided to the Buyer, (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Sellers or (iv) result in the
creation of any Claim upon the Transferred Assets; and
(e) The Bills of Sale convey all right, title and interest
in and to the Transferred Assets.
SECTION 5.3 CHANGE OF CORPORATE NAME. Thermo-Shield Company, Inc.
shall amend its Articles of Incorporation to change its name to a name other
than "Thermo-Shield Company, Inc." Thermo-Shield of America (Wisconsin), Inc.
shall amend its Articles of Incorporation to change its name to a name other
than "Thermo-Shield of America (Wisconsin), Inc. The Sellers shall deliver
to the Buyer at the Closing, an executed copy of such Amendment to the
Articles of Incorporation, and any such other documents or consents needed to
effectuate such change in name, for filing with the Office of the Illinois or
Wisconsin Secretary of State, as applicable.
SECTION 5.4 THERMO-ROSE CORPORATE DOCUMENTS. Inconsistencies between
the shareholder records and the Shareholder Agreement of Thermo-Rose
Manufacturing Co., Inc. shall be resolved to reflect that Thermo-Shield
Company, Inc. rather than Joel Kron is the owner of 50% of the common stock
of Thermo-Rose Manufacturing Co., Inc.
21
<PAGE>
SECTION 5.5 SELLERS' EMPLOYMENT RECORDS. Sellers shall have in their
possession and available for inspection by Buyer at Buyer's request, I-9s and
W-4s for each current employee of the Sellers.
SECTION 5.6 AMENDMENT TO GLENN AVENUE LEASE. Thermo-Shield Company,
Inc. shall have entered into the Amendment to Lease attached hereto as
EXHIBIT G.
SECTION 5.7 THERMO-SHIELD TRANSACTIONS. The transactions
contemplated in the Stock Purchase Agreement shall have closed simultaneously
with the transactions contained herein.
SECTION 5.8 CLOSING DOCUMENTS. The Sellers shall have delivered all
of the resolutions, certificates, documents and instruments required by this
Agreement.
SECTION 5.9 APPROVAL OF THE BUYER AND ITS COUNSEL. All actions,
proceedings, consents, instruments and documents required to be delivered by,
or at the behest of direction of, the Sellers hereunder or incident to its
performance hereunder, and all other related matters, shall be reasonably
satisfactory as to form and substance to the Buyer and its counsel.
ARTICLE VI. CONDITIONS TO THE SELLERS' OBLIGATIONS
The obligation of the Sellers to transfer the Transferred
Assets to the Buyer and to consummate the other transactions contemplated
hereby is subject to the satisfaction, on or before the closing date, of the
following conditions, each of which may be waived by the Sellers in its sole
discretion:
SECTION 6.1 OPINION OF STITES & HARBISON. The Sellers shall have
received from Stites & Harbison, counsel to the Buyer, an opinion dated as of
the Closing Date, in form and substance reasonably satisfactory to the
Sellers, and the following effect:
(a) The Buyer is a Delaware corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and is duly qualified to transact business as a foreign corporation in each
jurisdiction in which the failure to so qualify would have a material adverse
impact on the Buyer's ability to pay its obligations under this Agreement;
(b) The Buyer has the corporate power and authority to
execute, deliver and perform the Agreement and the other Documents. The
execution, delivery and performance of the Agreement and the other Documents
and the consummation of the transactions contemplated hereby and thereby have
been duly and validly executed and delivered by the Buyer and constitute the
legal, valid and binding obligations of the Buyer, enforceable against the
Buyer in accordance with their terms; and
22
<PAGE>
(c) The execution and delivery of the Agreement and the
other Documents, the consummation of the transactions contemplated hereby and
thereby, and the performance of the Agreement and such other agreements in
compliance with the terms and conditions hereof and thereof by the Buyer will
not (i) violate, conflict with or result in a breach of or default (or give
rise to any right of termination, cancellation, or acceleration) under any
law, rule or regulation or any judgment, decree, order, governmental permit,
license or order or any of the terms, conditions or provisions of any
mortgage, indenture, note, license, agreement or other instrument to which
the Buyer is a party, or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Buyer.
SECTION 6.2 THERMO-SHIELD TRANSACTIONS. The transactions
contemplated in the Stock Purchase Agreement shall have closed simultaneously
with the transactions contained herein.
SECTION 6.3 CLOSING DOCUMENTS. The Buyer shall have delivered all
of the resolutions, certificates, documents and instruments required by this
Agreement.
SECTION 6.4 APPROVAL OF THE SELLERS AND ITS COUNSEL. All actions,
proceedings, consents, instruments and documents required to be delivered by,
or at the behest or direction of, the Buyer hereunder or incident to its
performance hereunder, and all other related matters, shall be reasonably
satisfactory as to form and substance to the Sellers and its counsel.
ARTICLE VII. THE CLOSING AND CERTAIN CLOSING DELIVERIES
SECTION 7.1 TIME AND PLACE OF CLOSING. Upon the terms and subject
to the satisfaction of waiver of the conditions contained in this Agreement,
the closing of the transactions contemplated by this Agreement (the
"Closing') shall take place at the offices of Stites & Harbison, 400 West
Market Street, Suite 1800, Louisville, Kentucky on the date hereof (the
"Closing Date"). The transactions contemplated by this Agreement shall be
effective as of the close of business (the "Effective Time") on March 1, 1999
(the "Effective Date").
SECTION 7.2 DELIVERIES BY THE SELLERS. At the Closing, the Sellers
will deliver or cause to be delivered to the Buyer the following:
(a) All required consents of third parties to the sale,
conveyance, transfer, assignment and delivery of the Transferred Assets and
Business of the Sellers hereunder;
(b) A certificate of the President of the Sellers certifying
as of the Closing Date, (i) a true, correct and complete copy of the
Certificate of Incorporation of the Sellers and all amendments thereto as in
effect on the Closing Date; (ii) a true, correct and complete copy of the
bylaws of the Sellers and all amendments thereto as in effect on the Closing
Date; (iii) a true, correct, and complete copy of the resolutions approved
and adopted by the Sellers' Board of Directors and Shareholders authorizing
and approving the execution, performance and delivery
23
<PAGE>
of this Agreement and the transactions contemplated by this Agreement; (iv)
Good Standing Certificate from the Illinois Secretary of State and the
Wisconsin Secretary of State and all other jurisdictions where the Sellers is
qualified to do business; and (v) the incumbency of the duly authorized
offers of the Sellers.
(c) The affidavit of the Sellers certifying as to its
non-foreign status in accordance with Section 1445(b)(2) of the Code;
(d) The Bills of Sale required by Section 1.1(c);
(e) The Assignment and Assumption Agreements required by
Section 1.1(c);
(f) The Lease Assignments required by Section 1.1(c);
(g) The Security Agreements and the Membership Pledge
Agreements required by Section 1.2;
(h) The opinion of the Sellers' counsel required by Section 5.2
above;
(i) Duly executed Amendment to the Articles of Incorporation
of each of the Sellers and withdrawal of assumed trade names as required by
Section 5.3 above;
(j) Copies of the stock records of Thermo Rose as required
by Section 5.4;
(k) The I-9s and W-4s required by Section 5.5;
(l) The Amendment to Lease required by Section 5.6;
(m) All other documents, instruments and writings requiring
to be delivered by the Sellers at or prior to the Closing Date pursuant to
this Agreement or otherwise required in connection herewith.
SECTION 7.3 DELIVERIES BY THE BUYER. At the Closing, the Buyer will
deliver the following to or for the account of the Sellers or certain of its
employees, as the case may be:
(a) The Promissory Note required by Section 1.2 above;
(b) The Assignment and Assumption Agreements required by
Section 1.3;
(c) The Lease Assignments required by Section 1.3;
24
<PAGE>
(d) The Security Agreements and the Membership Pledge
Agreements required by Section 1.2;
(e) The Opinion of the Buyer's counsel required by Section
6.1 above;
(f) A certificate of an officer of the Buyer certifying as
of the Closing Date (i) a true, correct and complete copy of the Articles of
Incorporation of the Buyer and all amendments thereto as in effect on the
Closing Date; (ii) a true, correct and complete copy of the bylaws of the
Buyer and all amendments thereto as in effect on the Closing Date; (iii) a
true, correct and complete copy of the resolutions approved and adopted by
the Board of Directors of the Buyer authorizing the transactions contemplated
herein; and (iv) Good Standing Certificate from the Delaware Secretary of
State; and
(g) All other documents, instruments and writings required
to be delivered by the Buyer at or prior to the Closing Date pursuant to this
Agreement or otherwise required in connection herewith.
