SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997 Commission File No. 1-6663
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COLONIAL COMMERCIAL CORP.
-------------------------
(Exact Name of Registrant as Specified in its Charter)
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New York 11-2037182
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(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
3601 Hempstead Turnpike, Levittown, New York 11756-1315
- -------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 516-796-8400
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Class Name of Exchange on Which Registered
- -------------- ------------------------------------
None None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.05 Per Share
Convertible Preferred Stock, Par Value $.05 Per Share
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(Title of Class)
Indicate by check mark if disclosure of delinquent filers, pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
Registrant's best knowledge, in definitive proxy information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. (x)
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that Registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No
---
Revenues for the fiscal year ended December 31, 1997 were $22,642,783.
The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $5,878,627 as of March 16, 1998.
Indicate the number of shares outstanding of Registrant's Common Stock and
Convertible Preferred Stock as of March 13, 1998
Common Stock, par value $.05 per share - 1,433,593 shares.
Convertible Preferred Stock par value $.05 per share - 1,660,454 shares.
Documents Incorporated by Reference
Document Part
Registrant's 1998 Proxy Statement for Annual Meeting
of Shareholders on June 10, 1998 III
Registrant's 1997 Annual Report to Shareholders I, II
<PAGE>
PART I.
Item 1(a) Business Developments
- --------------------------------
Colonial Commercial Corp. (the "Company" or "Registrant") is a New York
corporation which was incorporated on October 28, 1964. Unless otherwise
indicated, the term "Registrant" or "Company" refers to Colonial Commercial
Corp. and its consolidated subsidiaries.
On May 19, 1995, Registrant purchased the capital stock of Atlantic
Hardware and Supply Corporation ("Atlantic"), a distributor of door hardware,
doors and door frames, for approximately $3.8 million in cash.
In June 1997, Registrant sold 50,000 shares of its Monroc, Inc. ("Monroc")
stock and received $456,233 of net proceeds reducing its ownership to 7.2%. On
January 29,1998, Monroc announced it had signed a definitive merger agreement
with privately held U.S. Aggregates, Inc., under which U.S. Aggregates, Inc.
will acquire, for cash, all of the outstanding shares of Monroc common stock for
$10.77 per share. While the Board of Directors of the acquirer and Monroc have
approved the transaction, closing is contingent upon, among other things,
approval of Monroc's stockholders, certain regulatory approvals, and other
customary conditions. Closing is expected during the second quarter of 1998. A
private investment fund, which owns approximately 37% of the outstanding shares
of Monroc's stock, has agreed to vote in favor of the transaction. The
Registrant intends to vote in favor of the transaction and if the closing takes
place, Registrant expects its proceeds from the sale of its stock in Monroc to
be approximately $3,500,000.
On January 13, 1998, shareholders approved a five-to-one reverse split,
which the Registrant made effective January 30, 1998. The reverse split had the
effect of reducing the number of authorized shares of Common Stock, par value
$.01 from 40,000,000 shares to 8,000,000 shares, par value $.05 and the number
of authorized shares of Convertible Preferred Stock, par value $.01, from
12,344,300 shares to 2,468,860 shares, par value $.05 and reducing the common
shares outstanding from 7,159,228 to 1,431,776 and reducing the convertible
preferred shares from 8,326,957 to 1,662,271. In addition, shareholders also
approved a proposal to amend the Registrant's Certificate of Incorporation
immediately following the amendment effecting the reverse split to increase the
amount of authorized Common Stock to 20,000,000 with a par value of $.05 per
share.
Item 1(b) Business Description
- -------------------------------
Since the May 19, 1995 acquisition of Atlantic, the Registrant's principal
business activity is the distribution of builders' hardware, which is described
in more detail below. The Registrant continues to seek acquisitions of going
concerns.
Atlantic - Builders' Hardware
- -----------------------------
Atlantic's primary business is the distribution of door hardware, doors and
door frames used in new building construction, buildings being rehabilitated,
interior tenant buildouts, and building maintenance. Products sold by Atlantic
include all types of mechanical and electronic hardware, such as locks, door
knobs, door closers, hinges and other door-related hardware. Atlantic services
the contract hardware market, usually as a material supplier only, on a wide
range of commercial, residential, and institutional construction projects, such
as office buildings, hospitals, schools, hotels and high-rise apartment
buildings.
<PAGE>
Atlantic had approximately 500 customers in 1997. No customer accounted for
more than 10% of sales in 1997. Atlantic believes that the loss of any one
customer would not have a material adverse effect on its business.
As of December 31, 1997, Atlantic had $8,871,000 in firm backlog of orders.
Atlantic expects that approximately 95% of the backlog of orders as of December
31, 1997 will be filled within the current fiscal year. Atlantic's business is
not subject to significant seasonal variations.
Atlantic purchases products from approximately 500 suppliers. In 1997, no
supplier accounted for more than 10% of Atlantic's purchases. Atlantic believes
that the loss of any one supplier would not have a material adverse effect upon
its business.
Atlantic competes primarily with other hardware distributors who are
selected by the architects, owners, and/or construction managers, on a job to
job basis. Atlantic has its estimators evaluate plans received from a
contractor, and prepare and submit a price for the project, which is awarded
through bid or negotiation. If Atlantic is awarded the job, it supplies the
required hardware by placing orders with manufacturers or from goods on hand, or
both.
Atlantic's competition varies widely from region to region, primarily
because builders' hardware distributors are generally local single market firms.
Within each geographical market, contractors generally limit their hardware
suppliers to a few local firms. Also, in certain markets, Atlantic competes with
firms that supply the complete door package (i.e., door, frame and hardware).
Atlantic has been one of the largest "hardware only" suppliers; however,
Atlantic is changing its marketing focus from a "hardware only" supplier to a
complete door package supplier.
Management and Employees
- ------------------------
As of December 31, 1997, the Registrant had 64 employees, of whom 2 were
executive officers at its corporate offices in Levittown, New York. Sixty (60)
of the employees are employed by Atlantic. The Company believes its employee
relations are satisfactory.
Item 2. Properties
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Registrant's principal executive offices are located at 3601 Hempstead
Turnpike, Levittown, New York 11756-1315, in leased premises (approximately
1,306 square feet).
Atlantic maintains office and warehouse space of approximately 28,000
square feet at 601 West 26th Street, New York, New York under a lease expiring
in April 2000. Atlantic also maintains leased sales offices in Bensenville,
Illinois; Norcross, Georgia and Bensalem, Pennsylvania. Atlantic merged its
Farmingdale, New York office into its New York office in January 1997.
The Registrant's premises are suitable and adequate for their intended use
and are adequately covered by insurance.
Although it is not the customary policy of the Registrant to invest in real
estate, the Company owns a 50% interest in a parcel of raw land in Salt Lake
County, Utah with a cost basis of $174,266 at December 31, 1997. The Company's
interest in the parcel, and four other parcels which have been sold, were
received as a distribution from a restructuring of Monroc in 1986. The
Registrant, together with its 50% partner, have entered into an agreement with a
private company to sell the property, subject to certain conditions being
satisfied. If the transaction closes, the Company anticipates its net cash
proceeds to be approximately $1,000,000.
<PAGE>
Item 3. Legal Proceedings
- --------------------------
Since January 1996, the Company has been involved in litigation with
Breskel Associates, Wilbur Breslin and the Estate of Robert Frankel in the
Supreme Court of the State of New York, County of Nassau in order to collect on
its $1,000,000 note receivable which was due December 31, 1995. On April 28,
1997, summary judgment was granted in favor of the Company. On December 8, 1997,
the judgment, including interest and costs, in the amount of $1,207,139, was
paid to the Company consisting of $575,000 in cash and a note for $632,139, with
interest at the rate of 9% per annum, payable in eight semi-annual installments
of $79,017, secured by a real estate mortgage and other collateral. There is no
pending litigation against the Company or Bernard Korn relating to this matter.
Item 4. Submission of Matters to a Vote of Security Holders
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Not Applicable
Item 5. Market for the Registrant's Common Stock, Convertible Preferred
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Stock and Related Stockholder Matters
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The information required to be provided is incorporated by reference from
page 3 of the Registrant's 1997 Annual Report to Stockholders.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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The information required to be provided is incorporated by reference from
pages 4 and 5 of the Registrant's 1997 Annual Report to Stockholders under the
caption, "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
Item 7. Financial Statements and Supplementary Data
- ----------------------------------------------------
The consolidated financial statements of the Registrant and the Independent
Auditors' Report thereon of KPMG Peat Marwick LLP, independent certified public
accountants, as of December 31, 1996 and 1997 and for each of the years in the
three year period ended December 31, 1997, are incorporated herein by reference
from pages 6 through 20 of the Registrant's 1997 Annual Report to Stockholders.
Item 8. Disagreements on Accounting and Financial Disclosures
- --------------------------------------------------------------
None
PART III
Item 9. Directors and Executive Officers of the Registrant
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The information required to be provided is incorporated by reference to
Registrant's 1998 definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A no later than 120 days after the close of its fiscal
year.
Additional Item - Executive Officers of the Registrant
- ------------------------------------------------------
The names, ages and positions of the Registrant's executive officers are
listed below, along with a brief account of their business experience during the
last five years. Officers are appointed annually by the Board of Directors at
its first meeting following the Annual Meeting of Stockholders and from time to
time at the pleasure of the Board. There are no family relationships among these
officers, nor any arrangement or understanding between any such officers and any
other person pursuant to which any of such officers were selected as executive
officers.
<PAGE>
Name, Age Business Experience
and Position During Past Five Years
------------ ----------------------
Bernard Korn, 72 From prior to January 1992 to present,
Chairman of the Board, Chairman of the Board and President,
President, Chief Executive Chief Executive Officer of the Company
James W. Stewart, 51 From prior to January 1992, Executive
Executive Vice President, Vice President and Treasurer of the
Secretary, Treasurer Company. From December 31, 1993,
and Director to the present, Secretary of the
Company.
The information required to be provided is incorporated by reference to
Registrant's 1998 definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A no later than 120 days after the close of its fiscal
year.
Item 10. Executive Compensation.
- ---------------------------------
Item 11. Security Ownership of Certain Beneficial Owners and
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Management.
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Item 12. Certain Relationships and Related Transactions
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The information required to be provided under Part III, Items 10, 11 and 12
is incorporated by reference to the Registrant's 1997 definitive proxy statement
to be filed with the Commission pursuant to Regulation 14A no later than 120
days after the close of its fiscal year.
Item 13. Exhibits and Report on Form 8-K
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Exhibits
- --------
The exhibits listed on the Index to Exhibits following the Signature
Page herein are filed as part of this Form 10-KSB.
Reports on Form 8-K
- -------------------
Registrant filed no reports on Form 8-K during the fourth quarter of
1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
COLONIAL COMMERCIAL CORP.
(Registrant)
By: /s/ Bernard Korn
Bernard Korn, Pres.
By: /s/ James W. Stewart
James W. Stewart
Treasurer, Chief Financial
and Accounting Officer
Dated: March 17, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been duly signed below on March 17, 1998 by the following persons on behalf
of the Registrant and in the capacities indicated:
By: /s/ Bernard Korn
Bernard Korn, President & Director
By: /s/ James W. Stewart
James W. Stewart, Executive Vice
President, Treasurer and
Secretary/Director
By: /s/ Gerald S. Deutsch
Gerald S. Deutsch, Director
By: /s/ William Koon
William Koon, Director
By: /s/ Donald K. MacNeill
Donald K. MacNeill, Director
By: /s/ Ronald Miller
Ronald Miller, Director
By: /s/ Jack Rose
Jack Rose, Director
By: /s/ Paul Selden
Paul Selden, Director
By: /s/ Carl L. Sussman
Carl L. Sussman, Director
<PAGE>
INDEX TO EXHIBITS
Item 1
Incorporated by
Filed Reference From
Exhibits Herewith Form Date Exhibit
- -------- -------- ---- ---- -------
3(a) Certificate of Incor-
poration of Registrant 8-K 1/5/83 1
(i) Certificates of Amend-
ment of the Certificate
of Incorporation Re:
Authorized Common and
Convertible Preferred
Shares
Yes
(b) By-Laws of Registrant 8-K 1/5/83 1
4 Indenture dated as of
January 17, 1983 between
Registrant and IBJ Schroder
Bank and Trust Co., relating
to 6% Notes 10-K 4/12/83 4(a)
10(a) Employment Agreement dated
as of January 1, 1998 between
Registrant and Bernard Korn Yes
(b) Employment Agreement dated
as of January 1, 1998 between
Registrant and James W. Stewart Yes
(c) Certain Monroc, Inc. documents
(i) Promissory Note from
Monroc, Inc. (formerly
Monroc Acquisition, Inc.)
to Wel-Com Financial
Services, Inc. 10-K 3/30/88 10(b)(v)
(ii) Subordination Agreement
dated July 27, 1993 with
reference to Promissory
Note filed as Exhibit
10(c) (i) 10KSB 3/30/95 10(c)(ii)
(iii) Voting Agreement dated
December 28, 1995 between
Registrant and Building
and Construction Partners, L.P.
(d) 1986 Stock Option Plan 10-K 3/30/88 10(c)(ii)
(e) 1996 Stock Option Plan S-8 10/2/97 28 B
(f) Promissory Note dated
December 8, 1997 for
$632,139.37 Wilbur F. Breslin
to Registrant Yes
<PAGE>
INDEX TO EXHIBITS
Item 1
Incorporated by
Filed Reference From
Exhibits Herewith Form Date Exhibit
- -------- -------- ---- ---- -------
(g) Certain documents relating to
Atlantic Hardware and Supply
Corporation
(i) Stock Purchase Agreement
dated May 19, 1995 by and
among Thackeray Corporation,
Brennand-Paige Industries,
Inc. and Colonial
Commercial Corp. 8-K 6/5/95 10(g)(i)
(ii) Revolving Credit Agreement
between Atlantic Hardware
and Supply Corporation and
Sterling National Bank &
Trust Company of New York 8-K 6/5/95 10(g)(ii)
(iii) Guarantee of all liabilities and
security agreement of Atlantic
Hardware and Supply Corporation
by Colonial Commercial Corp. to
Sterling National Bank and Trust
of New York 8-K 6/5/95 10(g)(iii)
(iv) Secured interest bearing note
between Colonial Commercial Corp.
and National Westminster Bank 8-K 6/5/95 10(g)(iv)
(v) Employment Agreement dated
January 1, 1998 between Atlantic
Hardware and Supply Corporation
and Paul Selden Yes
(h) Lease dated February 27,1992 by and
between Registrant and 3601
Turnpike Associates 10-KSB 3/29/93 10(h)(iii)
(i) Renewal letter dated May 6,1996 10-KSB 3/25/96 10(g)(i)
11 Statement re computation of
per share earnings (loss)
(not filed since computations
are readily apparent from the
consolidated financial statements)
13 Annual Report of the Registrant
for the fiscal year ended
December 31, 1997. Such
report except for those portions
which are expressly incorporated by
reference herein, is furnished for
the information of the Commission and
is not to be deemed "filed" as
part of this filing. Financial statement
schedules that are not applicable are
omitted or included in the consolidated
financial statement footnotes. Yes
21 Subsidiaries of Registrant Yes
23 Consent of Independent Accountants Yes
27 (a) Financial Data Schedule Yes
December 31, 1997
27 (b) Restated Financial Data Schedule
December 31, 1996 and 1995 Yes
EXHIBIT 3(a)(i)
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF
COLONIAL COMMERCIAL CORP.
Under Section 805 of the Business Corporation law
********
WE, THE UNDERSIGNED, being the President and an Assistant Secretary of
Colonial Commercial hereby certify:
1. The name of the corporation is Colonial Commercial Corp.
2. The certificate of incorporation of said corporation was filed by
the Department of State on the 28th day of October, 1964.
3. a. The certificate of incorporation is amended to decrease the
number of shares authorized to be issued by the corporation to 10,468,860
shares.
b. To effect the foregoing, Article FOURTH (a) relating to the
authorized shares of the corporation is amended to read as follows:
FOURTH: (a) The aggregate number of shares which the
Corporation shall have the authority to issue is ten million four hundred sixty
eight thousand, eight hundred sixty divided into the following classes:
Number
of Par Value
Shares Class Per Share
------ ----- ---------
8,000,000 Common Stock $.05
2,468,860 Convertible Preferred Stock $.05
4. The amendment was authorized by the vote of a majority of all the
outstanding shares entitled to vote at a meeting of the shareholders held on
January 13, 1998.