ARTICLE VIII. TERMINATION
[INTENTIONALLY OMITTED]
ARTICLE IX. INDEMNIFICATION
SECTION 9.1 SURVIVAL. All representations and warranties in this
Agreement and the other Documents shall survive the Closing of the purchase
of the Transferred Assets contemplated hereby and any investigation at
anytime made by or on behalf of any party for a period of three years and all
such representations and warranties shall expire on the third anniversary of
the Closing Date, except that (a) claims, if any, asserted in writing prior
to such third anniversary identified as a claim for indemnification pursuant
to this Article IX shall survive until finally resolved and satisfied in
full; (b) any Year-2000 Indemnification Obligations (as hereinafter defined)
shall survive until February 1, 2003 and until finally resolved and satisfies
in full if asserts on or prior to February 1, 2003; and (c) tax or
environmental claims arising from a breach of Section 2.24 or Section 2.26,
respectively, shall survive for the full period of the applicable statute of
limitations, and until finally resolved and satisfied in full if asserted on
or prior to the expiration of any such period. The representations and
warranties shall not be affected or otherwise diminished by any investigation
at any time by or on behalf of the party for whose benefit such
representations and warranties were made.
25
<PAGE>
SECTION 9.2 INDEMNIFICATION BY THE SELLERS. Subject to the terms
herein, the Sellers shall indemnify, defend and hold the Buyer and the
respective officers, directors, and employees of the Buyer, and their
successors and assigns (the "Sellers' Indemnitees") harmless from, against
and with respect to any claim, liability, obligation, loss, damage,
assessment, judgment, cost or expense of any kind or character, including
reasonable attorneys' fees (the "Damages"), arising out of or in any manner
incident, relating or attributable to:
(a) Any inaccuracy in any representation or breach of any
warranty of the Sellers contained in this Agreement;
(b) Any failure by the Sellers to perform or observe, or to
have performed or observed, in full, any covenant, agreement or condition to
be performed or observed by it under this Agreement, except to the extent
such failure to perform or observe is due to the Buyer's actions;
(c) Reliance by the Buyer on any books or records of the
Sellers or written information furnished to the Buyer pursuant to this
Agreement by or on behalf of the Sellers in the event that such books and
records or written information are false or materially inaccurate; or
(d) Liabilities or obligations of, or claims against, the
Buyer (whether absolute, accrued, contingent or otherwise) relating to, or
arising out of, the operation of the Business prior to the Closing Date or
facts and circumstances relating specifically to the Business, the Leased
Parcels, or the Sellers existing at or prior to the Closing Date, including
but not limited to matters set forth on SCHEDULE 2.25, whether or not such
liabilities, obligations or claims were known on such date, excluding only
the Assumed Liabilities.
(e) Any amounts due ThermoView in connection with Joel
Kron's or Jonathan Kron's obligations under the Stock Purchase Agreement,
including without limitation, Section 9.2.
Provided, however, the Sellers' Indemnitees shall not be entitled to
indemnification or offset hereunder until Damages under this Agreement and
the Stock Purchase Agreement in the aggregate exceed $50,000 and then only to
the extent of aggregate Damages in excess of $50,000; provided further,
however, this limitation or "basket" shall not apply to any Damages arising
in connection with the representations and warranties with respect to taxes
and litigation as set forth in Sections 2.24 and 2.25 hereof, respectively.
SECTION 9.3 NOTICE TO THE SELLERS, ETC. If any of the matters as to
which the Sellers' Indemnitees are entitled to receive indemnification under
Section 9.2 should entail litigation with or claims asserted by parties other
than the Sellers, the Sellers shall be given prompt notice thereof and shall
have the right, at his expense, to control such claim or litigation upon
prompt notice to the Buyer of his election to do so. To the extent requested
by the Sellers, the Buyer, at its expense, shall cooperate with and assist
the Sellers, in connection with such
26
<PAGE>
claim or litigation. The Sellers shall have final authority to determine all
matters in connection with such claim or litigation; PROVIDED, HOWEVER, that
the Sellers shall not settle any third-party claim without the consent of the
Buyer, which shall not be unreasonably denied or delayed.
SECTION 9.4 INDEMNIFICATION BY THE BUYER. The Buyer shall
indemnify, defend and hold the Sellers and its successors and assigns (the
"Buyer's Indemnitees") harmless from, against and with respect to any claim,
liability, obligation, loss, damage, assessment, judgment, cost or expense of
any kind or character, including reasonable attorneys' fees (the "Damages"),
arising out of or in any manner incident, relating or attributable to:
(a) Any inaccuracy in any representation or breach of
warranty of the Buyer contained in this Agreement;
(b) Any failure by the Buyer to perform or observe, or to
have performed or observed, in full, any covenant, agreement or condition to
be performed or observed by it under any of the Documents;
(c) Reliance by the Sellers on any books or records of the
Buyer or reliance by the Sellers on any written information furnished to the
Sellers pursuant to this Agreement by or on behalf of the Buyer in the event
that such books and records or written information are false or inaccurate;
(d) The failure of the Buyer to pay or perform the Assumed
Liabilities, Contracts and Leases subsequent to the Closing Date; or
(e) Liabilities or obligations of, or claims against, the
Sellers (whether absolute, accrued, contingent or otherwise) relating to, or
arising out of, the operation of the Business subsequent to the Closing Date.
Provided, however, the Buyer's Indemnitees shall not be entitled to
indemnification hereunder until Damages in total exceed $50,000 and then only
to the extent of aggregate damages in excess of $50,000.
SECTION 9.5 NOTICE TO BUYER, ETC. If any of the matters as to which
the Buyer's Indemnitees are entitled to receive indemnification under Section
9.4 should entail litigation with or claims asserted by parties other than
the Buyer, the Buyer shall be given prompt notice thereof and shall have the
right, at its expense, to control such claim or litigation upon prompt notice
to the Sellers of its election to do so. To the extent requested by the
Buyer, the Sellers, at his expense, shall cooperate with and assist the
Buyer, in connection with such claim or litigation. The Sellers shall have
the right to appoint, at its expense, single counsel to consult with and
remain advised by the Buyer in connection with such claim or litigation. The
Buyer shall have final authority to determine all matters in connection with
such claim or litigation; PROVIDED,
27
<PAGE>
HOWEVER, that the Buyer shall not settle any third-party claim without the
consent of the Sellers, which shall not be unreasonably denied or delayed.
SECTION 9.6 SURVIVAL OF INDEMNIFICATION. The obligations to
indemnify and hold harmless pursuant to this Article IX shall survive the
Closing of the purchase of the Transferred Assets contemplated hereby for a
period of three years, notwithstanding any investigation at any time made by
or on behalf of any party, except that (a) claims, if any, asserted in
writing prior to such third anniversary identified as a claim for
indemnification pursuant to this Article IX shall survive until finally
resolved and satisfied in full; (b) any Year-2000 Indemnification Obligations
(as hereinafter defined) shall survive until February 1, 2003 and until
finally resolved and satisfied in full if asserted on or prior to February 1,
2003; and (c) tax or environmental claims arising from a breach of Section
2.24 or Section 2.26, respectively, shall survive for the full period of the
applicable statute of limitations, and until finally resolved and satisfied
in full if asserted on or prior to the expiration of any such period. As used
in this Article IX, the term "Year-2000 Indemnification Obligations" shall
mean Sellers' obligation to indemnify, defend and hold the Sellers'
Indemnitees harmless from, against and with respect to any Damages arising
out of or in any manner incident, relating or attributable to (i) any claim
or allegation that any Licensed System is not Year-2000 Compliant and (ii)
any claim arising from a breach of Section 2.28.
SECTION 9.7 OFFSET. The Sellers acknowledges and agrees that the
Buyer shall be entitled to offset any indemnity claim under Section 9.2,
including without limitation indemnity claims arising under the Stock
Purchase Agreement pursuant to Section 9.2(e), against any payment due to the
Sellers under Section 1.2 hereof or any payment due under the Stock Purchase
Agreement at the Buyer's sole option.
ARTICLE X. MISCELLANEOUS
SECTION 10.1 KNOWLEDGE OF THE SELLERS. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to
the best knowledge of the Sellers, the Sellers confirms that it has made due
and diligent inquiry of its President as to the matters that are the subject
of such representation and warranty.
SECTION 10.2 KNOWLEDGE OF THE BUYER. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to
the best of knowledge of the Buyer, the Buyer confirms that it has made due
and diligent inquiry of its President as to the matters that are the subject
of such representations and warranties.
SECTION 10.3 "PERSON" DEFINED. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or other department or agency
thereof.
28
<PAGE>
SECTION 10.4 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) sent by recognized overnight courier, (iii) made by telecopy or
facsimile transmission, or (iv) sent by registered or certified mail, return
receipt requested, postage prepaid.
If to the Buyer:
ThermoView Industries, Inc.
1101 Herr Lane
Louisville, Kentucky 40222
Attn: Stephen A. Hoffman,
Chief Executive Officer
Fax No. (502) 425-5603
With a copy to:
Stites & Harbison
400 W. Market Street, Suite 1800
Louisville, Kentucky 40202
Attn: Ralston W. Steenrod, Esq.
Fax No. (502) 587-6391
If to the Sellers:
Thermo-Shield Company, Inc.
661 Glenn Avenue
Wheeling, Illinois 60090
Attn: Joel S. Kron
With a copy to:
Jonathan D. Kron, Esq.
6238 Pine Tree Drive
Long Grove, Illinois 60090
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof
to the receiving party at the address of such party set forth above, (ii) if
sent by overnight courier, on the next business day following the day such
notice is delivered to the courier service, (iii) if made by telecopy or
facsimile transmission, at the time that receipt thereof has been
acknowledged by electronic confirmation or otherwise, or (iv) if sent by
registered or certified mail, on the fifth business day following the day
such mailing is sent. The address of any party herein may be changed at any
time by written notice to the parties.
29
<PAGE>
SECTION 10.5 ENTIRE AGREEMENT. This Agreement and the other
Documents embody the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersede all prior oral
or written agreements and understandings relating to the subject matter
hereof. No statements, representation, warranty, covenant or agreement of
any kind not expressly set forth in the other Documents shall affect, or be
used to interpret, change or restrict, the express terms and provisions of
this Agreement.
SECTION 10.6 MODIFICATIONS AND AMENDMENTS. The terms and provisions
of this Agreement may be modified or amended only by written agreement
executed by all parties hereto.
SECTION 10.7 ASSIGNMENT/BINDING EFFECT. Neither this Agreement, nor
any right hereunder, may be assigned by any of the parties hereto without the
prior written consent of the other parties, provided, however, that the Buyer
may assign its rights to acquire the Transferred Assets to one or more of its
affiliates. This Agreement shall be binding upon, and inure to the benefit
of, the parties hereto and their respective heirs, personal representatives,
successors and permitted assigns.
SECTION 10.8 PARTIES IN INTEREST. Nothing in this Agreement, express
or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Nothing in this Agreement shall be construed to create any rights or
obligations except among the parties hereto, and no person or entity shall be
regarded as a third-party beneficiary of this Agreement.
SECTION 10.9 GOVERNING LAW. This Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with
and governed by the internal laws of the State of Illinois without giving
effect to the conflict of law principles thereof.
SECTION 10.10 ARBITRATION. Any dispute or difference between the
parties hereto arising out of or relating to this Agreement shall be finally
settled by arbitration in accordance with the Commercial Rules of the
American Arbitration Association by a panel of three qualified arbitrators.
The Sellers and the Buyer shall each choose an arbitrator and the third shall
be chosen by the two so chosen. If either the Sellers or the Buyer fails to
choose an arbitrator within 30 days after notice of commencement of
arbitration or if the two arbitrators fail to choose a third arbitrator
within 30 days after their appointment, the American Arbitration Association
shall, upon the request of any party to the dispute or difference, appoint
the arbitrator or arbitrators to constitute or complete the panel as the case
may be. Arbitration proceedings hereunder may be initiated by either the
Sellers or the buyer making a written request to the American Arbitration
Association, together with any appropriate filing fee, at the office of the
American Arbitration Association in Chicago, Illinois. All arbitration
proceedings shall be held in Chicago, Illinois. Any order or determination
of the arbitral tribunal shall be final and binding upon the parties to the
arbitration and may be entered in any court having jurisdiction.
30
<PAGE>
SECTION 10.11 SEVERABILITY. In the event that any arbitral tribunal
of competent jurisdiction shall finally determine that any provision, or any
portion thereof, contained in this Agreement shall be void or unenforceable
in any respect, then such provision shall be deemed limited to the extent
that such arbitral tribunal determines it enforceable, and as so limited
shall remain in full force and effect. In the event that such arbitral
tribunal shall determine any such provision, or portion thereof, wholly
unenforceable, the remaining provisions of this Agreement shall nevertheless
remain in full force and effect.
SECTION 10.12 INTERPRETATION. The parties hereto acknowledge and
agree that: (i) the rule of construction to the effect that ambiguities are
resolved against the drafting party shall not be employed in the
interpretation of this Agreement, and (ii) the terms and provisions of this
Agreement shall be construed fairly as to all parties hereto and not in favor
of or against any party, regardless of which party was generally responsible
for the preparation of this Agreement.
SECTION 10.13 HEADINGS AND CAPTIONS. The headings and captions of the
various subdivisions of this Agreement are for convenience of reference only
and shall in no way modify, or affect, or be considered in construing or
interpreting the meaning or construction of any of the terms or provisions
hereof.
SECTION 10.14 RELIANCE. The parties hereto agree that,
notwithstanding any right of any party to this Agreement to investigate the
affairs of any other party to this Agreement, the party having such right to
investigate shall have the right to rely fully upon the representations and
warranties of the other party expressly contained herein.
SECTION 10.15 EXPENSES. Each party shall pay its own fees and
expenses (including the fees of any attorneys, accountants, appraisers or
others engaged by such party) incurred in connection with this Agreement and
the transactions contemplated hereby whether or not the transactions
contemplated hereby are consummated.
SECTION 10.16 GENDER. All pronouns and any variation thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the person or entity or the context may require.
SECTION 10.17 PUBLICITY. Except by the mutual agreement between the
Sellers and the Buyer, no party shall issue any press release or otherwise
make any public statement with respect to the execution of, or the
transactions contemplated by, this Agreement except as may be required by law.
SECTION 10.18 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by different parties hereto on separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
31
<PAGE>
IN WITNESS WHEREOF, the Buyer and the Sellers have each caused this
Agreement to be executed by its duly authorized officer all as of the day and
year first above written.
Buyer:
THERMOVIEW INDUSTRIES, INC.
By: /s/ Nelson E. Clemmens
---------------------------------
Title: President
------------------------------
Sellers:
THERMO-SHIELD COMPANY, INC.
By: /s/ Joel S. Kron
---------------------------------
Title: President
------------------------------
THERMO-SHIELD OF AMERICA
(WISCONSIN) INC.
By: /s/ Joel S. Kron
---------------------------------
Title: President
------------------------------
32
<PAGE>
LEASE
THIS LEASE is made as of the 3rd day of November, 1997, by and
between JSK PROPERTIES, L.L.C., hereinafter referred to as "Landlord", and
THERMO-SHIELD COMPANY, INC., an Illinois corporation, hereinafter referred to
as "Tenant".
WITNESSETH:
In consideration of the rents hereinafter reserved and the covenants
and agreements hereinafter contained, Landlord hereby leases to Tenant, and
Tenant does hereby hire and take from Landlord, all those premises, except
the portion of the premises approximating 17,000 square feet leased pursuant
to a Lease dated the date hereof, (the "Leased Premises") with the building,
improvements and appurtenances now or hereafter located thereon, situated and
located at 661 Glenn Avenue, Wheeling, Illinois (the "Property"). This Lease
for the Leased Premises is subject to municipal and zoning ordinances
regulating and restricting the use of said premises and construction of any
improvements thereon; recorded covenants, easements, restrictions and grants,
if any; and licenses and permits which may affect the Leased Premises.