IN WITNESS WHEREOF, said Colonial Commercial Corp., has caused this
certificate to be signed by its President, and its Secretary, this 13th day of
January, 1998.
Colonial Commercial Corp.
BY: __________________________
, President
ATTEST: _____________________
, Secretary
EXHIBIT 3(a)(i)
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF
COLONIAL COMMERCIAL CORP.
-------------------------
Under Section 805 of the Business Corporation law
********
WE, THE UNDERSIGNED, being the President and an Assistant Secretary of
Colonial Commercial hereby certify:
1. The name of the corporation is Colonial Commercial Corp.
2. The certificate of incorporation of said corporation was filed by
the Department of State on the 28th day of October, 1964.
3. a. The certificate of incorporation is amended to increase the
number of shares authorized to be issued by the corporation to 22,468,860
shares.
b. To effect the foregoing, Article FOURTH (a) relating to the
authorized shares of the corporation is amended to read as follows:
FOURTH: (a) The aggregate number of shares which the
Corporation shall have the authority to issue is twenty two million four hundred
sixty eight thousand, eight hundred sixty divided into the following classes:
Number
of Par Value
Shares Class Per Share
------ ----- ---------
20,000,000 Common Stock $.05
2,468,860 Convertible Preferred Stock $.05
4. The amendment was authorized by the vote of a majority of all the
outstanding shares entitled to vote at a meeting of the shareholders held on
January 13, 1998.
IN WITNESS WHEREOF, said Colonial Commercial Corp., has caused this
certificate to be signed by its President, and its Secretary, this 13th day of
January, 1998.
Colonial Commercial Corp.
BY: __________________________
, President
ATTEST: _____________________
, Secretary
EXHIBIT 10(a)
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EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, dated as of January 1, 1998 by and between Colonial
Commercial Corp., a New York corporation with its principal office at 3601
Hempstead Turnpike, Ste 121-I, Levittown, New York 11756-1315 (the "Company")
and Bernard Korn, residing at 3466 Woodward Street, Oceanside, New York 11572
(the "Employee").
ARTICLE I
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EMPLOYMENT; TERM; DUTIES
------------------------
1.01. Employment. Upon the terms and conditions hereinafter set forth,
the Company hereby employs the Employee, and the Employee hereby accepts
employment, as Chairman of the Board/President of the Company.
1.02. Term. The Employee's employment hereunder shall be for a term
(the "Term") commencing as of this date (the "Commencement date") and
terminating at the close of business on the fourth anniversary of the
Commencement Date. A "Contract Year" shall commence on January 1 and terminate
on December 31.
1.03. Duties. During the Term, the Employee shall perform such duties,
consistent with his position hereunder, as may be assigned to him from time to
time by the Board of Directors. The Employee shall devote his best efforts and
his entire time, attention and energies, during regular working hours, to the
performance of his duties hereunder and to the furtherance of the business and
interests of the Company, its subsidiary and affiliate companies.
ARTICLE II
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COMPENSATION
------------
2.01. Compensation. For all services rendered by the Employee hereunder
and all covenants and conditions undertaken by him pursuant to this Agreement,
the Company shall pay, and the Employee shall accept (i) a salary at the rate of
$250,000 per annum from the date of this Agreement until December 31, 2001.
Compensation shall be payable not less frequently than in bi-weekly
installments. The Company may (but shall not be obligated to), at any time and
from time to time, grant to the Employee an increase or increases in the
compensation otherwise payable pursuant to this Section 2.01, but such increase
or increases, if any, shall not be deemed to alter, modify, waive or otherwise
affect any other term, covenant or condition of this Agreement.
2.02. Deductions. The Company shall deduct from the compensation
described in Section 2.01 any federal, state or local withholding taxes, social
security contributions and any other amounts which may be required to be
deducted or withheld by the Company pursuant to any federal, state or city laws,
rules or regulations.
2.03. Disability Adjustments. Any compensation otherwise payable to the
Employee pursuant to Section 2.01 during any Disability Period (as that term is
hereinafter defined) shall be reduced by any amounts payable to the Employee for
loss of earnings or the like under any insurance plan or policy the premiums for
which are paid for in their entirety by the Company.
ARTICLE III
-----------
BENEFITS; EXPENSES
------------------
<PAGE>
3.01. Fringe Benefits. During the Term, the Employee shall be entitled
to participate, in amounts commensurate with the Employee's position hereunder,
in (a) such group life, health, accident, disability or hospitalization
insurance plans as the Company may make available to its other executive
employees, and (b) any incentive compensation, bonus, pension or similar plan of
the Company presently in effect or hereafter adopted for the benefit of its
executive employees as a group.
3.02. Automobile. During the Term, the Company shall furnish the
Employee with an automobile (including the replacement thereof), of such make,
model and year as the Employee shall determine, for use by the Employee in
connection with the performance of his duties hereunder. Upon presentation of an
itemized account thereof, with such substantiation as the Company shall require,
the Company shall pay or reimburse the Employee for the reasonable and necessary
expenses of the maintenance and operation of such automobile in connection with
the performance of his duties hereunder.
3.03. Services. During the Term, the Company shall furnish the Employee
with a private office, secretarial and such other services and facilities
sufficient to enable the Employee to perform his duties, and suitable to the
Employee's position hereunder.
3.04. Expenses. Upon presentation of an itemized account thereof, with
such substantiation as the Company shall require, the Company shall pay or
reimburse the Employee for the reasonable and necessary expenses directly and
properly incurred by the Employee in connection with the performance of his
duties hereunder.
3.05. Vacations. During the Term, the Employee shall be entitled to
paid holidays and paid vacations, in accordance with the policy of the Company
as determined by the Board of Directors; provided, however, that the Employee
shall be entitled to not less than four weeks paid vacation during each year of
the Term, to be taken at times determined by the Employee.
3.06. Location. Notwithstanding anything which may be contained herein
to the contrary, the Employee's office shall be located in Nassau or Suffolk
Counties, New York, or Palm Beach County, Florida and the performance of this
duties hereunder shall not require his presence outside of such counties, if the
Employee shall object thereto.
ARTICLE IV
----------
TERMINATION
-----------
4.01. Termination. The employment of the Employee, and the obligations
of the Employee and the Company hereunder, shall cease and terminate (except as
otherwise specifically provided in this Agreement) upon the first to occur on
the following dates (the "Termination Date") described in this Section 4.01:
(a) The date of expiration by its terms of the Term;
(b) The date of death of the Employee; provided, however,
notwithstanding the foregoing:
(i) the lump sum of Five Thousand ($5,000)
Dollars shall be paid to the Employee's
widow as tax-free death benefit (as
provided by the Internal Revenue Code);
and
(ii) the Employee's compensation, as
determined in accordance with Section
2.01, shall be paid for a period of one
(1) year irrespective of whether such
one-year period exceeds the expiration
date of the Term) to the Employee's
widow.
ARTICLE V
---------
<PAGE>
5.01. Disability. In the event that the Employee shall have been
unable, by reason of illness or incapacity, to perform the duties required of
him pursuant to this Agreement, for a period of twelve (12) consecutive months
(the "Disability Period"), the Company may give notice (the "Disability Notice")
to the Employee of the discontinuance of his services as Executive Vice
President of the Company provided, however, notwithstanding the foregoing, this
Agreement shall continue in full force and effect except as follows:
(a) Section 1.03 shall become inoperative on the date
on which the Disability Notice is given. In lieu
of his duties as Chairman of the Board/President,
the duties of the Employee shall be, to the
extent permitted by his illness or incapacity, to
advise and counsel the officers and directors of
the Company with respect to the affairs and
business of the Company; and
(b) The Company shall continue to pay and the
Employee shall accept, compensation in an amount
determined in accordance with Section 2.01 for
the Contract Year in which the Disability Notice
shall have been given such compensation to be
paid to the Employee for the remainder of such
Contract Years and for each of the succeeding
Contract Years of the Term, irrespective of the
amount or nature of the services rendered by the
Employee pursuant to Section 5.01 (a).
(c) Notwithstanding anything herein contained to
the contrary, in the event that, prior to the
delivery of the notice specified in this Section
5.01, the Employee shall resume the full-time
performance of his duties hereunder for a period
of not less than ten (10) consecutive working
days, the Company may not give the Employee the
Disability Notice.
ARTICLE VI
----------
RESTRICTIVE COVENANTS
---------------------
6.01. Non-Disclosure. Subject to the Company fully performing all of
the terms and obligations required of it under this Agreement, including,
without limitation, the payment of compensation, the Employee shall not disclose
or furnish to any other person, firm or corporation (the "Entity") during his
employment and for three years thereafter, except in the course of the
performance of his duties hereunder, the following:
(a) any information relating to any process,
technique or procedure used by the Company,
including, without limitation, computer programs
and methods of evaluation and pricing and
marketing techniques; or
(b) any information relating to the operations or
financial status of the Company, including,
without limitation, all financial data and
sources of financing, which is not specifically a
matter of public record; or
(c) any information of a confidential nature obtained
as a result of his prior, present or future
relationship with the Company, which is not
specifically a matter of public record; or
(d) any trade secrets of the Company; or
(e) the name, address or other information relating
to any customer or debtor of the Company.
6.02. Non-Competition. Subject to the Company fully performing all of
the terms and obligations required of it under this Agreement, including,
without limitation, the payment of compensation, the Employee shall not, from
the date hereof and until one year after the termination of his employment with
the Company (the "Restriction Period"):
<PAGE>
(a) in any manner, directly or indirectly, be
interested in, employed by, engaged in or
participate in the ownership, management,
operation or control of or act in any advisory or
other capacity for any Entity which, directly or
indirectly, competes with the Company throughout
the Territory (as that term is hereinafter
defined); provided, however, that Employee may
invest in any Entity which may be deemed to be in
competition with the Company hereunder, the
Common Stock of which Entity is "publicly held",
provided that the Employee shall not own or
control securities which constitute more than one
(1) percent of the voting rights or equity
ownership of such Entity, or five (5) percent of
the outstanding principal balance of any class of
debt securities of such Entity. The Employee or
any Entity shall be deemed to compete with the
Company if at any time during the Restriction
Period the Employee or such Entity engages in
consumer financial services.
(b) in any manner, directly or indirectly, attempt to
seek to cause any Entity to refrain from dealing
or doing business with the Company or assist any
Entity in doing so or attempting to do so.
6.03 Definitions. As used in this Article VI: (a) the term "Company"
shall include any parent, subsidiary or affiliate of, or successor to, the
Company and (b) the term "Territory" shall mean any state (including the
District of Columbia), territory or possession of the United States within which
the Company presently or hereafter does business.
6.04. Breach of Provisions. In the event that the Employee shall breach
any of the provisions of this Article VI, or in the event that any such breach
is threatened by the Employee, in addition to and without limiting or waiving
any other remedies available to the Company at law or in equity, the Company
shall be entitled to immediate injunctive relief in any court, domestic or
foreign, having the capacity to grant such relief, to restrain any such breach
or threatened breach and to enforce the provisions of this Article VI. The
Employee agrees and acknowledges that there is no adequate remedy at law for any
such breach or threatened breach and, in the event that any action or proceeding
is brought seeking injunctive relief, the Employee shall not use a defense
thereto that there is an adequate remedy at law.
6.05. Reasonable Restrictions. The parties acknowledge that the
foregoing restrictions, the duration and territorial scope thereof as set forth
in this Article VI, are under all of the circumstances reasonable and necessary
for the protection of the Company and its business.
ARTICLE VII
-----------
CERTAIN REMEDIES
----------------
7.01. Lump Sum Payment. From and after any breach by the Company of its
obligations under this Agreement which is not cured within 10 days after the
Employee gives notice thereof to the Company, the Employee shall be entitled at
any time by notice to the Company to terminate his obligations to the Company
hereunder and forthwith to receive from the Company in a lump sum, and without
present value discount, the entire aggregate amount which would have been
payable by the Company to Employee under Section 2.01 had Employee been employed
hereunder for the entire Term. Interest shall accrue on such lump sum obligation
at the annual rate of 10% per annum, and shall be payable on demand.
7.02. Litigation Costs. Should Employee prevail in any litigation
relating to his employment or this Agreement, the Company shall forthwith
reimburse Employee for all of his legal fees and costs. Should Employee prevail
only in part in any such litigation, the Company shall forthwith reimburse him
for a pro rata portion of his legal fees and costs.
ARTICLE VIII
------------
MISCELLANEOUS
-------------
<PAGE>
8.01. Assignment. This Agreement shall not be assigned by either party,
except that the Company shall have the right to assign its rights hereunder to
any parent, subsidiary and affiliate of, or successor to, the Company.
8.02. Binding Effect. This Agreement shall extend to and be binding
upon the Employee, his legal representatives, heirs and distributees, and upon
the Company, its successors and assigns.
8.03. Notices. Any notice required or permitted to be given under this
Agreement to either party shall be sufficient if in writing and if sent by
registered or certified mail, return receipt requested, to the address of such
party hereinabove set forth, or to such other address as such party may
hereafter designate by a notice given to the other party in the manner provided
in this Section 8.03.
8.04. Waiver. A waiver by a party hereto of a breach of any term,
covenant or condition of this Agreement by the other party hereto shall not
operate or be construed as waiver of any other or subsequent breach by such
party of the same or any other term, covenant or condition hereof.
8.05. Prior Agreements. Any and all prior Agreements between the
Company and the Employee, whether written or oral, between the parties, relating
to any and all matters covered by, and contained or otherwise dealt with in this
Agreement are hereby canceled and terminated.
8.06. Entire Agreement. This Agreement sets forth the entire Agreement
between the parties with respect to the subject matter hereof and no waiver,
modification, change or amendment of any of its provisions shall be valid unless
in writing and signed by the party against whom such claimed waiver,
modification, change or amendment is sought to be enforced.
8.07. Authority. The parties severally represent and warrant that they
have the power, authority and right to enter into this Agreement and to carry
out and perform the terms; covenants and conditions hereof.
8.08. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York. The federal and state
courts in Nassau County, New York shall have exclusive jurisdiction on all
matters relating to this Agreement
8.09. Severability. In the event that any of the provisions of this
Agreement, or any portion thereof, shall be held to be invalid or unenforceable,
the validity and enforceability of the remaining provisions shall not be
affected or impaired, but shall remain in full force and effect.
8.10. Titles. The titles of the Articles and Sections of this Agreement
are inserted merely for convenience and ease of reference and shall not affect
or modify the meaning of any of the terms, covenants or conditions of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and date first about written.
COLONIAL COMMERCIAL CORP.
BY:___________________________
(Title)
------------------------------
(Employee)
EXHIBIT 10(b)
-------------
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, dated as of January 1, 1998 by and between Colonial
Commercial Corp., a New York corporation with its principal office at 3601
Hempstead Turnpike, Ste 121-I, Levittown, New York 11756-1315 (the "Company")
and James W. Stewart, residing at 47 Richie Court, St. James, New York 11780
(the "Employee").
ARTICLE I
---------
EMPLOYMENT; TERM; DUTIES
------------------------
1.01. Employment. Upon the terms and conditions hereinafter set forth,
the Company hereby employs the Employee, and the Employee hereby accepts
employment, as Executive Vice President of the Company.
1.02. Term. The Employee's employment hereunder shall be for a term
(the "Term") commencing as of this date (the "Commencement date") and
terminating at the close of business on the fourth anniversary of the
Commencement Date. A "Contract Year" shall commence on January 1 and terminate
on December 31.
1.03. Duties. During the Term, the Employee shall perform such duties,
consistent with his position hereunder, as may be assigned to him from time to
time by the Board of Directors. The Employee shall devote his best efforts and
his entire time, attention and energies, during regular working hours, to the
performance of his duties hereunder and to the furtherance of the business and
interests of the Company, its subsidiary and affiliate companies.
ARTICLE II
----------
COMPENSATION
------------
2.01. Compensation. For all services rendered by the Employee hereunder
and all covenants and conditions undertaken by him pursuant to this Agreement,
the Company shall pay, and the Employee shall accept (i) a salary at the rate of
$150,000 per annum from the date of this Agreement until December 31, 2001.