I. TERM OF LEASE
The term of this Lease shall commence on November 3, 1997 (the
"Commencement Date"), and shall end at 11:59 p.m. on October 31, 2007, unless
sooner terminated in accordance with this Lease.
II. RENTAL
1. From and after the Commencement Date, Tenant shall pay to
Landlord a monthly base rent of $8,000.00 payable in advance (increasing by
5% at the end of each year during ht term) on the first day of each and every
calendar month (except the rent for November 1997 shall be paid on the date
hereof) during the term. The monthly base rent as aforesaid payable for any
partial month shall be prorated on a thirty (30) day basis.
2. The base rent and any additional rent to be paid by Tenant to
Landlord under the terms of this Lease shall be paid to Landlord at the
address as hereinafter designated for notices to Landlord or at such other
place as Landlord may from time to time designate.
3. It is intended hereby that the rent stated herein shall be an
absolute net return to Landlord for the demised term, free from any expense,
charges or any deduction or offset whatsoever.
III. TAXES
1. From and after the Commencement Date, Tenant agrees to pay as
additional rent all taxes, charges and assessments, general and special,
ordinary and extraordinary, of every nature and kind whatever, and all water
rates and sewage charges levied, assessed, imposed, due
<PAGE>
or payable during the demised term, upon the Property, whether such tax,
rate, charge or assessment shall be fore city, town, county, state, federal
or any other purpose whatsoever, said Tenant hereby covenanting to pay taxes
and assessments upon the real estate as well as upon the improvements
thereon. Tenant further covenants and agrees to pay, as additional rent, all
personal property taxes levied and assessed against all furniture, fixtures,
equipment and other items of personal property constituting a part of the
Property or situated on or about the Property. Should any governmental agency
or political subdivision impose any taxes and/or assessments, whether or not
now customary or within the contemplation of the parties hereto, either by
way of substitution for taxes and assessments presently levied and assessed
against the real estate as well as the improvements thereon, or in addition
thereto, other than Landlord's personal income tax or any estate tax or
inheritance tax, such taxes and/or assessments shall be deemed to constitute
a tax and/or assessment upon the real estate as well as the improvements
thereon for the purpose of this Paragraph and shall be paid by Tenant.
2. Real estate taxes and assessments shall be prorated for any
partial year of the term. Tenant's obligations under this Article shall
survive the expiration of the term of this Lease.
3. Tenant shall pay all such real property taxes, assessments and
charges as provided in Paragraph 1 above at the time the same are due and
payable and in any event before any fine, penalty, interest or additional
cost may be added thereto, and Tenant shall furnish to Landlord a receipted
tax bill and other satisfactory evidence of the payment of said taxes,
assessments and charges within ten (10) days after the same are due and
payable.
4. Notwithstanding the foregoing provisions of this Article, if the
provisions of any mortgage of the fee of the Property require deposits for
real estate taxes to be made with the holder of such mortgage (the
"Mortgagee"), Tenant shall make such tax deposits with the holder of such
mortgage in lieu of the payments under Paragraph 3 hereof.
IV. INSURANCE AND INDEMNITY
1. Tenant shall, at its own cost and expense, during the Lease term
keep the building and improvements on the Property insured against loss or
damage by fire and such other contingencies covered by an all-risk or special
form insurance policy in an amount of not less than the full replacement cost
of the building and improvements, without provision for deductible or
co-insurance. Said policy shall provide, subject to the rights of Mortgagee,
if any, that all proceeds payable thereunder shall be paid directly to
Landlord or the party designated by Landlord. Said policy shall also include
business interruption or loss-of-rent insurance to insure, without provision
for deductible or co-insurance, the payment of rent under Article II of this
Lease, the payment of taxes and assessments under Article III of this Lease,
and for the payment of insurance premiums under this Article IV for a period
of not less than twelve (12) months in the event of a casualty as
contemplated by Article VIII of this Lease.
2. Tenant shall, at its own cost and expense, during the Lease term
carry commercial general liability insurance with respect to the Property and
the business operated by Tenant therein protecting Tenant, Landlord and
Mortgagee, if any, and any other party designated by
<PAGE>
Landlord in an amount of not less than what is customary and prudent and
which a reasonably prudent tenant would carry under similar circumstances, or
such greater limit as Landlord may reasonably determine in accordance with
prudent real estate management practices.
3. Tenant shall, at its own cost and expense, during the Lease term
carry boiler and machinery insurance in the amount of not less than the
replacement value of the building and improvements on the Leased Premises, on
any steam boilers, pressure vessels and pressure piping installed in the
Property. All proceeds of such insurance shall be payable directly to
Landlord.
4. Tenant shall, at its own cost and expense, during the Lease term
carry insurance against fire, vandalism, malicious mischief and such other
perils as are from time to time included in a standard extended coverage
endorsement, insuring any betterments and improvements made by Tenant to the
Property and all merchandise, trade fixtures, furnishings, equipment and all
other items of personal property located at the Property.
5. All insurance policies required hereunder shall be written by an
insurance company or companies acceptable to Landlord and in the name of
Landlord, Tenant, Mortgagee, if any, and any other party designated by
Landlord, as their interests appear. Such insurance shall be written as
primary policy coverage and not contributing with or in excess of any
coverage which Landlord may carry and shall be non-cancelable and
non-amendable without thirty (30) days written notice to all such parties.
The original policies or certificates thereof shall be furnished to Landlord
with evidence of timely payment of the premium therefor prior to the
commencement of the Lease term and not less than thirty (30) days prior to
the expiration of any coverage. Landlord may at any time and from time to
time inspect and/or copy any and all insurance policies required to be
procured by Tenant under this Lease.
6. Notwithstanding the foregoing provisions of the Article, if the
provisions of any mortgage of the fee of the Property require deposits for
insurance premiums next due be made with the Mortgagee, Tenant shall make
such deposits with Mortgagee.
7. Tenant hereby agrees to indemnify and hold Landlord harmless
against and from any and all claims by or on behalf of any person arising
from the conduct or management of or from any work or thing whatsoever done
in or about the Leased Premises, or arising from any breach or default on the
part of Tenant in the performance of any covenant or agreement on the part of
Tenant to be performed pursuant to this Lease, or arising from any act or
negligence of Tenant, or any occupant of the Leased Premises or any
employees, guests, invitees, licensees or customers, or arising from any
accident, injury or damage whatsoever caused to any person or property
occurring during the term of this Lease in or about the Leased Premises, and
from and against all judgments, costs, expenses and liabilities incurred in
or about any such claim. Tenant, upon notice from Landlord, shall resist or
defend such action or proceeding by counsel reasonably satisfactory to
Landlord. The foregoing covenants and indemnification shall survive the
expiration of the term of this Lease.
8. Landlord shall not be responsible or liable for any damage or
injury to any property, fixtures, buildings or other improvements, or to any
person or persons, at any time, on
<PAGE>
the Leased Premises, including any damage or injury to Tenant or to any of
Tenant's agents, employees, contractors, guests, invitees, licensees or
customers, whether occasioned by or through any act or neglect of Landlord or
any other cause, negligent or otherwise, whatsoever.
9. Landlord and Tenant hereby expressly waive any right of recovery
each party may have against the other for a loss to the Leased Premises or
its contents due to fire or any peril included in the coverage of any
applicable insurance policy required to be carried hereunder, however caused,
including such losses as may be due to the negligence of Landlord or Tenant
or their respective agents or employees. All policies of insurance required
to be carried hereunder shall provide that the insurer waives all rights of
recovery by way of subrogation against Landlord or Tenant in connection with
any loss or damage covered by such policy.
V. CONDITION OF LEASED PREMISES; REPAIRS AND MAINTENANCE
1. Tenant acknowledges and confirms that it has inspected the Leased
Premises, knows the condition thereof, and is leasing the same in its present
"as is" condition. Landlord shall not be required to rework, remodel or
recondition the Leased Premises in any manner whatsoever for Tenant's use and
occupancy thereof. No warranties or representations are made or have been
made by Landlord or its agents and representatives that are not expressly set
forth herein.
2. Tenant shall, at its own cost and expense, throughout the term of
this Lease, keep and maintain the entire Leased Premises in good condition
and repair, including the building, parking lot, landscaped areas and all
other improvements situated thereon, and all plumbing, electrical, heating,
ventilating, air conditioning and other equipment and facilities contained in
or about the Leased Premises so that at the expiration of the Lease or any
renewal or extension thereof, the Leased Premises shall be surrendered to
Landlord in the same condition that the same are in at the commencement of
this Lease, ordinary wear and tear excepted. Tenant shall make such
replacements as from time to time may be necessary. Tenant shall not defer
any repairs, renewals or replacements to the Leased Premises by reason of
anticipation of the expiration of the term hereof. The surrender of the
Leased Premises upon the expiration or early termination of this Lease shall
not relieve Tenant of the obligation to pay for all repairs or replacements
to the Leased Premises which Tenant was obligated to perform during the Lease
term, which obligation shall survive the expiration or early termination of
this Lease. Tenant shall also use all reasonable precaution to prevent waste,
damage or injury to the Leased Premises, Tenant shall keep the Leased
Premises in a clean, tenantable condition and shall not permit any garbage,
rubbish, refuse or dirt of any kind to accumulate in or about the Leased
Premises. Landlord hall not be required to make any repairs, alterations or
replacements in or to the Leased Premises during the term of this Lease.
VI. UTILITIES
From and after the Commencement Date, Tenant shall timely pay for
all utilities used or consumed in or about the Property. Tenant shall keep
the building on the Property sufficiently heated so as to prevent freezing
and deterioration thereof and/or the equipment and facilities
<PAGE>
contained therein. In no event shall Landlord be liable for an interruption
or failure in the supply of any utility to the Property.
VII. USE OF PREMISES
1. Tenant shall use the Leased Premises only for the operation of
Tenant's business and for no other use. Tenant expressly acknowledges that it
shall be the sole responsibility of Tenant to secure all necessary and
appropriate permits, licenses and approvals from all governmental authorities
having jurisdiction for the use of the Property as set forth herein.
2. Tenant shall, at its own cost and expense, comply promptly and
conform with all present and future laws, ordinances, rules, requirements and
regulations of the federal, state, county and city governments and of any and
all other governmental authorities or agencies affecting the Property or its
use, and Tenant shall, at its own cost and expense, make all additions,
alterations or changes to the Property or any portion thereof as may be
required by any governmental authority or agency. Without limiting the
generality of the foregoing, Tenant agrees to comply with all laws, orders
and regulations regarding the collection, sorting, separation and recycling
of waste products, garbage, refuse and trash into such categories as provided
by law.
3. Tenant shall, during the entire term of this Lease, comply with
all applicable federal, state and local environmental laws, ordinances and
all amendments thereto and rules and regulations implementing the same,
together with all common law requirements, which relate to discharge,
emissions, waste, nuisance, pollution control, hazardous or toxic substances
and other environmental matters as the same shall be in existence during the
term hereof. All of the foregoing laws, regulations and requirements are
hereinafter referred to as "Environmental Laws". Tenant shall obtain all
environmental licenses, permits, approvals, authorizations, exemptions,
classifications, certificates and registrations (hereinafter collectively
referred to as "Permits") and make all applicable filings required of Tenant
under the Environmental Laws required by Tenant to operate at the Property.
The Permits and required filings shall be made available for inspection and
copying by Landlord at Tenant's offices upon reasonable notice and during
business hours. Tenant shall not cause or permit any flammable explosive,
oil, contaminant, radioactive material, hazardous waste or material, toxic
waste or material or any similar substance (hereinafter collectively referred
to as "Hazardous Substances") to be brought upon, kept or used in or about
the Property except for small quantities of such substances as is necessary
for Tenant's business provided that Tenant shall handle, store, use and
dispose of any such Hazardous Substance in compliance with all applicable
laws and the highest standards prevailing in the industry for the storage and
use of such substances or materials, in a manner which is safe and does not
contaminate the Property, and Tenant shall give Landlord written notice of
the identity of such substances. If any lender or governmental agency shall
ever require testing to ascertain whether or not there has been any release
of any Hazardous Substance on or about the Property during the Lease term,
then the reasonable cost thereof shall be reimbursed by Tenant to Landlord
upon demand as additional rent. Tenant shall also, from time to time, at
Landlord's request, execute such other affidavits, representations and the
like concerning Tenant's best knowledge and belief regarding the presence of
Hazardous Substances on the Property. Tenant agrees to indemnify and hold
Landlord harmless from any liability, claim or
<PAGE>
injury, including attorney fees and the cost of any required or necessary
repair, clean-up, remediation or detoxification, arising out of (i) the use,
manufacture, handling, storage, disposal or release of any Hazardous
Substances by Tenant, its agents and employees on, under or about the
Property, or (ii) an actual or alleged violation of Environmental Laws in
connection with the occupancy of the Property by Tenant or any occupant of
the Property or the operation of Tenant's business on the Property during the
term of this Lease. The foregoing covenants and indemnification shall survive
the expiration of the term of this Lease.
VIII. DESTRUCTION OF LEASED PREMISES
In the event the building or improvements on the Leased Premises are
damaged or destroyed in whole or in part by fire or any other cause
whatsoever during the term of this Lease, this Lease shall continue in full
force and effect without any abatement in rent, taxes, charges, assessments
or other obligations of Tenant referred to in this Lease, and Tenant shall,
at its own cost and expense, with all reasonable dispatch and diligence,
rebuild, restore and/or repair the building or improvements as aforesaid to a
condition equal or greater in value to that just prior to said damage or
destruction in accordance with plans and specifications to be approved in
writing by Landlord prior to commencement of said rebuilding, restoration
and/or repair. Tenant shall complete said rebuilding, restoration and/or
repair of the building or improvements as aforesaid within a period not to
exceed six (6) months from the date of said damage or destruction, subject to
extension in the event of delays beyond the control of Tenant arising from
acts of God, general labor strikes, the acts of Landlord or other
contingencies which could not be anticipated or provided for by Tenant. For
the purpose of making such repairs and restorations, Landlord agrees that the
insurance proceeds, subject to the rights of Mortgagee, if any, may be used
on account of the payment therefor in accordance with pay-out procedures
established by Landlord or Mortgagee, if any, to insure that there are
sufficient funds available for such repairs and restoration and that such
work is done in a good and workmanlike manner in accordance with the plans
and specifications approved by Landlord and free from any liens for services,
materials or supplies. Tenant's obligation to rebuild, restore and/or repair
shall be absolute whether or not the insurance proceeds available therefor
shall be sufficient to defray the entire cost thereof. If any surplus remains
after completion of such rebuilding, restoring or repair, such surplus shall
be paid over to and become the property of Landlord.
IX. CONDEMNATION
1. If the whole of the Leased Premises shall be condemned by any
governmental agency or political subdivision or sold to any governmental
agency or political subdivision in lieu of condemnation, then this Lease
shall expire on the date the Leased Premises shall be so taken or the date of
the sale in lieu of condemnation and the rent shall be apportioned as of that
date.
2. If a portion of the Leased Premises shall be condemned by any
governmental agency or political subdivision or sold to any governmental
agency or political subdivision in lieu of the use of the building on the
Leased Premises, but only the lands surrounding said building, then this
Lease shall remain in full force and effect without any abatement of rent,
and Tenant shall restore the Leased Premises for Tenant's use in the manner
set forth in Paragraph 3
<PAGE>
below.
3. If a portion of the Leased Premises shall be condemned by any
governmental agency or political subdivision or sold to any governmental
agency or political subdivision in lieu of condemnation and if said taking or
sale directly affects the building situated on the Leased Premises and
results in making said building unsuitable for the business of Tenant, then
Tenant may elect to terminate this Lease by written notice to Landlord within
sixty (60) days after the taking and the rent shall be apportioned as of that
date. If Tenant does not exercise its option herein contained, then this
Lease shall remain in full force and effect without any abatement of rent,
and Tenant shall restore said building for Tenant's use and, subject to the
rights of Mortgagee, if any, that portion of the award or proceeds of sale
directly attributable to the taking or sale of a portion of said building may
be utilized by Tenant for said restoration in accordance with pay-out
procedures established by Landlord and/or Mortgagee, if any, to insure that
there are sufficient funds available for such restoration and that such work
is done in a good and workmanlike manner in accordance with plans and
specifications first approved by Landlord and free from any liens for
services, materials or supplies. Tenant's obligation to restore shall be
absolute whether or not the portion of the award available therefor shall be
sufficient to defray the entire cost thereof, and if any surplus of funds
remains after completion of such restoration, such surplus shall be paid over
to and become the property of Landlord.