Compensation shall be payable not less frequently than in bi-weekly
installments. The Company may (but shall not be obligated to), at any time and
from time to time, grant to the Employee an increase or increases in the
compensation otherwise payable pursuant to this Section 2.01, but such increase
or increases, if any, shall not be deemed to alter, modify, waive or otherwise
affect any other term, covenant or condition of this Agreement.
2.02. Deductions. The Company shall deduct from the compensation
described in Section 2.01 any federal, state or local withholding taxes, social
security contributions and any other amounts which may be required to be
deducted or withheld by the Company pursuant to any federal, state or city laws,
rules or regulations.
2.03. Disability Adjustments. Any compensation otherwise payable to the
Employee pursuant to Section 2.01 during any Disability Period (as that term is
hereinafter defined) shall be reduced by any amounts payable to the Employee for
loss of earnings or the like under any insurance plan or policy the premiums for
which are paid for in their entirety by the Company.
ARTICLE III
-----------
BENEFITS; EXPENSES
------------------
<PAGE>
3.01. Fringe Benefits. During the Term, the Employee shall be entitled
to participate, in amounts commensurate with the Employee's position hereunder,
in (a) such group life, health, accident, disability or hospitalization
insurance plans as the Company may make available to its other executive
employees, and (b) any incentive compensation, bonus, pension or similar plan of
the Company presently in effect or hereafter adopted for the benefit of its
executive employees as a group.
3.02. Automobile. During the Term, the Company shall furnish the
Employee with an automobile (including the replacement thereof), of such make,
model and year as the Employee shall determine, for use by the Employee in
connection with the performance of his duties hereunder. Upon presentation of an
itemized account thereof, with such substantiation as the Company shall require,
the Company shall pay or reimburse the Employee for the reasonable and necessary
expenses of the maintenance and operation of such automobile in connection with
the performance of his duties hereunder.
3.03. Services. During the Term, the Company shall furnish the Employee
with a private office, secretarial and such other services and facilities
sufficient to enable the Employee to perform his duties, and suitable to the
Employee's position hereunder.
3.04. Expenses. Upon presentation of an itemized account thereof, with
such substantiation as the Company shall require, the Company shall pay or
reimburse the Employee for the reasonable and necessary expenses directly and
properly incurred by the Employee in connection with the performance of his
duties hereunder.
3.05. Vacations. During the Term, the Employee shall be entitled to
paid holidays and paid vacations, in accordance with the policy of the Company
as determined by the Board of Directors; provided, however, that the Employee
shall be entitled to not less than four weeks paid vacation during each year of
the Term, to be taken at times determined by the Employee.
3.06. Location. Notwithstanding anything which may be contained herein
to the contrary, the Employee's office shall be located in Nassau or Suffolk
Counties, New York, and the performance of this duties hereunder shall not
require his presence outside of such counties, if the Employee shall object
thereto.
ARTICLE IV
----------
TERMINATION
-----------
4.01. Termination. The employment of the Employee, and the obligations
of the Employee and the Company hereunder, shall cease and terminate (except as
otherwise specifically provided in this Agreement) upon the first to occur on
the following dates (the "Termination Date") described in this Section 4.01:
(a) The date of expiration by its terms of the Term;
(b) The date of death of the Employee; provided, however,
notwithstanding the foregoing:
(i) the lump sum of Five Thousand ($5,000)
Dollars shall be paid to the Employee's
widow as tax-free death benefit (as
provided by the Internal Revenue Code);
and
(ii) the Employee's compensation, as
determined in accordance with Section
2.01, shall be paid for a period of one
(1) year irrespective of whether such
one-year period exceeds the expiration
date of the Term) to the Employee's
widow.
ARTICLE V
---------
<PAGE>
5.01. Disability. In the event that the Employee shall have been
unable, by reason of illness or incapacity, to perform the duties required of
him pursuant to this Agreement, for a period of twelve (12) consecutive months
(the "Disability Period"), the Company may give notice (the "Disability Notice")
to the Employee of the discontinuance of his services as Executive Vice
President of the Company provided, however, notwithstanding the foregoing, this
Agreement shall continue in full force and effect except as follows:
(a) Section 1.03 shall become inoperative on the date
on which the Disability Notice is given. In lieu
of his duties as Executive Vice President, the
duties of the Employee shall be, to the extent
permitted by his illness or incapacity, to advise
and counsel the officers and directors of the
Company with respect to the affairs and business
of the Company; and
(b) The Company shall continue to pay and the
Employee shall accept, compensation in an amount
determined in accordance with Section 2.01 for
the Contract Year in which the Disability Notice
shall have been given such compensation to be
paid to the Employee for the remainder of such
Contract Years and for each of the succeeding
Contract Years of the Term, irrespective of the
amount or nature of the services rendered by the
Employee pursuant to Section 5.01 (a).
(c) Notwithstanding anything herein contained to
the contrary, in the event that, prior to the
delivery of the notice specified in this Section
5.01, the Employee shall resume the full-time
performance of his duties hereunder for a period
of not less than ten (10) consecutive working
days, the Company may not give the Employee the
Disability Notice.
ARTICLE VI
----------
RESTRICTIVE COVENANTS
---------------------
6.01. Non-Disclosure. Subject to the Company fully performing all of
the terms and obligations required of it under this Agreement, including,
without limitation, the payment of compensation, the Employee shall not disclose
or furnish to any other person, firm or corporation (the "Entity") during his
employment and for three years thereafter, except in the course of the
performance of his duties hereunder, the following:
(a) any information relating to any process,
technique or procedure used by the Company,
including, without limitation, computer programs
and methods of evaluation and pricing and
marketing techniques; or
(b) any information relating to the operations or
financial status of the Company, including,
without limitation, all financial data and
sources of financing, which is not specifically a
matter of public record; or
(c) any information of a confidential nature obtained
as a result of his prior, present or future
relationship with the Company, which is not
specifically a matter of public record; or
(d) any trade secrets of the Company; or
(e) the name, address or other information relating
to any customer or debtor of the Company.
6.02. Non-Competition. Subject to the Company fully performing all of
the terms and obligations required of it under this Agreement, including,
without limitation, the payment of compensation, the Employee shall not, from
the date hereof and until one year after the termination of his employment with
the Company (the "Restriction Period"):
(a) in any manner, directly or indirectly, be
interested in, employed by, engaged in or
participate in the ownership, management,
operation or control of or act in any advisory or
other capacity for any Entity which, directly or
indirectly, competes with the Company throughout
the Territory (as that term is hereinafter
defined); provided, however, that Employee may
invest in any Entity which may be deemed to be in
competition with the Company hereunder, the
Common Stock of which Entity is "publicly held",
provided that the Employee shall not own or
control securities which constitute more than one
(1) percent of the voting rights or equity
ownership of such Entity, or five (5) percent of
the outstanding principal balance of any class of
debt securities of such Entity. The Employee or
any Entity shall be deemed to compete with the
Company if at any time during the Restriction
Period the Employee or such Entity engages in
consumer financial services.
(b) in any manner, directly or indirectly, attempt to
seek to cause any Entity to refrain from dealing
or doing business with the Company or assist any
Entity in doing so or attempting to do so.
6.03 Definitions. As used in this Article VI: (a) the term "Company"
shall include any parent, subsidiary or affiliate of, or successor to, the
Company and (b) the term "Territory" shall mean any state (including the
District of Columbia), territory or possession of the United States within which
the Company presently or hereafter does business.
6.04. Breach of Provisions. In the event that the Employee shall breach
any of the provisions of this Article VI, or in the event that any such breach
is threatened by the Employee, in addition to and without limiting or waiving
any other remedies available to the Company at law or in equity, the Company
shall be entitled to immediate injunctive relief in any court, domestic or
foreign, having the capacity to grant such relief, to restrain any such breach
or threatened breach and to enforce the provisions of this Article VI. The
Employee agrees and acknowledges that there is no adequate remedy at law for any
such breach or threatened breach and, in the event that any action or proceeding
is brought seeking injunctive relief, the Employee shall not use a defense
thereto that there is an adequate remedy at law.
6.05. Reasonable Restrictions. The parties acknowledge that the
foregoing restrictions, the duration and territorial scope thereof as set forth
in this Article VI, are under all of the circumstances reasonable and necessary
for the protection of the Company and its business.
ARTICLE VII
-----------
CERTAIN REMEDIES
----------------
7.01. Lump Sum Payment. From and after any breach by the Company of its
obligations under this Agreement which is not cured within 10 days after the
Employee gives notice thereof to the Company, the Employee shall be entitled at
any time by notice to the Company to terminate his obligations to the Company
hereunder and forthwith to receive from the Company in a lump sum, and without
present value discount, the entire aggregate amount which would have been
payable by the Company to Employee under Section 2.01 had Employee been employed
hereunder for the entire Term. Interest shall accrue on such lump sum obligation
at the annual rate of 10% per annum, and shall be payable on demand.
7.02. Litigation Costs. Should Employee prevail in any litigation
relating to his employment or this Agreement, the Company shall forthwith
reimburse Employee for all of his legal fees and costs. Should Employee prevail
only in part in any such litigation, the Company shall forthwith reimburse him
for a pro rata portion of his legal fees and costs.
ARTICLE VIII
------------
MISCELLANEOUS
-------------
<PAGE>
8.01. Assignment. This Agreement shall not be assigned by either party,
except that the Company shall have the right to assign its rights hereunder to
any parent, subsidiary and affiliate of, or successor to, the Company.
8.02. Binding Effect. This Agreement shall extend to and be binding
upon the Employee, his legal representatives, heirs and distributees, and upon
the Company, its successors and assigns.
8.03. Notices. Any notice required or permitted to be given under this
Agreement to either party shall be sufficient if in writing and if sent by
registered or certified mail, return receipt requested, to the address of such
party hereinabove set forth, or to such other address as such party may
hereafter designate by a notice given to the other party in the manner provided
in this Section 8.03.
8.04. Waiver. A waiver by a party hereto of a breach of any term,
covenant or condition of this Agreement by the other party hereto shall not
operate or be construed as waiver of any other or subsequent breach by such
party of the same or any other term, covenant or condition hereof.
8.05. Prior Agreements. Any and all prior Agreements between the
Company and the Employee, whether written or oral, between the parties, relating
to any and all matters covered by, and contained or otherwise dealt with in this
Agreement are hereby canceled and terminated.
8.06. Entire Agreement. This Agreement sets forth the entire Agreement
between the parties with respect to the subject matter hereof and no waiver,
modification, change or amendment of any of its provisions shall be valid unless
in writing and signed by the party against whom such claimed waiver,
modification, change or amendment is sought to be enforced.
8.07. Authority. The parties severally represent and warrant that they
have the power, authority and right to enter into this Agreement and to carry
out and perform the terms; covenants and conditions hereof.
8.08. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York. The federal and state
courts in Nassau County, New York shall have exclusive jurisdiction on all
matters relating to this Agreement
8.09. Severability. In the event that any of the provisions of this
Agreement, or any portion thereof, shall be held to be invalid or unenforceable,
the validity and enforceability of the remaining provisions shall not be
affected or impaired, but shall remain in full force and effect.
8.10. Titles. The titles of the Articles and Sections of this Agreement
are inserted merely for convenience and ease of reference and shall not affect
or modify the meaning of any of the terms, covenants or conditions of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and date first about written.
COLONIAL COMMERCIAL CORP.
BY:___________________________
(Title)
------------------------------
(Employee)
EXHIBIT 10(f)
-------------
MORTGAGE NOTE
$632,139.37 December 8th, 1997
FOR VALUE RECEIVED, WILBUR F. BRESLIN, an individual residing at 3
Forte Drive, Old Westbury, New York 11568 (herein called "Maker") promises to
pay to the order of COLONIAL COMMERCIAL CORP., having an address at 3601
Hempstead Turnpike, Levittown, new York 11756-1315 or at the option of the legal
holder of this Note (herein called a "Noteholder"), at such other place as said
holder shall designate in writing, in coin or currency which at the time of the
payment is legal tender for public and private debts in the United States, the
principal sum of SIX HUNDRED THIRTY-TWO THOUSAND ONE HUNDRED THIRTY-NINE DOLLARS
and 37/100 ($632,139.37) with interest thereon, at the rate of nine (9%) percent
per annum, to be computed from December 8, 1997 until payment in full of this
Note, which principal and interest shall be due and payable a hereinafter set
forth.
1. Maker shall pay the following semi-annual payments in
reduction of principal:
A. (i) on June 8, 1998, the sum of Seventy-Nine Thousand
Seventeen Dollars and 42/100 ($79,017.42);
(ii) on December 8, 1998, the sum of Seventy-Nine Thousand
Seventeen Dollars and 42/100 ($79,017.42);
(iii) on June 8, 1999, the sum of Seventy-Nine Thousand
Seventeen Dollars and 42/100 ($79,017.42);
(iv) on December 8, 1999, the sum of Seventy-Nine Thousand
Seventeen Dollars and 42/100 ($79,017.42);
(v) on June 8, 2000, the sum of Seventy-Nine Thousand
Seventeen Dollars and 42/100 ($79,017.42);
(vi) On December 8, 2000, the sum of Seventy-Nine Thousand
Seventeen Dollars and 42/100 ($79,017.42);
(vii) on June 8, 2001, the sum of Seventy-Nine Thousand
Seventeen Dollars and 42/100 ($79,017.42);
B. The remaining unpaid principal balance of Seventy-Nine
Thousand Seventeen Dollars and 43/100 ($79,017.43), together with all accrued
and unpaid interest, shall be due and payable,
<PAGE>
in one lump sum, on December 8, 2001. The said date of December 8, 2001 or such
earlier date that the indebtedness evidenced by this Note shall become due and
payable, by acceleration or otherwise, is herein referred to as the "Maturity
Date".
2. Interest on the unpaid principal balance shall be due and payable
simultaneously with each of the aforesaid semi-annual principal payments as set
forth in paragraph 1A and 1B. Interest will be calculated on a three hundred
sixty (360) day year.
3. The indebtedness evidenced hereby may be prepaid in whole or in part
at any time without penalty. Any partial prepayments shall be applied in the
following order:
A. (i) in payment of any all costs, expenses or disbursements,
incurred under this Note or the "Mortgage", as herein defined, or incurred under
any of the other "Loan Documents", as herein defined, including without
limitation, reasonable attorneys' fees;
(ii) in payment of accrued and unpaid interest;
(iii) in reduction of the principal balance payable to be
applied in inverse order of the semi-annual payments payable pursuant to
paragraphs 1A and B, so as not to interrupt the consecutive payment of the
aforesaid semi-annual principal payments payable pursuant to paragraph 1.
B. Notwithstanding the foregoing, in the event that Colonial
shall receive any payments pursuant to that certain Stipulation Imposing
Charging Orders of even date, that Assignment of even date made by Wilbur F.
Breslin, Kandor Realty Management Inc. and Breslin Realty Development Corp. in
favor of Colonial and/or that certain Assignment Regarding Partition Action of
even date, then any such payments shall be applied to the indebtedness evidenced
and secured by, among other things, this Note and the Mortgage as follows: (I)
first, in payment of any and all costs, expenses or disbursements incurred under
this Note, the Mortgage, the Guaranty of Note and Mortgage of even date, such
Stipulation Imposing Charging Orders, such Assignments or incurred under any
other Loan Documents, as herein defined, including without limitation,
reasonable attorneys' fees; (ii) next, in payment of accrued and unpaid
interest; and (iii) next, in reduction of the principal amount of the
immediately following semi-annual installments payable pursuant to this Note and
the Mortgage.
4. If any installment under this Note, whether principal, interest or
otherwise, is not paid within ten (10) days of its due date, then Maker shall
pay a late charge of three (3%) percent of the delinquent installment, subject
to the maximum amount of such charge permissible under any controlling or
applicable law, order, rule or regulation.