4. No part of any award or proceeds of sale resulting from the
taking of the whole or a portion of the leased Premises or a sale in lieu of
condemnation shall belong to Tenant; provided, however, Tenant shall have the
right to pursue such claim or claims as Tenant may have legally for
relocation expense, interruption of ;business and such other items which do
not affect the award or proceeds of sale otherwise payable to Landlord.
Tenant hereby expressly waives any claim which it may have relating directly
or indirectly to the leasehold estate created under this Lease.
X. ASSIGNMENT AND SUBLETTING
Tenant shall not, without the prior written consent of Landlord, (a)
assign or encumber this Lease or any interest under it; (b) sublet the Leased
Premises or any part thereof; (c) allow any transfer of Tenant's interest
herein or any lien upon Tenant's interest by operation of law or otherwise;
or (d) permit the use or occupancy of the Leased Premises or any part thereof
by anyone other than Tenant. In the event that Tenant, with or without the
prior consent of Landlord, does assign or in any manner transfer this Lease
or any estate or interest therein, Tenant shall in no way be released from
any of its obligations under this Lease. The following shall be deemed to be
an assignment of this Lease within the meaning of this Article: (a) the sale,
issuance, or transfer of any voting capital stock of Tenant or of Tenant's
permitted assigns and subtenants (if Tenant or such assigns or subtenants be
a non-public corporation) which results in a change in the voting control of
Tenant or such assigns or subtenants; (b) the sale, issuance, or transfer of
any partnership interest in Tenant or in Tenant's permitted assigns and
subtenants (if Tenant or such assigns or subtenants be a partnership); and
(c) the death or incapacity of Tenant or of Tenants' permitted assigns and
subtenants (fi Tenant or such assigns or subtenants be a natural person). In
the event that Tenant is required to obtain Landlord's consent to any
assignment, subletting or other transfer of Tenant's interest in this Lese,
then
<PAGE>
Tenant shall reimburse Landlord for Landlord's legal fees and expenses
incurred in connection with such approval and the drafting and preparation of
appropriate documentation effectuating the assignment, subletting or other
transfer in question.
XI. ESTOPPEL CERTIFICATE AND SUBORDINATION
1. Tenant shall, without charge, at any time and from time to time
hereafter, within ten (10) days after written request of Landlord, certify by
written instrument duly executed and acknowledged to any mortgagee or
purchaser, or proposed mortgagee or proposed purchaser, or any other person,
firm or corporation specified in such request: (a) as to whether this Lease
has been supplemented or amended, and if so, the substance and manner of such
supplement or amendment; (b) as to the validity and force and effect of this
Lease in accordance with its tenor as then constituted; (c) as to the
existence of any default thereunder; (d) as to the existence of any offsets,
counterclaims or defenses thereto; (e) as to the commencement and expiration
dates of the term of this Lease; and (f) as to any other matters as may
reasonably be so requested. Any such certificate may be relied upon by the
party requesting it and any other person, firm or corporation to whom the
same may be exhibited or delivered, and the contents of such certificate
shall be binding on Tenant.
2. This Lease shall, at the option of Mortgagee or the holder or
holders of any mortgage or mortgages now or hereafter placed upon the Leased
Premises, be subject and subordinate to the lien of any such mortgage or
mortgages, and Tenant covenants and agrees to execute and deliver upon demand
such further instruments subordinating this Lease, in accordance with the
foregoing, to the lien of any such mortgage or mortgages as shall be
requested by Landlord, or Mortgagee, if any, or any proposed mortgagees,
provided any such mortgagees shall agree to recognize the rights of Tenant
under this Lease in the event of foreclosure if Tenant is not in default.
3. Failure of Tenant to execute the instruments set forth in
Paragraph 1 and 2 above within ten (10) days upon written request so to do by
Landlord shall constitute a breach of this Lease and Landlord may, at its
option, cancel this Lease and terminate Tenant's interest therein. Further,
Tenant hereby irrevocably appoints Landlord the attorney-in-fact for Tenant
to execute and deliver any such instrument or instruments for and in the name
of Tenant.
4. In the event of (i) any proceedings brought for the foreclosure
of any mortgage or mortgages now or hereafter placed upon the Leased
Premises, or (ii) the exercise of the power of sale under any such mortgage
or mortgages, Tenant shall, at the option of the purchaser under such
proceedings or power of sale, attorn to such purchaser as Landlord under this
Lease.
XII. ALTERATIONS AND SIGNS
No alterations, additions or improvements shall be made to the
Leased Premises by Tenant nor shall any signs be erected or installed on the
Leased Premises by Tenant except with the written consent of Landlord first
had and obtained. In the event Landlord consents to any alterations,
additions or improvements or the installation of any signs by Tenant, then
the same must be made at Tenant's own cost and expense and in a good
workmanlike manner in
<PAGE>
accordance with the laws, ordinances and codes relating thereto and free from
any claim or claims for construction liens. Tenant shall indemnify Landlord
from any and all claims, costs and expenses on account of such work.
XIII. SURRENDER AND HOLDER OVER
1. On the last day of the Lease term or on the sooner termination
thereof, Tenant shall peaceably and quietly surrender the Leased Premises in
good order, condition and repair consistent with Tenant's duty to make
repairs as herein provided. All alterations, additions, improvements and
fixtures (other than Tenant's trade fixtures and unattached movable personal
property of Tenant which may be removed by Tenant at any time during the term
and prior to the termination of this Lease provided Tenant repairs any damage
caused thereby) which may be made or installed by either Landlord or Tenant
upon the Leased Premises, shall be the property of Landlord and shall remain
upon and be surrendered with the Leased Premises as a part thereof without
disturbance, molestation or injury at the termination of the term of this
Lease, whether by the lapse of time or otherwise, all without compensation or
credit to Tenant. On or before the termination of the Lease term, Tenant
shall remove all of Tenant's trade fixtures and unattached movable personal
property from the Leased Premises and any property not so removed shall be
deemed abandoned by Tenant. Any damage caused by the removal of such property
shall be repaired by Tenant at Tenant's sole cost and expense. If the Leased
Premises be not surrendered at the end of the term as set forth herein,
Tenant shall indemnify Landlord against all loss or liability resulting from
delay by Tenant in so surrendering the Leased Premises, including, without
limitation, any claim made by any succeeding tenant founded on such delay.
Tenant shall also surrender all keys to the Leased Premises and shall inform
Landlord of combinations on any locks, safes and vaults, if any, on the
Leased Premises.
2. In the event Tenant remains in possession of the Leased Premises
after the expiration of this Lease with the consent of Landlord and without
the execution of a new lease, it shall be deemed to be occupying said
premises as a tenant from month-to-month, subject to all of the conditions,
provisions and obligations of this Lease insofar s the same are applicable to
a month-to-month tenancy. For any period that Tenant shall remain in
possession of the Leased Premises without Landlord's consent, Tenant shall
pay a use and occupancy charge equal to two (2) times the base rent in effect
immediately prior thereto, computed on a daily basis, in addition to the
additional rent and other charges and assessments provided for hereunder for
real estate taxes and other items.
XIV. NOTICES
Whenever in this Lease it shall be required or permitted that notice
be given to either party hereto by the other, such notice shall be in writing
and be given by personal delivery or by United States certified mail, postage
prepaid return receipt requested, and addressed as follows:
To Landlord: JSK Properties, L.L.C.
c/o Thermo-Shield Company, Inc.
661 Glenn Avenue
Wheeling, IL 60090
<PAGE>
To Tenant: Thermo-Shield Company, Inc.
661 Glenn Avenue
Wheeling, IL 6009
Either party may, upon prior notice to the other, specify a
different address for the giving of notice.
XV. ADDITIONAL COVENANT OF TENANT
1. Tenant shall permit Landlord and its authorized representatives
to enter upon the Leased Premises at all reasonable times during usual
business hours for the purpose of exhibiting or inspecting the same. In case
of emergency (the existence of which shall be determined by Landlord), if
Tenant shall not be present to permit entry, Landlord or its representatives
may enter the same forcibly without rendering Landlord or its representatives
liable therefor or affecting Tenant's obligations under this Lease. During
the last six (6) months prior to the expiration of the term of this Lease or
any extension period, Tenant shall permit a "For Rent" or "For Sale" sign to
be placed on the Leased Premises.
2. Tenant shall not suffer or permit any liens under any
construction lien law or similar law to be filed or recorded against the
Leased Premises or against the interest of either Landlord or Tenant therein.
If any such lien at any time be filed or recorded, Tenant shall immediately
obtain the release of record of such lien.
XVI. DEFAULTS OF TENANT
1. If (a) Tenant shall fail to pay the rental or other charges due
hereunder within five (5) days after the same shall be due, or (b) Tenants
shall fail to perform any of the other terms, conditions or covenants of this
Lease to be performed or observed by Tenant for more than ten (10) days after
notice of such default has been given to Tenant, or (c) Tenant shall vacate
the Leased Premises or abandon the same by failing to use and occupy the same
for more than five (5) consecutive days, or (d) Tenant or any guarantor of
this Lease shall be adjudged bankrupt or insolvent or shall make an
assignment for the benefit of creditors, or (e) a receiver or trustee of
Tenant's property or that of any guarantor of the Lease shall be appointed
and such receiver or trustee, as the case may be, shall not be discharged
within thirty (30) days after such appointment, or (f) an execution or
attachment is levied against Tenant's property or that of any guarantor of
this Lease, then in any such case, Landlord may, upon notice to Tenant,
recover possession of and re-enter the Leased Premises without affecting
Tenant's liability for past rent and other charges due or future rent and
other charges to accrue hereunder. In the event of any such default, Landlord
shall be entitled to recover from Tenant, in addition to rent and other
charges equivalent to rent, all other damages sustained by Landlord on
account of the breach of this Lease, including, but not limited to, the
costs, expenses and attorney fees incurred by Landlord in enforcing the terms
and provisions hereof and in re-entering and recovering possession of the
Leased Premises and for the cost of repairs, alteration and brokerage and
attorney fees connected with the reletting of the Leased Premises. Further,
at the election of Landlord, Landlord shall have the right to declare this
Lease terminated and cancelled, without
<PAGE>
any further rights or obligations on the part of Landlord or Tenant (other
than Tenant's obligation for rent and other charges due and owing through the
date of termination), so that Landlord may relet the Leased Premises without
any right on the part of Tenant to any credit or payment resulting from any
such reletting. In case of a default under this Lease, Landlord may, in
addition to terminating this Lease, or in lieu thereof, pursue such other
remedy or combination of remedies and recover such other damages for breach
of tenancy and/or contract as are available at law or otherwise.
2. The rights and remedies of Landlord under this Lease shall be
cumulative and the exercise of any of them shall not be exclusive of any
other right or remedy provided by this Lease or allowed by law, and the
waiver by Landlord of any breach of any covenant of this Lease shall be
limited to the particular instance and shall not operate or be deemed to
waive any future breach of the same or any other covenant on the same or any
other occasion, nor operate as a waiver of Landlord's right to enforce the
payment of subsequent installments of rental or any of Landlord's rights
under this Lease by such remedies as may be appropriate.
3. No extension of time, forbearance, neglect or waiver on the party
of Landlord with respect to any one or more of the covenants, terms or
conditions of this lease, shall be construed as a waiver of any of the other
covenants, terms or conditions of this Lease, or as an estoppel against
Landlord, nor shall any extension of time, forbearance or waiver on the part
of Landlord in any one or more instances or particulars be construed to be a
waiver or estoppel with respect to any other instance or particular covered
by this Lease. After the service of a notice or the commencement of a suit or
after final judgment for possession of the premises, Landlord may receive and
collect any rent due and apply the same as and for use and occupancy, and the
payment and receipt thereof shall not waiver or affect any such notice, suit
or judgment.
4. Landlord shall have the right at any time, after five (5) days
notice to Tenant (or without notice in case of emergency or in case any fine,
penalty, interest or cost may otherwise be imposed or incurred) to make any
payment or perform any act required of Tenant under any provision of this
Lease, and in exercising such right, to incur necessary and incidental costs
and expense, including reasonable attorney fees. Nothing herein shall imply
any obligation on the part of Landlord to make any payment or perform any act
required of Tenant, and this exercise of the right to so do shall not
constitute a release of any obligation or a waiver of any default. All
payments made and all costs and expenses incurred in connection with any
exercise of such right shall be reimbursed to Landlord by Tenant within five
(5) days after such payment, together with interest at a rate equal to twelve
percent (12%) per annum from the respective dates of the making of such
payments or the incurring of such costs and expenses. In the event of
non-payment thereof, Landlord shall have the rights and remedies it would
have hereunder or by law in the case of non-payment or rent.
5. Tenant shall pay all costs, expense and reasonable attorney fees
that may be incurred or paid by Landlord in enforcing the covenants and
agreements of this Lease.
XVII. QUIET ENJOYMENT
If and so long as Tenant pays the rent reserved by this Lease and
performs and observes
<PAGE>
all of the covenants and provisions hereof, Tenant shall quietly enjoy the
Leased Premises without hindrance, disturbance or molestation from Landlord,
subject, however, to the terms of this Lease.
XVIII. MISCELLANEOUS
1. The consent or approval by Landlord to or of any act by Tenant
requiring Landlord's consent or approval shall not be deemed to render
unnecessary Landlord's consent or approval to or of any subsequent similar
act by Tenant. No breach of a covenant or condition of this Lease shall be
deemed to have been waived by Landlord, unless such waiver be in writing
signed by Landlord.
2. This Lease and the exhibits, if any, attached hereto and forming
a part hereof, set forth all the covenants, promises, agreements, conditions
and understandings between Landlord and Tenant concerning the Leased Premises
and there are no covenants, promises, agreements, conditions and
understandings between Landlord and Tenant concerning the Leased Premises and
there are no covenants, promises, agreements, conditions or understandings,
either oral or written, between them other than are herein set forth. No
alteration, amendment, change or addition to this Lease shall be binding upon
Landlord or Tenant unless reduced to writing and signed by each party.
3. Whenever herein the singular number is used, the same shall
include the plural, and the masculine gender shall include the feminine and
neuter genders.
4. The captions and article numbers appearing in this Lease are
inserted only as a matter of convenience and in no way define, limit,
construe or describe the scope or intent of such sections or articles of this
Lease nor in any way affect this Lease.
5. Any amount due from Tenant to Landlord hereunder which is not
paid when due shall bear interest at the rate of twelve percent (12%) per
annum from the date due until paid, unless otherwise specifically provided
herein, but the payment of such interest shall not excuse or cure any default
by Tenant under this Lease.
6. The covenant to pay rent is hereby declared to be an independent
covenant on the party of Tenant to be kept and performed, and no offset
thereto shall be permitted or allowed except as expressly set forth in this
Lease.
7. No payment by Tenant or receipt by Landlord of a lesser amount
than the monthly rent herein stipulated shall be deemed to be other than on
account of the earliest stipulated rent, nor shall any endorsement or
statement on and check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Landlord shall accept such
check or payment without prejudice to Landlord's right to recover the balance
of such rent or pursue any other remedy in this Lease provided.
8. The submission of this Lease for examination does not constitute
a reservation of or option for the Leased Premises, and this Lease shall
become effective as a Lese only upon
<PAGE>
execution and delivery thereof by Landlord and Tenant.
9. This Lease shall be governed by, and construed in accordance
with, the laws of the state of Wisconsin. IF any provision of this Lease or
the application thereof to any person or circumstances shall, to any extent,
be invalid or unenforceable, the remainder of this Lease shall not be
affected thereby and each provision of the Lease shall be valid and
enforceable to the fullest extent permitted by the law.
10. Tenant shall, in the event of the sale or assignment of
Landlord's interest in the Leased Premises or in the event of any proceedings
brought for the foreclosure thereof, or in the event of exercise of the power
of sale under any mortgage covering the Leased Premises, attorn to the
purchaser and recognize such purchaser as Landlord under this Lease.
11. In the event of any sale or other transfer of the Leased
Premises by Landlord, the named Landlord shall be entirely relieved of all
obligations hereunder from and after the date of the transfer; provided,
however, that the transferee shall assume the same.