<PAGE>
5. It is expressly agreed that (I) if Maker is in default in the
payment of any of the aforesaid installments, whether principal, interest or
otherwise, for more than ten (10) days after written notice; or (ii) if Maker or
any guarantor hereof files any petition in bankruptcy or such a petition is
filed against the Maker or any guarantor hereof which is not discharged within
thirty (30) days; or (iii) if application is filed for appointment of a receiver
of the assets of Maker or any guarantor hereof; of (iv) Maker or any guarantor
hereof makes a general assignment for the benefit of creditors; or (v) if Maker
or any guarantor hereof becomes insolvent, or (vi) upon the occurrence of any
default or event by which, under the Mortgage, the entire unpaid balance of
principal and accrued and unpaid interest thereon shall, at the option of
Colonial Commercial Corp., its successors and assigns, immediately become due
and payable; or (vii) upon the occurrence of any default or event by which,
under any one or more of other Loan Documents, the entire unpaid balance of
principal and accrued and unpaid interest thereon shall, at the option of
Mortgagee, immediately become due and payable, then upon any one or more of such
events, the entire unpaid balance of principal hereof together with accrued and
unpaid interest thereon shall, at the option of Noteholder, immediately become
due and payable in one lump sum.
6. No delay or omission on the part of Noteholder in exercising any
right or remedy under this Note or the Mortgage or any other instrument which
may secure this Note shall operate as a waiver of such right or remedy or of any
other right or remedy of Noteholder, nor shall any waiver by Noteholder of any
such right or remedy on any one occasion b4e deemed a bar to, or waiver of, the
same right or remedy on any future occasion.
7. After default, if this Note is placed in the hands of an attorney
for collection or enforcement for any reason, or if this Note is collected by
legal proceedings or through the bankruptcy courts, under state insolvency
proceedings or any other legal proceedings, including any appeals, then all
costs, expenses and reasonable attorneys' fees, whether suit be brought or not,
shall be added hereto and shall be collectible as the principal sum hereof.
8. Maker hereby waives demand for payment, notice of non-payment,
presentment, notice of dishonor, protest, notice of protest, or any other
notice.
9. In the event any one or more of the provisions contained in this
Note shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Note; but this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein or
therein.
<PAGE>
10. It is not intended hereby that the late charge and interest be
construed as interest at a rate in excess of the maximum legal rate of interest
permitted to be charged Maker under the laws of the State of New York; if,
nevertheless, a late charge and interest in excess of such maximum legal rate
shall be charged or paid hereunder, then the rate imposed hereunder shall be
reduced to such maximum legal rate, and if from the circumstance, Noteholder
shall ever receive as late charge or interest an amount which would exceed the
highest lawful rate, such amount which would be deemed excessive interest shall
be applied to the reduction of the unpaid principal balance due hereunder and
not to the payment of any late charge or interest or at the Noteholder's sole
option, such amount shall be returned to Maker.
11. As a material inducement to Noteholder to accept this Note, Maker
hereby certifies, warrants and represents that there are no defenses,
deductions, offsets, setoffs or counterclaims whatsoever to this Note.
12. This Note may not be changed or terminated orally, nor may any of
its provisions be waived, except by an agreement in writing signed by the party
against whom enforcement of such change, waiver or termination is sought.
13. This Note is secured by that certain Mortgage of even date made by
Maker, as Mortgagor, to Noteholder, as Mortgagee ("Mortgage"),. Covering, among
other things, Maker's fifty (50%) percent undivided interest as a
tenant-in-common in and to that certain commercial real property located at
2411-2419 Hempstead Turnpike, East Meadow, County of Nassau and State of New
York ("Premises") as more particularly described in the Mortgage. All of the
terms, covenants, conditions and agreements contained in the Mortgage are hereby
made a part of this Note as if set forth herein.
14. In addition, this Note is further secured by the following
documents of even date: (I) Judgment by Confession; (ii) Stipulation imposing
Charging Orders; (iii) Guaranty of Note and Mortgage; (iv) Assignment regarding
miscellaneous amounts owed to Maker and others; (v) Assignment Regarding
Partition Action; (vi) Deed in Lieu Agreement (and Deed) regarding Maker's
interest in the Premises; and (vii) Estoppel Certificate The foregoing documents
and instruments (together with the Mortgage and Stipulation of Settlement are
herein referred to collectively as the "Loan Documents". Any default under any
one or more of the Loan Documents, including the Mortgage, shall also constitute
a default under this Note.
15. This Note shall be construed, interpreted, and enforced according
to, and governed by, the laws of the State of New York.
<PAGE>
16. Any notice to the Maker shall be given by mailing such notice,
certified mail, return receipt requested, addressed to Maker at c/o Breslin
Realty Development Corp. 500 Old Country Road, Garden City, New York 11530, or
to such other address as the Maker may designate by written notice to
Noteholder. Any notice to Noteholder shall be given by mailing such notice by
certified mail, return receipt requested, to Noteholder at 3601 Hempstead
Turnpike, Levittown, New York 11756-1315, or to such other address as Noteholder
may designate by written notice to the Maker.
17. The Maker hereby waives trial by jury in any action or proceeding
in connection with any matter in any way, directly or indirectly, arising from,
or relating to, or connected with this Note, the Mortgage or any other Loan
Documents.
18. TIME SHALL BE OF THE ESSENCE for the performance by Maker of all
obligations hereunder including the timely payment of all amounts payable
hereunder.
19. The monies due hereunder shall be due and fully payable by the
Maker without any right whatsoever of setoff, deduction, offset, defense or
counterclaim.
20. This Note shall be binding upon the Maker his heirs, legal
representatives, successors and assigns.
21. As a further material inducement for Noteholder to accept this
Note, Maker hereby certifies, warrantsand represents that: (i) he is a
sophisticated businessman with extensive experience in commercial transactions;
(ii) he is represented in connection with the negotiation, execution and
delivery of this Note and other Loan Documents by competent counsel, namely,
Shaw, Licitra, Esernio & Schwartz, P.C.; (iii) he has thoroughly read and is
fully familiar with all the terms, covenants and conditions of this Note, the
Mortgage and all the other Loan Documents which he fully understands and to
which he is in complete agreement; (iv) he is under no compulsion, and is fully
competent, to execute and deliver this Note, the Mortgage and the other Loan
Documents, all of which have been executed and delivered by him as his own free
and voluntary act; and (v) he has full right, power and authority to execute and
deliver this Note.
IN WITNESS WHEREOF, the Maker has duly executed and delivered this Note
on the date and year first herein above written.
/s/ Wilbur F. Breslin
Wilbur F. Breslin
<PAGE>
STATE OF NEW YORK)
ss:
COUNTY OF NASSAU )
On the 8th day of December, 1997, before me personally appeared WILBUR
F. BRESLIN, to me know and known to me to be the individual described in and who
executed the foregoing instrument, and acknowledged to me that he executed the
same.
_/s/______________________
Notary Public
EXHIBIT (10)(g)(v)
------------------
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, dated as of January 1, 1998 , by and between Atlantic
Hardware and Supply Corp., a New York corporation with its principal office at
601 West 26th St., New York, N.Y. 10001 (the "Company") and Paul R. Selden,
residing at 415 First Avenue, Massapequa Park, New York 11762 (the "Employee").
ARTICLE I
---------
EMPLOYMENT: TERM; DUTIES
------------------------
1.01. Employment. Upon the terms and conditions hereinafter set forth,
the Company hereby employs the Employee, and the Employee hereby accepts
employment, as President of the Company.
1.02. Employee represents and warrants to the Company that he is free to
enter into this Agreement in accordance with the terms hereof and is under no
restriction, contractual or otherwise, which would interfere with his execution
hereof or performance hereunder.
1.03. Term. The Employee's employment hereunder shall be for a term (the
"Term") commencing as of this date (the "Commencement Date") and terminating at
the close of business on December 31, 2000.
1.04. Duties. During the Term, the Employee shall perform such duties,
consistent with his position hereunder, as may be assigned to him from time to
time by the Board of Directors. The Employee shall devote his best efforts and
his entire time, attention and energies, during regular working hours, to the
performance of his duties hereunder and to the furtherance of the business and
interests of the Company, its subsidiaries and affiliate companies.
ARTICLE II
----------
COMPENSATION
------------
2.01. Compensation. For all services rendered by the Employee hereunder
and all covenants and conditions undertaken by him pursuant to this Agreement,
the Company shall pay, and the Employee shall accept (i) a salary at the rate of
$215,000 per annum. Compensation shall be payable not less frequently than in
bi-weekly installments. The Company may (but shall not be obligated to), at any
time and from time to time, grant to the Employee an increase or increases in
the compensation otherwise payable pursuant to this Section 2.01, but such
increase or increases, if any, shall not be deemed to alter, modify, waive or
otherwise affect any other term, covenant or condition of this Agreement.
2.02. Additional Incentive Compensation. For the calendar year 1998 and
for each of the calendar years 1999 and 2000, the Employee shall receive, as
additional compensation, a percentage of the Incentive Compensation Base.
Incentive Compensation Base shall mean the Company's earnings as determined by
the Company's Independent Certified Public Accountants increased by any
deduction of (i) interest paid or accrued in connection with the acquisition of
Atlantic Hardware and Supply Corp. from Thackeray Corporation, (ii) Federal,
State and local income taxes, (iii) parent company management fees or allocation
of overhead paid or accrued and (iv) this expense. Earnings of businesses
acquired by the Company shall be included in determining Incentive Compensation
Base. Incentive Compensation will be paid within 30 days following receipt by
the Company of the Independent Accountant's report for the year involved and
said report shall be binding and conclusive.
Portion Of
Incentive Additional
Compensation Compensation
Base Percentages
---- -----------
Up to $ 250,000 6%
$250,000 to 500,000 7%
$500,000 to 750,000 8%
$750,000 to 1,000,000 9%
$1,000,000 and over 10%
For example, if the Incentive Compensation Base is $800,000, the
additional compensation would be computed as follows:
$250,000 at 6% $15,000
$250,000 at 7% $17,500
$250,000 at 8% $20,000
$ 50,000 at 9% $ 4,500
-------- -------
$800,000 $59,000
-------- -------
2.03. Deductions. The Company shall deduct from the compensation
described in Section 2.01 and Section 2.02 any federal, state or local
withholding taxes, social security contributions and any other amounts which may
be required to be deducted or withheld by the Company pursuant to any federal,
state or city laws, rules or regulations.
2.04. Disability Adjustments. Any compensation otherwise payable to the
Employee pursuant to Section 2.01 during any Disability Period (as that term is
hereinafter defined) shall be reduced by any amounts payable to the Employee for
loss of earnings or the like under any insurance plan or policy the premiums for
which are paid for in their entirety by the Company.
ARTICLE III
BENEFITS; EXPENSES
3.01. Fringe Benefits. During the Term, the Employee shall be entitled
to participate, in amounts commensurate with the Employee's position hereunder,
in such group life, health, accident, disability or hospitalization insurance
plans as the Company or its parent may make available to its other executive
employees.
<PAGE>
3.02. Automobile. During the Term, the Company shall furnish the
Employee with a Cadillac, or comparable luxury automobile, (including the
replacement thereof), of such make, model and year as the Employee shall
determine, for use by the Employee in connection with the performance of his
duties hereunder. Upon presentation of an itemized account thereof, with such
substantiation as the Company shall require, the Company shall pay or reimburse
the Employee for the reasonable and necessary expenses of the maintenance and
operation of such automobile in connection with the performance of his duties
hereunder. The Employee understands that as a result of and to reflect the
provisions of this Section, the Company may include appropriate amounts on his
W-2 form and, if required, withhold amounts from this salary.
3.03. Expenses. Upon presentation of an itemized account thereof, with
such substantiation as the Company shall require, the Company shall pay or
reimburse the Employee for the reasonable and necessary expenses directly and
properly incurred by the Employee in connection with the performance of his
duties hereunder, subject to guidelines established by the Board of Directors.
3.04. Vacations. During the Term, the Employee shall be entitled to
paid holidays and paid vacations in accordance with the policy of the Company as
determined by the Board of Directors; provided, however, that the Employee shall
be entitled to not less than four weeks paid vacation during each year of the
Term, to be taken at times convenient to the Employee and to the Company.
3.05. Location. Notwithstanding anything which may be contained herein
to the contrary, the Employee's office shall be located in the metropolitan New
York area and the performance of his duties hereunder shall not require his
continued presence outside of such counties if the Employee shall object
thereto.
ARTICLE IV
TERMINATION
4.01. Termination. The employment of the Employee, and the obligations
of the Employee and the Company hereunder, shall cease and terminate (except as
otherwise specifically provided in this Agreement) upon the first to occur on
the following dates (the "Termination Date") described in this Section 4.01:
(a) The date of expiration by its terms of the Term;
(b) The date of death of the Employee; provided, however,
notwithstanding the foregoing:
<PAGE>
(i) the lump sum of Five Thousand ($5,000) Dollars shall be paid
to the Employee's widow, if living, or if not, to the
Employee's estate; and
(ii) the Employee's compensation, as determined in accordance with
Section 2.01, shall be paid for a period of one (1) year
(irrespective of whether such one-year period exceeds the
expiration date of the Term) to the Employee's widow, if
living, or if not, to the Employee's estate.
(iii) a pro rata share of any additional Incentive Compensation in
an amount obtained by multiplying the additional Incentive
Compensation for the full year or period, as the case may be,
in which death occurred, by a fraction, the numerator of which
is the number of days in the year of period in which Employee
was employed and the denominator of which is the number of
days of the year (365).
ARTICLE V
5.01. Disability. In the event that the Employee shall become unable,
by reason of illness or incapacity, to perform the duties required of him
pursuant to this Agreement, for a period of (i) ninety (90) consecutive days or
(ii) for 180 (one hundred eighty) days in any 365 day period, (the "Disability
Period"), the Company may give notice (the "Disability Notice") to the Employee
of the discontinuance of his services as President of the Company provided,
however, notwithstanding the foregoing, this Agreement shall continue in full
force and effect except as follows:
(a) Section 1.04 shall become inoperative on the date on which the
Disability Notice is given. In lieu of his duties as
President, the duties of the Employee shall be, to the extent
permitted by his illness or incapacity, to advise and counsel
the officers and directors of the Company with respect to the
affairs and business of the Company; and
(b) The Company shall continue to pay and the Employee shall
accept, total compensation in an amount determine din
accordance with Section 2.01 for the Contract Year in which
the Disability Notice shall have been given, such compensation
to be paid to the Employee for the remainder of such Contract
Years and for each of the
<PAGE>
succeeding Contract Years of the Term, irrespective of the
amount or nature of the services rendered by the Employee
pursuant to Section 5.01 (a). In addition, in the year in
which the disability occurs, the employee shall receive a pro
rata share of any additional incentive compensation in an
amount obtained by multiplying the Incentive Compensation
amount for the full year or period, as the case may be, in
which disability occurred, by a fraction, the numerator of
which is the number of days in the year or period in which the
disability occurs and the denominator of which is the number
of days of the year (365).
(c) Notwithstanding anything herein contained to the contrary, in
the event that, prior to the delivery of the notice specified
in this Section 5.01, the Employee shall resume the full-time
performance of his duties hereunder for a period of not less
than twenty (20) consecutive working days, the Company may not
give the Employee the Disability Notice.
ARTICLE VI
RESTRICTIVE COVENANTS
6.01. Non-Disclosure. The Employee shall not disclose or furnish to any
other person, firm or corporation (the "Entity"), except in the course of the
performance of his duties hereunder, the following:
(a) any information relating to any process, technique or
procedure used by the Company, including, without limitation,
computer programs and methods of evaluation and pricing the
marketing techniques; or
(b) any information relating to the operations or financial status
of the Company, including, without limitation, all financial
data and sources of financing, which is not specifically a
matter of public record; or
(c) any information of a confidential nature obtained as a result
of his prior, present or future relationship with the Company,
which is not specifically a matter of public record; or
(d) any trade secrets of the Company; or
(e) the name, address or other information relating to any
customer or debtor of the Company.
<PAGE>
6.02. Non-Competition. The Employee shall not, from the date hereof and
until the termination of his employment with the Company (the "Restriction
Period"):
(a) in any manner, directly or indirectly, be interested in,
employed by, engaged in or participate in the ownership,
management, operation or control of, or act in any advisory or
other capacity for any entity which, directly or indirectly,
competes with the Company throughout the Territory (as that
term is hereinafter defined); provided, however, that the
Employee may invest in any entity which may be deemed to be in
competition with the Company hereunder, the Common Stock of
which entity is "publicly held," provided that the Employee
shall not own or control securities which constitute more than
one (1) percent of the voting rights or equity ownership of
such entity, or five (5) percent of the outstanding principal
balance of any class of debt securities of such entity. The
Employee or any entity shall be deemed to compete with the
Company if at any time during the Restriction Period the
Employee or such entity engages in the business of contract
and architectural hardware, doors and frames, locksmithing,
security systems and security hardware.
(b) The Employee shall not, from the date hereof and until one
year after the termination of his employment with the Company
(the "Restriction Period"):
(i) in any manner, directly or indirectly, attempt to seek
to cause any entity to refrain from dealing or doing
business with the Company or assist any entity in doing
so or attempting to do so.
(ii) employ any Company employees.
6.03. Definitions. As used in this Article VI: (a) the term "Company"
shall include any parent, subsidiary or affiliate of, or successor to, the
Company and (b) the term "Territory" shall mean any state (including the
District of Columbia), territory or possession of the United States within which
the Company presently or hereafter does business.
6.04. Breach of Provisions. In the event that the Employee shall breach
any of the provisions of this Article VI, or in the event that any such breach
is threatened by the Employee, in addition to and without limiting or waiving
any other remedies available to the Company at law or in equity, the Company
shall be entitled to immediate injunctive relief in any court, domestic or
foreign, having the capacity to grant such relief, to restrain any such breach
or threatened breach and to enforce the
<PAGE>
provisions of this Article VI. The Employee agrees and acknowledges that there
is no adequate remedy at law for any such breach or threatened breach and, in
the event that any action or proceeding is brought seeking injunctive relief,
the employee shall not use a defense thereto that there is an adequate remedy at
law.
6.05. Reasonable Restrictions. The parties acknowledge that the
foregoing restrictions, the duration and the territorial scope thereof as set
forth in this Article VI, are under all of the circumstances reasonable and
necessary for the protection of the Company and its business.
ARTICLE VII
TERMINATION FOR CAUSE
7.01. Termination by the Company for Cause. At any time during the term
of this Agreement, the Company may discharge the Employee for cause and
terminate this Agreement without any further liability hereunder to the Employee
or his estate, except to pay any accrued, but unpaid, salary but not Incentive
Compensation to him. In the event of such termination, Employee agrees he shall
also be deemed to have resigned from the Company and its Parent, as a President
and Employee, effective as of the date of such termination. For purposes of this
Agreement, a "discharge for cause" shall mean termination of the Employee upon
written notification to the Employee limited, however, to one or more of the
following reasons:
(i) Fraud, misappropriation or embezzlement by the Employee
in connection with the Company; or
(ii) Gross neglect of duties which has a detrimental effect
on the Company after notice to the Employee of the
particular details thereof and a period of thirty (30)
days to correct such mismanagement or neglect, if any;
or
(iii) Conviction by a court of competent jurisdiction in the
United States of a felony or a crime involving moral
turpitude; or
(iv) Willful and unauthorized disclosure of confidential, or
proprietary trade secret information of the Company; or
(v) The Employee's breach of any material term or provision
of this Agreement, after notice to the Employee of the
particular details thereof and a period of not less than
thirty (30) days thereafter within which to cure such
breach, if any.
ARTICLE VIII
MISCELLANEOUS
8.01. Assignment. This Agreement shall not be assigned by either party,
except that the Company shall have the right to assign its rights hereunder to
any parent, subsidiary and affiliate of, or successor to, the Company.
<PAGE>
8.02. Binding Effect. This agreement shall extend to and be binding
upon the Employee, his legal representatives, heirs and distributees, and upon
the Company, its successors and assigns.
8.03. Notices. Any notice required or permitted to be given under this
Agreement to either party shall be sufficient if in writing and if sent by
registered or certified mail, return receipt requested, to the address of such
party hereinabove set forth, or to such other address as such party may
hereafter designate by a notice given to the other party in the manner provided
in this Section 8.03.
8.04. Waiver. A waiver by a party hereto of a breach of any term,
covenant or condition of this Agreement by the other party hereto shall not
operate or be construed as waiver of any other or subsequent breach by such
party of the same or any other term, covenant or condition hereof.
8.05. Prior Agreements. Any and all prior agreements between the
Company and the Employee, whether written or oral, between the parties, relating
to any and all matters covered by, and contained or otherwise dealt with in,
this Agreement are hereby cancelled and terminated.
8.06. Entire Agreement. This Agreement sets forth the entire agreement
between the parties with respect to the subject matter hereof and no waiver,
modification, change or amendment of any of its provisions shall be valid unless
in writing and signed by the party against whom such claimed waiver,
modification, change or amendment is sought to be enforced.
8.07. Authority. The parties severally represent and warrant that they
have the power, authority and right to enter into this agreement and to carry
out and perform the terms; covenants and conditions hereof.
8.08. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York. The federal and state
courts in Nassau County, New York shall have exclusive jurisdiction on all
matters relating to this Agreement.
8.09. Severability. In the event that any of the provisions of this
Agreement, or any portion thereof, shall be held to be invalid or unenforceable,
the validity and enforceability of the remaining provisions shall not be
affected or impaired, but shall remain in full force and effect.
8.10 Titles. The titles of the Articles and Sections of this Agreement
are inserted merely for convenience and ease of reference and shall not affect
or modify the meaning of any of the terms, covenants or conditions of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and date first above written.
ATLANTIC HARDWARE AND SUPPLY CORP.
BY: ___________________________
James W. Stewart, Secretary
BY: ___________________________
Paul Selden, Employee
EXHIBIT 13
COLONIAL COMMERCIAL CORP.
ANNUAL REPORT
1997
<PAGE>
TO OUR SHAREHOLDERS
We are pleased with your Company's accomplishments during 1997, as
management continued to take steps designed to enhance shareholder value. Part
of our strategy involves a simplification of the corporate structure at Colonial
Commercial Corp. ("Colonial"), so that investors can more effectively recognize
the Company's asset values and potential for earnings growth.
Stockholders' equity increased by 25% last year and stood at approximately
$8.9 million on December 31, 1997. This is equivalent to a book value of $2.86
on a diluted per share basis, after taking into account a five-to-one reverse
stock split for our common and preferred shares outstanding, which was effective
January 30, 1998. The increase in stockholders' equity was derived from
operating income generated by our Atlantic Hardware and Supply Corporation
subsidiary ("Atlantic"), an increase in the value of our investment position in
Monroc, Inc. ("Monroc"), a gain on the sale of land located in Salt Lake County,
Utah, and the recognition of anticipated income tax benefits.. These profits
were partially offset by a write-off of deferred expenses related to an
acquisition transaction, which management chose not to complete during the
course of the year.
Atlantic's operating income totaled $1,154,000 during 1997, on sales of
approximately $22.6 million. This compared with operating income of $1,425,000
and sales of approximately $25.1 million in the previous year. The decrease in
sales primarily reflects a decline in the number of major building projects
available for bid last year in Atlantic's primary markets in the New York
metropolitan area. Atlantic should realize significant improvements to its
organizational and operational efficiencies from the merger of its Long Island
office with its New York City headquarters during 1997 and the expenditure of
approximately $275,000 to upgrade its computer systems. While management
reviewed a number of acquisition prospects and will continue to pursue external
growth opportunities within the door hardware industry, we were unable to
identify a transaction which was consistent with our strategic objectives during
1997.
In the investment arena, Colonial had an outstanding year during 1997. We
realized a gain of $238,000 on the sale of 50,000 shares of Monroc common stock.
The value of our remaining 328,071 Monroc shares approximated $3.3 million on
December 31, 1997 compared with an original cost basis of approximately $1.4
million provides Colonial with an unrealized holding gain of almost $1.9 million
on its remaining Monroc investment. On January 29, 1998, Monroc signed a
definitive merger agreement with privately-held U.S. Aggregates, Inc., wherein
U.S. Aggregates, Inc. will acquire all of the outstanding Monroc stock for
$10.77 per share in cash. We currently expect the transaction, which has been
approved by the Boards of Directors of both companies, to be completed in the
second quarter of 1998, pending the approval of Monroc's shareholders and
appropriate regulatory agencies and the satisfaction of certain other
conditions. If the transaction is completed in accordance with the terms
currently proposed, Colonial should receive over $3.5 million in cash for its
Monroc shares and should realize a profit of approximately $2 million from the
transaction.
Colonial also owns a 50% interest in a parcel of raw land located in Salt
Lake County, Utah. Together with its 50% partner, Colonial has entered into an
option agreement with a private company that anticipates sale of the land for
approximately $2.3 million, once the optionee's conditions have been satisfied.
If this transaction closes during the second quarter of 1998, as anticipated,
Colonial will realize a gain of over $800,000 on its investment in the land
parcel.
During January 1998, Colonial retired its remaining long-term debt. The
Company currently has approximately $2 million in additional borrowing capacity
available under its secured revolving credit line. When combined with
anticipated proceeds from sale of its Monroc stock and Utah real estate,
Colonial should enter the second half of 1998 with no long-term debt
outstanding, approximately $4.8 million in cash, as well as additional borrowing
capacity available for acquisitions and other strategic investments. Subject to
the closing of the transactions described above, shareholders' equity should
exceed $9.6 million, which would be equivalent to over $3.00 on a diluted per
share basis.
<PAGE>
Acquisitions which meet Colonial's stringent criteria regarding industry
compatibility, pricing and quality of management are not easy to find and,
similarly, investment opportunities with the potential to replicate our
successful experience with Monroc do not occur with great frequency. Management
will continue to pursue a strategy designed to build upon the strengths of
Atlantic and to enhance shareholder value through strategic investments. We also
expect shareholder value to benefit from greater exposure of your Company within
the investment community during 1998 and future years.
On behalf of management and the Board of Directors, I would like to thank
all of our employees, customers, vendors and shareholders for their continued
support, and I look forward to reporting upon your Company's future
accomplishments.
Respectfully submitted,
Bernard Korn
Chairman of the Board and President
April 9, 1998
<PAGE>
CORPORATE PROFILE:
Colonial Commercial Corp. ("Colonial"), through its ownership of Atlantic
Hardware and Supply Corporation ("Atlantic"), distributes door hardware, doors
and door frames, primarily to building contractors and architectural firms. Most
of Atlantic's customers are involved in the design, construction,
rehabilitation, remodeling, and/or maintenance of commercial, residential and
institutional structures, including office buildings, hospitals, hotels,
schools, government facilities and high-rise apartment buildings.
Atlantic, which was founded in 1946, recorded revenues of $22.6 million
during the year ended December 31, 1997. Headquartered in New York City,
Atlantic also has offices in Georgia, Illinois and Pennsylvania.
Colonial also seeks to enhance shareholder value through strategic
investments. Currently, the Company owns 328,071 shares of Monroc, Inc. (Nasdaq:
"MROC"), a Utah-based concrete products company, and a 50% interest in a real
estate parcel in Salt Lake County, Utah.
Monroc has signed a definitive merger agreement pursuant to which
privately-held U.S. Aggregates, Inc. will purchase all of its outstanding common
stock for $10.77 per share in cash. If this transaction is completed on proposed
terms during the second quarter of 1998, as expected, Colonial should receive
over $3.5 million in cash for its Monroc shares and will realize a profit of
approximately $2 million from the transaction.
Regarding the Utah land parcel, Colonial and its 50% partner have entered
into an agreement with a private company, which anticipates sale of the land for
approximately $2.3 million, once certain conditions have been satisfied. If the
option is exercised, Colonial will realize cash proceeds of approximately $1
million and a profit exceeding $800,000 on this investment.
Colonial anticipates that proceeds from these transactions will be
redeployed into strategic acquisitions and investments, in order to enhance
shareholder value.
<PAGE>
Market Price of Company's Common Stock, Convertible Preferred Stock and
Related Security Holder Matters:
(a) Price Range of Common Stock and Preferred Stock
The Company's Common Stock and Convertible Preferred Stock are traded on
the Nasdaq small capitalization automated quotation system. The following table
sets forth the quarterly high and low bid prices during 1997 and 1996 as
reported by the National Association of Securities Dealers, Inc. monthly
statistical reports. The quotations set forth below, which give effect to a
five-to-one reverse stock split that was effective January 30, 1998, represent
inter-dealer quotations which exclude retail markups, markdowns and commissions
and do not necessarily reflect actual transactions.
Common Stock Convertible Preferred Stock
High Low High Low
---- --- ---- ---
1997
First Quarter $3 7/16 2 3/16 $3 7/16 2 3/16
Second Quarter 3 7/16 2 1/32 3 9/32 2 1/32
Third Quarter 4 1/16 2 3/16 3 29/32 2 3/16
Fourth Quarter 2 13/16 1 7/8 2 21/32 1 7/8
1996
First Quarter $2 11/32 1 1/4 $1 7/8 1 1/4
Second Quarter 2 11/32 1 23/32 2 11/32 1 23/32
Third Quarter 2 11/32 1 23/32 2 11/32 1 9/16
Fourth Quarter 3 3/4 1 7/8 3 9/32 2 1/32
(b) Approximate Number of Common and Convertible Preferred Stockholders
Approximate Number Of Record Holders
Title Of Class (As Of March 13 , 1998)
- -------------- -----------------------
Common Stock par value $.05 per share 1,077
Convertible Preferred Stock par value $.05 per share 7,513
(c ) Dividends
The Company does not contemplate Common Stock dividend payments in the near
future.
<PAGE>
Management's Discussion And Analysis Of Financial Condition And Results Of
Operations
Results of Operations 1997-1996
The Company reported net income of $672,356 for the 1997 year compared to net
income of $547,675 for the year 1996. The 1997 income consisted of net income of
$727,448 from Atlantic, as compared to $964,439 for 1996. Gain on sale of land
was $196,066 in 1997, as compared to $258,651 in 1996. In 1997, the Company
realized a $238,033 gain on the sale of 50,000 shares of Monroc, Inc. stock
while none were sold in 1996. The Company still holds 328,071 shares
representing 7.2% of the outstanding common stock of Monroc, Inc. Interest
income increased to $191,473 in 1997 from $121,781 in 1996 principally due to
the settlement and collection of a $1,000,000 note which had been in litigation
since January 1996. Other income increased to $178,231 in 1997 from $13,064 in
1996 principally due to the reversion to the Company of approximately $150,000
of unclaimed payments made on the Company's 6% notes, in accordance with the
opinion of counsel.
Sales decreased $2,416,709 (9.6%) to $22,642,783 in 1997 compared to $25,059,492
principally due to a decrease in the availability of larger projects in the New
York metropolitan area. The December 31, 1997 backlog was $8,871,000, as
compared to $9,630,000 at December 31, 1996. The $759,000 decrease in backlog is
principally due to the merger of Atlantic's Long Island office with its New York
City office and a reduced sales effort in the Long Island market. It is
anticipated that approximately 95% of the backlog will be shipped during 1998.
Gross profit decreased $653,420 to $5,837,803 in 1997 compared to $6,491,223
principally due to decreased sales.
Selling, general and administrative expenses decreased $435,017 to $5,451,864 in
1997, compared to $5,886,881 in 1996 due to cost reductions made in response to
lower sales and the closing of Atlantic's Long Island office. Write-off of
deferred expenses for abandoned acquisition relates to the Company's terminated
effort to acquire U.S. Computer Group, Inc.
The Company continues to seek the acquisition of or merger with companies that
businesses generate a recurring stream of income. Reported earnings in the near
term will be affected by the operating results of Atlantic, the timing of the
remaining land sale in Utah and closing of the merger transaction regarding
Monroc and the timing and size of any new acquisition.
The Company has provided for income taxes primarily for state income taxes
associated with income from Atlantic. In addition, in the fourth quarter, the
Company recorded a tax benefit of approximately $306,000 by adjusting its
deferred tax valuation allowance for the anticipated use of net operating loss
carryforwards. In light of the expected land sale and sale of Monroc stock, the
Company believes that it is more likely than not that this benefit will be
realized.
Results of Operations 1996-1995
The Company reported net income of $547,675 for the year 1996 compared to net
income of $875,259 for the year 1995. The 1996 income consisted of net income of
$964,439 from Atlantic for the full 12 months in 1996, compared to $616,585 from
the date of its acquisition on May 19, 1995 to December 31, 1995. Gain on sale
of land decreased to $258,651 in 1996 compared to $744,936 in 1995.