12. If Landlord shall fail to perform any covenant, term or
condition of this Lease upon Landlord's part to be performed, and if as a
consequence of such default, Tenant shall recover a money judgment against
Landlord, such judgment shall be satisfied only out of the proceeds of sale
received upon execution of such judgment and levied thereon against the
right, title and interest of Landlord in the Leased Premised and out of rents
or other income from such property receivable by Landlord, or out of the
consideration received by Landlord from the sale or other disposition of all
or any part of Landlord's right, title and interest in the Leased Premises,
and Landlord herein shall not be liable for any deficiency.
13. In the event the Mortgagee or any proposed mortgagee requests
certain modifications or amendments to this Lease, then Tenant, on demand,
agrees to execute such modifications or amendments as required.
Notwithstanding the foregoing, Tenant shall not be required to execute any
modifications or amendments to this Lease which shall modify the provisions
of this Lease relating to the amount of rent reserved, the size and location
of the Leased Premises and the duration of the term of this Lease. Tenant
further agrees to furnish such financial information as may be required or
otherwise cooperate with the obtaining of said mortgage financing.
14. Nothing contained in this Lease shall be taken or construed to
create any agency between Landlord and Tenant or to authorize Tenant to do
any act or thing or to make any contract so as to encumber in any manner the
title to the Leased Premises or to create any claim or lien upon the interest
of Landlord in the Leased Premises.
15. The officers of Tenant who are executing and attesting to this
Lease hereby represent and warrant that they have full power, authority and
right to execute this Lease, and Tenant represents and warrants that the
execution and delivery of this Lease has been duly authorized by the board of
directors of Tenant, and the execution of this Lease by such officers is
sufficient and legally binding on Tenant without the joinder or approval of
any other party.
<PAGE>
16. Except as expressly otherwise provided, all of the terms,
covenants and conditions hereof shall be binding upon and inure to the
benefit of the heirs, personal representatives, successors in interest and
assigns of the parties hereto.
SIGNED AND SEALED as of the date first written above.
LANDLORD: TENANT:
JSK PROPERTIES, L.L.C. THERMO-SHIELD COMPANY, INC.
By: /s/ JOEL S. KRON By: /s/ JOEL S. KRON
---------------------------- -------------------------
Joel S. Kron, Member Joel S. Kron, President
<PAGE>
July 30, 1999
Securities and Exchange Commission
Washington, DC 20549
We were previously the independent accountants for ThermoView Industries,
Inc., and on July 8, 1998, August 10, 1998, July 8, 1998, July 23, 1998, and
December 30, 1998, we reported on the financial statements of ThermoView
Industries, Inc. (formerly Thermo-Tilt Window Company), American Home
Developers Co., Inc., Primax Window Company, Inc., The Rolox Companies, Inc.,
and Five Star Builders, Inc., respectively, as of and for the two years ended
December 31, 1997. On February 5, 1999, we reported on the financial
statements of American Home Remodeling as of December 31, 1997 and for the
year then ended. In November 1998, we were dismissed as independent
accountants of ThermoView Industries, Inc.
We have read ThermoView Industries, Inc.'s statement regarding that there
were no disagreements between Singer Lewak Greenbaum & Goldstein LLP and
ThermoView Industries, Inc. on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
and that there were no reportable events relating to the relationship between
Singer Lewak Greenbaum & Goldstein LLP and ThermoView Industries, Inc., and
we agree with such statement included on Page 76 in its Registration
Statement dated July 30, 1999.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
<PAGE>
THERMOVIEW INDUSTRIES, INC.
----------------
SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OF PERCENTAGE OF
LEGAL NAME OF SUBSIDIARY INCORPORATION ASSUMED NAMES OWNERSHIP
- ------------------------------------------------- ------------------ -------------------------------------------- --------------
<S> <C> <C> <C>
American Home Builders Co. California None 100%
Five Star Builders, Inc. California American Home Remodeling 100%
Pacific Exteriors
Leingang Siding and Window, Inc. North Dakota None 100%
Precision Window Mfg., Inc. Missouri None 100%
Primax Window Co. Kentucky None 100%
Rolox, Inc. Kansas None 100%
TD Windows, Inc. Kentucky ThermoView Manufacturing 100%
Thermal Line Windows, Inc. North Dakota North Country Thermal Line 100%
North Country Glass
Thermo-Shield of America (Arizona), Inc. Arizona None 100%
Thermo-Shield of America (Michigan), Inc. Michigan None 100%
Thermo-Shield Company, LLC Illinois None 100%
Thermo-Shield of America (Wisconsin), LLC Wisconsin None 100%
ThermoView of Missouri, Inc. Missouri None 100%
Thermo-Tilt Window Company Delaware None 100%
Thomas Construction, Inc. Missouri Castle Associates, Inc. and 100%
Showplace Home Improvements, Inc.
Key Home Credit, Inc. Delaware None 100%
Key Home Mortgage, Inc. Delaware None 100%
Thermo-Rose Manufacturing Co., Inc. Illinois None 50%
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated July 8, 1999 with respect to the consolidated financial
statements of ThermoView Industries, Inc.; our report dated January 15, 1999
with respect to the financial statements of NuView Industries, Inc.; our report
dated March 5, 1999 with respect to the combined financial statements of Thomas
Construction; our report dated May 21, 1999 with respect to the financial
statements of Precision Window Mfg., Inc.; and our report dated May 21, 1999
with respect to the combined financial statements of The Thermo-Shield
Companies, included in the Registration Statement (Form S-1 No. 333-_______) and
related Prospectus of ThermoView Industries, Inc. for the registration of
shares of its common stock.
/s/ Ernst & Young LLP
Louisville, Kentucky
July 30, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated July 8, 1998, August 10, 1998, July 8, 1998,
July 23, 1998, February 5, 1999, and December 30, 1998 on the financial
statements of Thermoview Industries, Inc. (formerly Thermo-Tilt Window
Company), American Home Developers Co., Inc., Primax Window Company, Inc.,
The Rolox Companies, American Home Remodeling, and Five Star Builders, Inc.,
respectively, which are contained in this Registration Statement and
Prospectus. We consent to the use of the aforementioned reports in this
Registration Statement (Form S-1 No. 333-____________) and related Prospectus
of Thermoview Industries, Inc. and to the use of our name as it appears under
the caption "Experts."
/s/ Singer Lewak Greenbaum & Goldstein, LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN, LLP
Los Angeles, California
July 30, 1999
<PAGE>
CONSENT OF INDEPENDENT AUDITOR
I consent to the reference to my firm under the caption "Experts" and to the use
of my report dated January 15, 1999 with respect to the financial statements of
Leingang Siding and Window, Inc. and my report dated January 11, 1999 with
respect to the financial statements of Thermal Line Windows, L.L.P. included in
the Registration Statement (Form S-1) and related Prospectus of ThermoView
Industries, Inc. for the registration of shares of its common stock.
/s/ Rodney W. Melby
Bismarck, North Dakota
July 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES F-15 AND F-16 FOR THE YEAR 1998 AND F-37 AND F-38 FOR THE 3 MONTH PERIOD
ENDED MARCH 31, 1999 OF THE COMPANY'S FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 1,302,797 2,417,885
<SECURITIES> 0 0
<RECEIVABLES> 3,206,462 2,859,432
<ALLOWANCES> 237,000 0
<INVENTORY> 1,313,318 2,317,524
<CURRENT-ASSETS> 8,393,126 11,368,079
<PP&E> 2,996,775 3,868,516
<DEPRECIATION> 315,880 0
<TOTAL-ASSETS> 50,193,746 77,986,169
<CURRENT-LIABILITIES> 7,142,150 10,027,680
<BONDS> 7,110,069 21,395,518
0 0
2,980 3,380
<COMMON> 13,471 14,439
<OTHER-SE> 34,381,531 39,904,357
<TOTAL-LIABILITY-AND-EQUITY> 50,193,746 77,986,169
<SALES> 0 0
<TOTAL-REVENUES> 37,376,355 21,749,817
<CGS> 0 0
<TOTAL-COSTS> 16,747,734 9,764,255
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 439,131 411,623
<INCOME-PRETAX> (6,337,486) (706,033)
<INCOME-TAX> (1,135,000) (95,000)
<INCOME-CONTINUING> (5,202,486) (611,033)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,202,486) (611,033)
<EPS-BASIC> (1.29) (.07)
<EPS-DILUTED> (1.29) (.07)
</TABLE>