Sales increased to $25,059,492 in the year 1996 from $13,653,247 reported in the
1995 year principally attributable to Atlantic's full year of sales. Atlantic's
full year sales for 1995 were $20,106,956. Atlantic's sales backlog was
$9,630,000 at December 31, 1996 as compared to $11,480,000 at December 31, 1995.
It is anticipated that approximately 95% of the backlog will be shipped during
the 1997 year.
Total cost of sales increased $8,528,513; selling, general and administrative
expenses increased $2,381,676 and interest expense increased $86,061 all
principally due to including Atlantic's operations for a full 12 month period
compared to the shorter period in 1995. As a percentage of sales, selling,
general and administrative expenses decreased approximately 2%. This 2% decrease
is due to a full year of Atlantic's sales offsetting the parent company
expenses. The expenses of Atlantic on a percentage of sales basis remained
consistent.
<PAGE>
Forward-looking Statements
- --------------------------
This Report on Form 10-KSB contains forward-looking statements relating to such
matters as anticipated financial performance and business prospects. When used
in this Report, the words "anticipates," "expects," "may", "intend" and similar
expressions are intended to be among the statements that identify
forward-looking statements. From time to time, the Company may also publish
forward-looking statements. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. Forward-looking
statements involve risks and uncertainties, including, but not limited to, the
consummation of certain events referred to in this report, technological
changes, competitive factors, maintaining customer and vendor relationships,
inventory obsolescence and availability, and other risks detailed in the
Company's periodic filings with the Securities and Exchange Commission, which
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements.
Impact of Changing Prices
The Company was not materially affected by changing prices in 1997.
Capital Resources
As of December 31, 1997, the Company had $1,240,986 in cash compared to
$1,322,533 in cash at December 31, 1996.
Cash flows used in operations during the 1997 year were principally attributable
to a decrease in accounts payable resulting from Atlantic's reduction in
inventory and accounts receivable which resulted from a $2.4 million reduction
in sales.
Cash flows provided by investing activities of $623,097 during 1997 were
principally due to proceeds received from the sale of land, sale of Monroc, Inc.
stock, payments on a note receivable offset by capital expenditures and
abandoned acquisition costs.
Cash flows used in financing activities of $752,104 during 1997 were due to
payments made on notes and a $283,022 decrease in line of credit borrowings.
At December 31, 1996, the Company had a $1,000,000 note receivable which was the
subject of litigation. In April 1997, the Company was granted a summary
judgment. On December 8, 1997, the judgment, interest and costs in the amount of
$1,207,139 were paid to the Company, $575,000 in cash and $632,139 in a note
receivable. The note receivable, with interest at the rate of 9% per annum is
payable in eight semi-annual installments of $79,017 and is secured by a real
estate mortgage and other collateral.
The Company believes that its cash is adequate for its present operations and
that credit is available should it be required. The Company's $3,500,000 line of
credit is reviewed annually each May. The Company believes the credit facility
will continue under the same terms and conditions. The Company's resources
consist primarily of cash, investment in Atlantic and Monroc, notes receivable
and land held for sale. The Company believes the carrying value of its land held
for sale is less than its market value as evidenced by an option agreement
entered into by the Company with a private company that anticipates the sale of
land for $2.3 million.
Year 2000 Date Conversion
- -------------------------
The year 2000 issue affects computer systems that have time-sensitive programs
that may not properly recognize the year 2000. The computer systems at Atlantic
are currently being upgraded and, upon completion, they will be year 2000
compliant. Management believes that the remainder of its computer systems are
year 2000 compliant. Since the Company's computer systems will be year 2000
compliant and it does not have significant data communications with its
customers, suppliers, financial institutions and others, management believes
that the year 2000 issue will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
<PAGE>
Recent Accounting Pronouncements
- --------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
No. 130, "Reporting Comprehensive Income", which is effective for fiscal years
beginning after December 15, 1997. This Statement requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This Statement further
requires that an entity display an amount representing total comprehensive
income for the period in that financial statement. This Statement also requires
that an entity classify items of other comprehensive income by their nature in a
financial statement. For example, other comprehensive income may include foreign
currency items and unrealized gains and losses on investments in equity
securities. Reclassification of financial statements for earlier periods,
provided for comparative purposes, is required. The impact of the adoption of
this statement on the Company will be the inclusion of any change in unrealized
gain on its investment security in comprehensive income. The Company will adopt
this accounting standard effective January 1, 1998, as required.
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information", effective for fiscal years beginning
after December 15, 1997. This Statement establishes standards for reporting
information about operating segments in annual financial statements and requires
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. This Statement requires reporting segment profit or loss, certain
specific revenue and expense items and segment assets. It also requires
reconciliations of total segment revenues, total segment profit or loss, total
segment assets and other amounts disclosed for segments to corresponding amounts
reported in the consolidated financial statements. Restatement of comparative
information for earlier periods presented is required in the initial year of
application. Interim information is not required until the second year of
application, at which time comparative information is required. The Company has
not determined the impact that the adoption of this new accounting standard will
have on its consolidated financial statement disclosures. The Company will adopt
this accounting standard in its annual report on Form 10-KSB for 1998.
<PAGE>
COLONIAL COMMERCIAL CORP.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1997 and 1996
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
Colonial Commercial Corp.:
We have audited the accompanying consolidated balance sheets of
Colonial Commercial Corp. and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the years in the three-year period
ended December 31, 1997. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Colonial Commercial Corp. and subsidiaries as of December 31, 1997
and 1996, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/S/ KPMG PEAT MARWICK LLP
March 6, 1998
Jericho, New York
<PAGE>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
ASSETS 1997 1996
------ ---- ----
Current assets:
Cash $ 1,240,986 1,322,533
Accounts receivable, net of allowance
for doubtful accounts of
$416,688 in 1997 and $317,250 in 1996 7,904,353 8,305,224
Inventory 823,267 1,705,747
Notes receivable - current portion 278,035 105,000
Prepaid expenses and other assets 114,245 82,292
Investment in Monroc, Inc. 3,321,790 --
Land held for sale 174,226 --
Deferred taxes 306,000 --
------------ ------------
Total current assets 14,162,902 11,520,796
Notes receivable, excluding current portion 652,854 1,313,750
Investment in Monroc, Inc. -- 2,410,203
Property and equipment, net 344,701 126,972
Land held for sale -- 324,139
------------ ------------
$ 15,160,457 15,695,860
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------
Current liabilities:
Accounts payable $ 1,748,551 3,177,550
Accrued liabilities 1,075,218 1,094,335
Income taxes payable 112,606 137,000
Borrowings under line of credit 1,990,108 2,273,130
Notes payable - current portion 447,363 469,082
------------ ------------
Total current liabilities 5,373,846 7,151,097
Notes payable, excluding current portion -- 447,363
Excess of acquired net assets over cost 837,543 950,475
------------- ------------
Total liabilities 6,211,389 8,548,935
------------- ------------
Stockholders' equity:
Convertible preferred stock, $ .05
par value, liquidation preference of
$8,337,710 and $8,599,696 at
December 31, 1997 and 1996, respectively,
2,468,860 shares authorized, 1,667,542 and
1,719,939 shares issued and outstanding
at December 31, 1997 and 1996, respectively 83,377 85,997
Common stock, $.05 par value, 20,000,000 shares
authorized, 1,429,735 and 1,377,338 shares
issued and outstanding at December 31, 1997 and
and 1996, respectively 71,487 68,867
Additional paid-in capital 9,023,669 9,023,669
Unrealized gain on investment security 1,889,990 760,203
Accumulated deficit (2,119,455) (2,791,811)
------------ ------------
Total stockholders' equity 8,949,068 7,146,925
------------ ------------
Commitments and contingencies
$ 15,160,457 15,695,860
============ ============
See accompanying notes to consolidated financial statements.
<PAGE>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Sales $ 22,642,783 25,059,492 13,653,247
Cost of sales 16,804,980 18,568,269 10,039,756
------------ ---------- ----------
Gross profit 5,837,803 6,491,223 3,613,491
Selling, general and
administrative expenses, net 5,451,864 5,886,881 3,505,205
Write-off of deferred expenses
for abandoned acquisition 385,705 -- --
------------ ---------- ----------
Operating income 234 604,342 108,286
Gain on sale of Monroc, Inc. stock 238,033 -- --
Gain on land sale 196,066 258,651 744,936
Interest income 191,473 121,781 271,866
Other income 178,231 13,064 32,173
Interest expense (287,381) (263,790) (177,729)
------------ ---------- ----------
Income before income taxes 516,656 734,048 979,532
Income taxes (benefit) (155,700) 186,373 104,273
------------ ---------- ----------
Net income $ 672,356 547,675 875,259
============ ========== ==========
Net earnings per common share:
Basic $ .47 .40 .65
=== === ===
Diluted $ .21 .17 .28
=== === ===
Weighted average shares outstanding:
Basic 1,418,719 1,362,939 1,343,055
============ ========== ==========
Diluted 3,164,840 3,137,181 3,116,449
============ ========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
COLONIAL COMMERCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Net Un-
Con- realized Total
vertible Additional gain on Accu- stock-
preferred Common paid-in investment mulated holders'
stock stock capital security deficit equity
----- ----- ------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balances at $ 88,348 66,516 9,023,669 -- (4,214,745) 4,963,788
December 31, 1994 --
Conversion of 23,134
shares of preferred stock
to common stock (1,156) 1,156 -- -- -- --
Net income -- -- -- -- 875,259 875,259
Net unrealized gain on
investment security -- -- -- 382,132 -- 382,132
---------- ---------- ---------- ---------- ---------- ---------
Balances at
December 31, 1995 87,192 67,672 9,023,669 382,132 (3,339,486) 6,221,179
Conversion of 23,895
shares of preferred stock
to common stock (1,195) 1,195 -- -- -- --
Net income -- -- -- -- 547,675 547,675
Net unrealized gain on
investment security -- -- -- 378,071 -- 378,071
---------- ---------- ---------- ---------- ---------- ----------
Balances at
December 31, 1996 85,997 68,867 9,023,669 760,203 (2,791,811) 7,146,925
Conversion of 52,397
shares of preferred stock (2,620) 2,620 -- -- -- --
to common stock -- -- --
Net income -- -- -- -- 672,356 672,356
Net unrealized gain on
investment security -- -- -- 1,129,787 -- 1,129,787 --
---------- ---------- ---------- ---------- ---------- ----------
Balances at
December 31, 1997 $ 83,377 71,487 9,023,669 1,889,990 (2,119,455) 8,949,068
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Reconciliation of net income to net cash provided by
(used in) operating activities:
<S> <C> <C> <C>
Net income $ 672,356 547,675 875,259
Adjustments to reconcile net income to cash provided
by (used in) operating activities, net of effects from
the purchase of Atlantic Hardware & Supply Corp.:
Deferred tax benefit (306,000) -- (206,356)
Gain on disposal of fixed assets (6,784) -- (11,201)
Gain on sale of land (196,066) (258,651) (744,936)
Gain on sale of Monroc, Inc. stock (238,033) -- --
Provision for allowance for doubtful accounts 270,000 232,600 137,650
Depreciation 70,326 68,930 34,099
Amortization of excess of acquired net assets
over cost (112,932) (115,774) (63,035)
Write-off of deferred expenses for abandoned
acquisition 385,705 -- --
Changes in assets and liabilities:
Accounts receivable 130,871 (1,722,423) (1,292,750)
Inventory 882,480 (404,292) 474,394
Prepaid expenses and other assets (31,953) 74,068 16,399
Accounts payable (1,428,999) 612,534 588,590
Accrued liabilities (19,117) 164,322 57,610
Income taxes payable (24,394) (69,356) 206,356
Other -- 5,801 9,888
------ -------- ------
Net cash provided by (used in) operating
activities 47,460 (864,566) 81,967
------ -------- ------
Cash flows from investing activities:
Payment for purchase of Atlantic Hardware & Supply
Corp., net of cash acquired -- -- (3,788,395)
Proceeds from (purchase of) investment securities -- -- 2,600,000
Proceeds from sale of land 345,979 336,088 422,500
Proceeds from sale of Monroc, Inc. stock 456,233 -- --
Payments received on notes receivable 487,861 512,500 129,036
Proceeds from disposal of fixed assets 19,457 -- --
Additions to property and equipment (300,728) (86,602) (34,836)
Costs incurred with respect to planned acquisition (385,705) -- --
-------- ------- --------
Net cash provided by (used in)
investing activities 623,097 761,986 (671,695)
------- ------- --------
Cash flows from financing activities:
Payments on notes payable (469,082) (494,210) (519,341)
Borrowing from short-term bank loan -- -- 1,800,000
Repayment of short-term bank loan -- -- (1,800,000)
Net borrowings (repayments) under line of credit (283,022) 63,315 2,159,815
-------- ------ ---------
Net cash provided by (used in)
financing activities (752,104) (430,895) 1,640,474
-------- -------- ---------
Increase (decrease) in cash (81,547) (533,475) 1,050,746
Cash - beginning of period 1,322,533 1,856,008 805,262
--------- --------- -------
Cash - end of period $ 1,240,986 1,322,533 1,856,008
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies and Practices
--------------------------------------------------------
(a) Description of Business
-----------------------
Colonial Commercial Corp. and subsidiaries (the Company) had been engaged
in consumer financing activities, equipment leasing and collections
through 1993 and currently holds certain assets for investment
purposes. As a result of an acquisition in 1995(note 2), the Company
is principally a distributor of door hardware, doors and door frames
used in new building construction, buildings being rehabilitated,
interior tenant buildouts and building maintenance. The Company
services the contract hardware market, usually as a material supplier
only, on a wide range of commercial, residential and institutional
construction projects. The Company's customers are located in the
United States, primarily in New York, New Jersey, Georgia, Illinois
and Pennsylvania.
(b) Principles of Consolidation
---------------------------
The consolidated financial statements include the financial statements of
the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(c) Cash Equivalents
----------------
For purposes of the statements of cash flows, the Company considers all
highly liquid investment instruments with an original maturity of
three months or less to be cash equivalents. There were no cash
equivalents at December 31, 1997 and 1996.
(d) Inventory
---------
Inventory is stated at the lower of cost or market and consists solely of
finished goods. Cost is determined using the first-in, first-out
method. During the fourth quarter of 1997, the Company reversed
approximately $217,000 of inventory reserves that were established
during the first three quarters of 1997 upon determination that such
reserves were no longer required.
(e) Notes Receivable
----------------
Notes receivable are recorded at cost, less the related allowance for
impaired notes receivable, if any.
(f) Investment in Monroc, Inc.
--------------------------
The Company classifies its investment in Monroc, Inc., (Monroc) (note 4),
as an available-for-sale security. Unrealized holding gains and
losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate
component of stockholders' equity until realized. Dividend income is
recognized when earned. Realized gains and losses from the sale of
available-for-sale securities are determined on a specific
identification basis.
(Continued)
<PAGE>
2
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(g) Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is calculated on
the straight-line method over the estimated useful lives of the
assets. The useful lives of the assets are estimated to range between
three and five years for all asset categories.
(h) Land Held For Sale
------------------
The land held for sale is stated at cost. Impairment, if any, is
recognized if the estimated fair value less costs to sell are lower
than the carrying value.
(i) Stock Option Plan
-----------------
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations. As such, compensation expense would be
recorded on the date of grant only if and to the extent that the
current market price of the underlying stock exceeded the exercise
price. On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (Statement 123), which permits entities to recognize as
expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, Statement 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in Statement 123 had
been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of Statement 123.
(j) Income Taxes
------------
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
(k) Reverse Stock Split
-------------------
On January 30, 1998, the Company made effective a five-to-one reverse
stock split, which shareholders approved on January 13, 1998. All
references in the consolidated financial statements referring to
shares, share prices, per share amounts and stock plans have been
adjusted retroactively for the five-to-one reverse stock split and the
increase in authorized common stock (note 8).
(l) Net Earnings Per Common Share
------------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share" (Statement 128). Statement 128
replaces the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Basic earnings per
share excludes any dilution. It is based upon the weighted average
number of common shares outstanding during the period. Dilutive
earnings per share reflects the potential dilution that would occur if
securities or other contracts to issue common stock were exercised or
converted
(Continued)
<PAGE>
3
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
into common stock. Earnings per share amounts for all periods
presented have been restated to conform to the new presentation.
(m) Impairment of Long-Lived Assets and Long-Lived Assets to Be
-----------------------------------------------------------
Disposed Of
-----------
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" (Statement 121) on
January 1, 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of
the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less
costs to sell. Adoption of this Statement did not have a material
impact on the Company's financial position, results of operations, or
liquidity.
(n) Use of Estimates
----------------
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(o) Reclassifications
-----------------
Certain reclassifications have been made to the 1996 and 1995
consolidated financial statements in order to conform to the 1997
presentation.
(2) Business Acquisition
--------------------
On May 19, 1995, the Company purchased the capital stock of Atlantic
Hardware and Supply Corporation (Atlantic) for $3,827,895, financed
with a $1,800,000 short-term loan and a $2,000,000 borrowing on
Atlantic's line of credit (note 6). The acquisition was accounted for
as a purchase and, accordingly, the cost of the acquisition was
allocated to the net assets acquired, based upon their estimated fair
values. The Company elected to treat the acquisition as a
purchase of assets for tax purposes, which resulted in the Company
recording a net deferred tax liability of $206,356 as of the
acquisition date (note 11). The resultant excess of the fair value of
net assets acquired over the cost, amounting to $1,129,284, is being
amortized on a straight-line basis over a ten-year period. In
connection with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 7,616,874
Cash paid for the capital stock 3,827,895
-----------
Fair value of liabilities assumed $ 3,788,979
===========
The results of operations of Atlantic have been included in the
accompanying consolidated statements of income from the date of
acquisition.
The following unaudited pro forma summary for 1995 incorporates the
historical results of operations of the purchased business adjusted
for interest on acquisition financing and amortization of the excess
of net assets acquired over the cost, as if the acquisition had taken
place on January 1, 1994. The pro forma results of operations are not
necessarily indicative of the actual results that would have occurred
had the purchase been made at the beginning of the period, or results
that may occur in the future.
(Continued)
<PAGE>
4
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Year ended December 31,
1995
----
(Unaudited)
Total revenues $ 20,533,163
============
Net earnings $ 814,294
============
Net earnings per common share:
Basic $ .61
===
Diluted $ .26
===
Weighted average shares outstanding:
Basic 1,343,055
============
Diluted 3,116,449
============
(3) Notes Receivable
----------------
Notes receivable consist of the following at December 31:
1997 1996
---- ----
Note receivable (a) $ 632,139 1,000,000
Subordinated note (b) 298,750 418,750
------- ---------
Total notes receivable 930,889 1,418,750
Less current portion 278,035 105,000
------- ---------
Total notes receivable,
less current portion $ 652,854 1,313,750
========= =========
(a) At December 31, 1996 the $1,000,000 note receivable was past due. The
extended legal actions pursued since the due date of the note
resulted in the Company receiving payment in December 1997 of
$575,000, of which $367,861 was applied against the note. The balance
of the payment received in December 1997 of $207,139 was partially
for the reimbursement of legal costs of $64,500, which is reflected
as a reduction to selling, general and administrative expenses on the
accompanying consolidated statement of income for the year ended
December 31, 1997. The remainder of the payment received in December
1997 of $142,639 was for past due interest, which is reflected in
interest income in the accompanying consolidated statement of income
for the year ended December 31, 1997. The outstanding balance of the
note, $632,139, was replaced with a new note, secured by a real
estate mortgage and other collateral, bearing interest at 9% and
payable in eight equal semi-annual installments of $79,017 beginning
in June 1998.
(b) The Company has a subordinated note due from Monroc (note 4) bearing
interest at the prime rate, which was 8.5% and 8.25% at December 31,
1997 and 1996, respectively. Under the terms of the subordination
agreement, Monroc made principal payments of $120,000 and $135,000
during 1997 and 1996, respectively, and is to make future payments of
$120,000 per year provided that it is in compliance with the terms of
its line of credit agreement.
(4) Investment in Monroc, Inc.
The Company owned 328,071 and 378,071 shares at December 31, 1997 and
1996, respectively, of Monroc common stock, which were classified as
available-for-sale securities at such dates. The fair value of the
investment security was $3,321,790 and $2,410,203 at December 31, 1997
and 1996, respectively , which is comprised of a cost basis of
$1,431,800 and $1,650,000, and a gross unrealized holding gain of
$1,889,990 and $760,203 at December 31, 1997 and 1996, respectively,
which is recorded as a separate component of stockholders' equity. In
June 1997, the Company sold 50,000 shares of Monroc common stock for
proceeds of $456,233 and a gain of $238,033.
(Continued)
<PAGE>
5
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
On January 29, 1998, Monroc signed a definitive merger agreement with a
privately held company, US Aggregates, Inc. under which US Aggregates,
Inc. will acquire, for cash, all of the outstanding shares of Monroc
common stock for $10.77 per share. The boards of the acquirer and
Monroc have approved the transaction, the closing of which is
contingent upon approval of Monroc's stockholders and certain
regulatory agencies and the satisfaction of certain other conditions.
Upon the closing of the proposed merger, the Company would record a
gain of approximately $6.41 per share or $2,103,000 in its
consolidated statement of income and reverse any previously recorded
unrealized holding gain recorded as a separate component of
stockholders' equity.
During 1995, the Company entered into a voting rights agreement with a 37%
investor in Monroc. The agreement requires the Company to vote its
shares in Monroc in favor of the directors proposed for election by
the investor for a period of ten years, or until the investor owns
less than 25% of the outstanding common shares of Monroc.
During 1995, the Company entered into a consulting agreement with Monroc.
Under the terms of the agreement, the Company is to receive $15,000
per year for a period of four years, or until the Company owns less
than 189,035 shares.
(5) Property and Equipment
----------------------
Property and equipment consist of the following at December 31:
1997 1996
---- ----
Computer hardware and software $ 417,261 142,465
Office and warehouse equipment 46,397 20,465
Furniture and fixtures 37,109 37,109
Automobiles 30,483 51,863
------- -------
531,250 251,902
Less accumulated depreciation 186,549 124,930
------- -------
$ 344,701 126,972
======= =======
Computer software includes approximately $117,583 of costs as of
December 31, 1997 related to the acquisition and installation of
management information systems for internal use. Amortization of
computer software costs will commence when the new system is fully
operational and will be amortized on a straight-line basis over three
years.
(6) Financing Arrangements
----------------------
At December 31, 1997 and 1996, the Company had available a line of credit
with a financial institution for $3,500,000 and $2,500,000,
respectively. Amounts outstanding under the line of credit were
$1,990,108 and $2,273,130 at December 31, 1997 and 1996, respectively.
Borrowings under the line of credit bear interest at prime plus 2%,
which was 10.5% and 10.25% at December 31, 1997 and 1996,
respectively. The line of credit agreement is subject to review
annually in May.
The credit facility allows the Company to borrow against eligible accounts
receivable on a formula basis. Borrowings under the line of credit are
secured by accounts receivable and inventory. Monthly interest and
principal payments are based upon monthly accounts receivable
collections, as defined.
(Continued)
<PAGE>
6
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The maximum month-end amount outstanding under the line of credit during
1997, 1996 and 1995 was $2,526,450, $2,374,624 and $2,209,815,
respectively. In 1997, average borrowings under the line were
$2,238,086 and the weighted average interest rate was 10.4 %. In 1996,
average borrowings under the line were $2,023,249 and the weighted
average interest rate was 10.3%. From the date of the acquisition of
Atlantic through the end of 1995, average borrowings were $1,789,352
and the weighted average interest rate was 10.8%.
(7) Notes Payable
-------------
Notes payable of $447,363 and $916,445 at December 31, 1997 and 1996,
respectively, are due to creditors, pursuant to a 1983 reorganization
plan. In accordance with the plan the notes were established to
include interest, at 6% per annum through maturity, and therefore
interest expense is not reflected in the accompanying consolidated
statements of income. Included in accrued liabilities at December 31,
1997 and 1996 is approximately $483,556 and $545,355, respectively, of
unclaimed payments on the notes payable. In 1997, $150,321 of the
unclaimed payments were recorded as other income in the accompanying
consolidated statements of income since in accordance with the opinion
of counsel, the Company is entitled to these payments.
The notes payable at December 31, 1997 were paid in full on January 16,
1998.
(8) Capital Stock
-------------
On January 13, 1998, the stockholders approved a proposal to amend the
Company's Certificate of Incorporation to effect a five-to-one reverse
stock split by changing the number of authorized shares of common
stock, par value $.01 from 40,000,000 shares to 8,000,000 shares, par
value $.05 and the number of authorized shares of convertible
preferred stock, par value $.01, from 12,344,300 shares to 2,468,860
shares, par value $.05. The Company made the reverse stock split
effective on January 30, 1998. In addition, stockholders approved a
proposal to amend the Company's Certificate of Incorporation
immediately following the amendment effecting the reverse stock split
to increase the amount of authorized common stock to 20,000,000 with a
par value of $.05 per share.
Each share of the Company's preferred stock is convertible into one share
of the Company's common stock. Preferred stockholders will be entitled
to a dividend, based upon a formula, when and if, any dividends are
declared on the Company's common stock. The preferred stock is
redeemable, at the option of the Company, at $7.50 per share.
The voting rights of the common stockholders and preferred stockholders
are based upon the number of shares of convertible preferred stock
outstanding. If 1,250,000 or more shares of preferred stock are
outstanding five of the nine directors are elected by the common
stockholders and the remainder by the preferred stockholders. If more
than 600,000 but less than 1,250,000 preferred shares are outstanding,
six of the nine directors are elected by common stockholders. A
majority of the directors elected by preferred stockholders and a
majority of the directors elected by the common stockholders are
required to approve certain transactions, including, but not limited
to, incurring certain indebtedness, merger, consolidation or
liquidation of the Company, and the redemption of common stock.
Preferred and common stockholders vote together on all other matters.
At December 31, 1997 there were 2,013,042 shares of common stock reserved
for conversion of preferred stock and for the exercise of stock
options (note 9).
(Continued)
<PAGE>
7
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
In November 1997, the Board of Directors approved the repurchase of up
to 1,000,000 shares, collectively, of the Company's common and convertible
preferred stock in the open market. Subsequent to December 31, 1997, 5,000
shares have been repurchased at an average price of $2.38 per share for an
aggregate amount of $11,875.
(9) Stock Options
-------------
On January 13, 1998, stockholders approved a proposal to increase the
number of shares of Common Stock for which options can be issued
pursuant to the 1996 Stock Option Plan (the 1996 Plan) by 1,000,000
shares from 200,000 to 1,200,000 shares on a post-reverse stock
split basis. At December 31, 1997, a total of 20,000 options have
been issued under the 1996 Stock Option Plan and 145,500 options
were outstanding under the Company's 1986 Stock Option Plan, which
expired on December 31, 1995.
In June 1996, the Company adopted the 1996 Plan pursuant to which the
Company's Board of Directors may grant up to 200,000 options until
December 31, 2005 to key employees and other persons who render
service to the Company. Under the 1996 Plan, the options can be either
incentive or nonqualified. The rate at which the options are
exercisable is to be determined by the Board of Directors at the time
of grant. The exercise price of the incentive stock options may not be
less than the fair market value of the Company's common stock on the
date of grant. The exercise price of the nonqualified stock options
may not be less than 85% of the fair market value of the Company's
common stock on the date of grant. In February 1997, options to
purchase 20,000 shares of common stock were granted to certain
employees at $2.50 per share, which equaled the fair market value of
the shares at the date of the grant under the 1996 Plan.
Such options are immediately exercisable and expire in February
2007.
In May 1995, nonqualified options to purchase 10,000 shares of common
stock were granted to a key employee at $1.90 per share which equaled
the fair market value of the shares at the date of grant under the
1986 stock option plan (1986 Plan). Such options were immediately
exercisable and expire in June 2005. The 1986 Plan, which expired on
December 31, 1995, had similar provisions to that of the 1996 Plan.
Changes in options outstanding are as follows:
Shares Subject Weighted Average
to Option Exercise Price
--------- --------------
Balance at December 31, 1994 135,500 $ 1.40
Granted 10,000 1.90
------- ------
Balance at December 31, 1995 145,500 1.45
Granted -- --
-------
Balance at December 31, 1996 145,500 1.45
Granted 20,000 2.50
-------
Balance at December 31, 1997 165,500 $ 1.57
======= ======
At December 31, 1997, 1996 and 1995, all shares subject to option were
exercisable. At December 31, 1997, the range of exercise prices and
weighted average remaining contractual life of outstanding options was
$1.25-$2.50 per share and approximately six years, respectively.
The per share fair value of the stock options granted during 1997 was
$2.13 on the date of grant using the Black Scholes option-pricing
model with the following assumptions: expected dividend yield 0%,
expected volatility of 80%, risk-free interest rate of 6.3% and an
expected life of 10 years. The per share fair value of the stock
options granted during 1995 was $1.75 on the date of grant using the
Black Scholes option-pricing model with the following assumptions:
expected dividend yield 0%, expected volatility of 100%, risk-free
interest rate of 6.4% and expected life of 10 years.
(Continued)
<PAGE>
8
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Company applies APB Opinion No. 25 in accounting for options issued
pursuant to its stock option plan, accordingly, no compensation cost
has been recognized for its stock options in the financial statements.
Had the Company determined compensation cost based on the fair value
at the grant date for its stock options under Statement 123, the
Company's net income and net earnings per share would have been
reduced to the pro forma amounts indicated below:
1997 1996 1995
---- ---- ----
Net income:
As reported $ 672,356 547,675 875,259
Pro forma 629,730 547,675 857,759
Net earnings per common share (basic):
As reported .47 .40 .65
Pro forma .44 .40 .64
Net earnings per common share (diluted):
As reported .21 .17 .28
Pro forma .20 .17 .28
(10) Net Earnings Per Common Share
-----------------------------
As discussed in Note 1(l), the Company adopted Statement 128, which
replaces the calculation of primary and fully diluted earnings per
share, with basic and diluted earnings per share. Prior periods have
been restated to conform to the Statement 128 requirements. A
reconciliation between the numerators and denominators of the basic
and diluted earnings per common share is as follows:
1997 1996 1995
---- ---- ----
Net income (numerator) $ 672,356 $ 547,675 $ 875,259
========== ========== ==========
Weighted average common shares
(denominator for basic earnings
per share) 1,418,719 1,362,939 1,343,055
Effect of dilutive securities:
Convertible preferred stock 1,678,559 1,734,339 1,754,222
Employee stock options 67,562 39,903 19,172
--------- --------- ---------
Weighted average common
and potential common shares
outstanding (denominator for
diluted earnings per share) 3,164,840 3,137,181 3,116,449
========= ========= =========
Basic earnings per share $ .47 $ .40 $ .65
=== === ===
Diluted earnings per share $ .21 $ .17 $ .28
=== === ===
Employee stock options of 20,000 and 10,000 for the fourth quarter ended
December 31, 1997 and year ended December 31, 1995, respectively, were not
included in the net earnings per share calculation because their effect
would have been anti-dilutive.
(Continued)
<PAGE>
9
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) Income Taxes
------------
The provision (benefit) for income taxes attributable to income is comprised of:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
State and State and State and
Federal Local Total Federal Local Total Federal Local Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current $ 2,000 148,300 150,300 4,569 181,804 186,373 43,989 266,640 310,629
Deferred (306,000) -- (306,000) -- -- -- (26,713) (179,643) (206,356)
-------- ------- -------- ------- -------- -------- ------- -------- --------
$(304,000) 148,300 (155,700) 4,569 181,804 186,373 17,276 86,997 104,273
========= ======= ======== ======= ======= ======== ======= ======== ========
</TABLE>
Income tax expense for 1997 and 1996 differed from amounts computed by
applying the U.S. Federal income tax rate of 34% to pre-tax income due
to state and local taxes, net of Federal income tax benefit and a net
reduction in the valuation allowance for deferred tax assets of
$1,288,667, $1,296,069 and $858,475 for 1997, 1996 and 1995,
respectively.
In connection with the acquisition of Atlantic, the Company elected,
pursuant to Internal Revenue Code Section 338(h)(10), to treat the
acquisition as a purchase of assets. Accordingly, the Company recorded
a net deferred tax liability of $206,356 at the date of acquisition.
The deferred tax liability is net of a benefit recorded for the tax
effect of the expected utilization of the Company's operating loss
carryforwards in the amount of $393,039, as a result of the
acquisition. The net deferred tax liability of $206,356 reversed
during 1995 and was currently due at December 31, 1995.
The components of deferred income tax expense (benefit) are as follows:
1997 1996 1995
---- ---- ----
Deferred tax expense (exclusive
of the effect of the other
components listed below) $ 492,253 232,747 (212,698)
Adjustment to deferred tax
assets for expired
net operating loss
carryforwards 490,414 1,063,322 234,418
Recording of deferred tax
liability in connection
with acquisition -- -- 206,356
Decrease in beginning-of-the-
year balance of the
valuation allowance for
deferred tax assets (1,288,667) (1,296,069) (434,432)
---------- ---------- --------
$ (306,000) -- 206,356
=========== =========== ===========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1997 and 1996 are
presented below.
1997 1996
---- ----
Deferred tax assets:
Net operating loss carryforwards $ 12,253,826 12,917,942
Accounts receivable due to allowance
for doubtful accounts 175,002 146,249
Inventory due to valuation reserve 124,315 85,283
Alternative minimum tax credit
carryforward 42,955 45,163
Other 11,286 11,286
----------- -----------
Total gross deferred tax assets 12,607,384 13,205,923
Less valuation allowance (11,658,787) (12,947,454)
----------- -----------
Deferred tax assets, net 948,597 258,469
=========== ===========
Deferred tax liabilities:
Investment security due to unrealized gain (642,597) (258,469)
----------- -----------
Net deferred tax asset $ 306,000 --
=========== ===========
(Continued)
<PAGE>
10
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
A valuation allowance is provided when it is more likely than not that
some portion, or all, of the deferred tax assets will not be realized.
Based upon projected taxable income anticipated to result principally
from the realization of "built in gains" to be generated from the sale
of certain assets, management believes that it is more likely than not
that the Company will realize the benefit of the net deferred tax
assets existing at December 31, 1997. Accordingly, the valuation
allowance was reduced in the fourth quarter of 1997 in order to
recognize a net deferred tax asset of $306,000. In order to fully
realize the net deferred tax asset, the Company will need to generate
future taxable income of approximately $900,000.
At December 31, 1997, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $36,000,000. Varying
amounts of the net operating loss carryforwards will expire each year
from 1998 through 2008. Approximately $2,400,000 of the net operating
loss carryforwards will expire if not utilized during 1998. During
1997, the Company utilized approximately $491,000 of its net operating
loss carryforwards and $1,442,395 expired. The net operating loss
carryforwards have been substantially reduced as a result of certain
annual limitations and they may be further limited to utilization
against the future earnings of the subsidiary that sustained the loss.
If certain substantial changes in ownership occur, there would be a
further annual limitation on the amount of tax carryforwards that can
be utilized in the future.
(12) Fair Value of Financial Instruments
-----------------------------------
Financial Accounting Standards Board Statement No.107, "Disclosure about
Fair Value of Financial Instruments," defines the fair value of a
financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties. The
carrying value of all financial instruments classified as current
assets or liabilities is deemed to approximate fair value, with the
exception of the notes receivable and notes payable, because of the
short maturity of these instruments.
The notes receivable approximate fair value as the interest rates are
comparable to rates currently offered by local lending institutions
for loans of similar terms to companies with comparable credit risk.
The notes payable carrying amount of $447,363 and $916,445 in the
accompanying consolidated balance sheets, have an estimated fair value
of approximately $447,363 and $874,950 at December 31, 1997 and 1996,
respectively. The fair values of the notes payable were estimated by
discounting the future cash flows of the instrument at a rate
currently offered to the Company for similar debt instruments of
comparable maturities by the Company's bankers.
(13) Supplemental Cash Flow Information
----------------------------------
The following is supplemental information relating to the consolidated
statements of cash flows:
1997 1996 1995
---- ---- ----
Cash paid during the years for:
Interest $ 286,340 260,628 154,575
======= ======= =======
Income taxes $ 181,428 250,878 108,741
======= ======= =======
Non-cash transactions:
In 1997, the Company received a note in the amount of $632,139 secured by
a real estate mortgage and other collateral as partial consideration
for an equivalent amount of a previously outstanding note (note 3(a)).
In 1995, the Company received a note receivable for $377,500 in connection
with the sale of land.
(Continued)
<PAGE>
11
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
In 1997, 1996 and 1995, the Company recorded an unrealized holding gain
relating to available-for- sale marketable equity securities of
$1,129,787, $378,071 and $382,132 , respectively, as a separate
component of stockholders' equity.
(14) Employee Benefit Plans
----------------------
The Company has a profit-sharing plan and a 401(k) plan, which cover
substantially all employees of Atlantic. Participants in the 401(k)
plan may contribute a percentage of compensation, but not in excess of
the maximum allowed under the Internal Revenue Code. The 401(k) plan
does not provide for matching contributions, however, the Board of
Directors can authorize discretionary contributions to both the profit
sharing and 401(k) plans. In 1997, 1996 and 1995, the Board of
Directors authorized $70,000, $75,000 and $33,827, respectively, of
such discretionary contributions to the plans. Prior to 1995, the
Company did not have these employee benefit plans.
(15) Industry Segments
-----------------
Summarized financial information for each of the Company's two business
segments for 1997, 1996 and 1995 is as follows:
Door
hardware, Investing
doors activities and
1997 and door frames corporate Total
---- --------------- --------- -----
Revenues $22,642,783 -- 22,642,783
Operating income (loss) 1,154,004 (1,153,770)(a) 234
Identifiable assets 9,232,245 5,928,212(b) 15,160,457
Depreciation expense 68,380 1,946 70,326
Capital expenditures 300,728 -- 300,728
======= ====== =======
Door
hardware, Investing
doors activities and
1996 and door frames corporate Total
---- --------------- --------- -----
Revenues $25,059,492 -- 25,059,492
Operating income (loss) 1,425,404 (821,062) 604,342
Identifiable assets 10,218,917 5,476,943(b) 15,695,860
Depreciation expense 63,298 5,632 68,930
Capital expenditures 84,104 2,498 86,602
====== ===== ======
Door
hardware, Investing
doors activities and
1995 and door frames corporate Total
---- --------------- --------- -----
Revenues $13,653,247 -- 13,653,247
Operating income (loss) 853,575 (745,289) 108,286
Identifiable assets 8,477,432 5,876,851(b) 14,354,283
Depreciation expense 31,406 2,693 34,099
Capital expenditures 31,499 3,338 34,837
====== ===== ======
(a) Includes $385,705 of a write-off of deferred expenses for an
abandoned acquisition.
(b) Principally related to the Company's investing activities.
(Continued)
<PAGE>
12
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(16) Business and Credit Concentrations
----------------------------------
During 1997, four customers accounted for approximately 27% of the
Company's annual sales, during 1996, four customers accounted for
approximately 23% of the Company's annual sales and during 1995, seven
customers accounted for approximately 30% of the Company's annual
sales. At December 31, 1997, seven customers had accounts receivable
balance, which in the aggregate, represented 34% of the total net
receivable balance and at December 31, 1996, seven
customers represented 30% of the total net receivable balance. The
Company estimates an allowance for doubtful accounts based on the
creditworthiness of its customers as well as general economic
conditions. Consequently, an adverse change in those factors could
affect the Company's estimate of its bad debts. The Company as a
policy does not require collateral from its customers.
(17) Commitments and Contingencies
-----------------------------
(a) Environmental Matters
---------------------
The Company owns a 50% interest in a 10-acre property located in Murray,
Utah, which contains lead slag deposited by the former owner. For this
and adjoining properties the Environmental Protection Agency (EPA) has
concluded that remedial action should be taken and has been proposed
by the EPA for listing on the National Properties List for cleanup of
the lead slag. Although the Company has not been a generator of the
slag material, under the Comprehensive Environmental Response
Compensation and Liability Act, the current owner of a property may be
liable for response costs. Although the EPA typically pursues the
generator responsible for delivering the material, a possible claim
exists against the property owner. In such case, the Company would
pursue a claim against former owners for its respective share of the
cost of cleanup. The Company has not been designated a Potentially
Responsible Party by the EPA with respect to cleanup of any waste at
this site.
The Company has been participating in a study group with the EPA, the
former owner, Murray City, and other current land owners to develop a
plan that would result in the remediation of the property. An
agreement in principle has been reached among all parties and the EPA
has prepared a draft consent decree The remediation plan calls for the
dedication of less than one acre of the Company's property for the
extension of a roadway in Murray City. In return, the Company will
receive contribution protection and a covenant that the Company will
not be sued. Under the current draft of the consent decree, the
Company's obligations terminate upon sale of the property. If the
consent agreement is approved, any cost to the Company is not expected
to be material. However, until approval of a consent agreement, it is
difficult to estimate the financial impact to the Company, if any.
On December 17, 1997, the Company and its 50% partner entered into an
agreement to sell its total acreage in Murray, Utah for approximately
$2.3 million. The closing is subject to certain conditions, including
the execution of the consent decree between the EPA, Murray City, and
certain other parties.
(b) Employment Contracts
--------------------
The Company has employment contracts with two officers and various
employees with remaining terms ranging from one to four years at
amounts approximating their current levels of compensation. Certain of
the contracts expired on December 31, 1997 and were reissued effective
January 1, 1998. The Company's remaining aggregate commitment at
December 31, 1997, including the contracts effective January 1, 1998,
is approximately $2,598,000.
(Continued)
<PAGE>
13
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(c) Leases
The Company is obligated under operating leases for warehouse, office
facilities and certain office equipment. Rental expense, including
real estate taxes, amounted to approximately $283,000, $291,000 and
$208,000 in 1997, 1996 and 1995, respectively. Rental expense in 1997
is before sublease income of $46,020. At December 31, 1997, future
minimum lease payments in the aggregate and for each of the five
succeeding years are as follows:
1998 $298,000
1999 231,000
2000 91,000
2001 11,000
2002 -
---------
$631,000
========
Future minimum rentals have not been reduced by minimum sublease rental
income of $55,544 due in the future under noncancelable subleases.
<PAGE>
OFFICERS
Bernard Korn, Chairman of the Board/President
James W. Stewart, Executive Vice President/Treasurer/Secretary
SUBSIDIARY
Atlantic Hardware and Supply Corporation
Paul Selden, President
DIRECTORS
Gerald S. Deutsch
Certified Public Accountant and Attorney
William Koon
President - Lord's Enterprises, grain merchants
Bernard Korn
Chairman of the Board/President
Donald K. MacNeill
Retired Corporate Executive
Ronald Miller
Miller and Hearn, attorneys
Jack Rose
Investor
Paul Selden
Atlantic Hardware and Supply Corporation/President
James W. Stewart
Executive Vice President/Treasurer/Secretary
Carl L. Sussman
Investor
COUNSEL STOCK LISTINGS - NASDAQ
Oscar D. Folger, Esq. Convertible Preferred Stock
New York, New York Symbol = CCOM-P
AUDITORS Common Stock
KPMG Peat Marwick LLP Symbol = CCOM
Jericho, New York
REGISTRAR AND TRANSFER AGENT 10-KSB AVAILABLE
American Stock Transfer Co. The Annual Report on Form 10-KSB
New York, New York as filed with the Securities and
Exchange Commission, is available
TRUSTEE OF 6% NOTES to stockholders without charge
IBJ Schroder Bank & Trust Co. upon written request to:
New York, New York
Secy., Colonial Commercial Corp.
ANNUAL STOCKHOLDERS MEETING 3601 Hempstead Turnpike
Wednesday, June 10,1998,10:30 AM Levittown, New York 11756-1315
EXHIBIT 21 - SUBSIDIARIES OF REGISTRANT
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
FED. I.D. 11-2037182
NAME OF SUBSIDIARY I.D. NUMBER
Atlantic Hardware and Supply Corporation 13-2687036
Southern Mortgage Associates, Inc. 58-1283424
Wel-Com Financial Services, Inc. 31-0484520
Homeowners Equities, Inc. 11-2164702
Colonial Commercial Sub Corp. 11-3391045
Devon Capital Corporation 11-2511952
Devon Home Center Stores of Alabama, Inc. 63-0899560
Devon Home Center Stores of Alaska, Inc. 93-0888948
Devon Home Center Stores of Arizona, Inc. 86-0435657
Devon Home Center Stores of Arkansas, Inc. 72-0575478
Devon Home Center Stores of California, Inc. 95-3562992
Devon Home Center Stores of Colorado, Inc. 11-2659058
Devon Home Center Stores of Connecticut, Inc. 06-1212345
Devon Home Center Stores of Delaware, Inc. 51-0272647
Devon Home Center Stores of Florida, Inc. 59-2133173
Devon Home Center Stores of Georgia, Inc. 58-1562213
Devon Home Center Stores of Hawaii, Inc. 59-2602021
Devon Home Center Stores of Idaho, Inc. 82-0391365
Devon Home Center Stores of Illinois, Inc. 11-2659057
Devon Home Center Stores of Kansas, Inc. 48-0977143
Devon Home Center Stores of Kentucky, Inc. 62-1185807
Devon Home Center Stores of Louisiana, Inc. 72-0946179
Devon Home Center Stores of Maryland, Inc. 52-1426814
Devon Home Center Stores of Massachusetts, Inc. 04-2898705
Devon Home Center Stores of Mississippi, Inc. 64-0662622
Devon Home Center Stores of Missouri, Inc. 43-1340332
Devon Home Center Stores of Montana, Inc. 93-0953467
Devon Home Center Stores of Nebraska, Inc. 47-0645693
Devon Home Center Stores of Nevada, Inc. 88-0175788
Devon Home Center Stores of New Jersey, Inc. 11-1263496
Devon Home Center Stores of New Mexico, Inc. 74-2274898
Devon Home Center Stores of New York, Inc. 14-1680633
Devon Home Center Stores of North Carolina, Inc. 62-1165477
Devon Home Center Stores of North Dakota, Inc. 45-0385825
Devon Home Center Stores of Ohio, Inc. 11-2659059
Devon Home Center Stores of Oklahoma, Inc. 73-1153207
Devon Home Center Stores of Pennsylvania, Inc. 52-1502376
Devon Home Center Stores of Rhode Island, Inc. 05-0422283
Devon Home Center Stores of South Carolina, Inc. 57-0734213
Devon Home Center Stores of South Dakota, Inc. 46-0381832
Devon Home Center Stores of Tennessee, Inc. 62-1164261
Devon Home Center Stores of Texas, Inc. 74-2205286
Devon Home Center Stores of Utah, Inc. 87-0410622
Devon Home Center Stores of Virginia, Inc. 62-1209840
Devon Home Center Stores of Washington, Inc. 91-1219687
Devon Home Center Stores of Wyoming, Inc. 83-0277441
Financial Resources, Inc. 54-1159936
Henry Appliance Corporation 54-1107964
Henry's Warehouse, Inc. 54-1116717
EXHIBIT 23 - ACCOUNTANTS' CONSENT
The Board of Directors
Colonial Commercial Corp.
and Subsidiaries:
We consent to incorporation by reference in the registration statement
(No. 333-37025) on Form S-8 of Colonial Commercial Corp. of our report dated
March 6, 1998, relating to the consolidated balance sheets of Colonial
Commercial Corp. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1997, which
report is incorporated by reference in the December 31, 1997 annual report on
Form 10-KSB of Colonial Commercial Corp.
/s/ KPMG PEAT MARWICK LLP
Jericho, New York
March 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000021828
<NAME> COLONIAL COMMERCIAL CORP.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,240,986
<SECURITIES> 0
<RECEIVABLES> 8,321,041
<ALLOWANCES> 416,688
<INVENTORY> 823,267
<CURRENT-ASSETS> 14,162,902
<PP&E> 531,250
<DEPRECIATION> 186,549
<TOTAL-ASSETS> 15,160,457
<CURRENT-LIABILITIES> 5,373,846
<BONDS> 0
<COMMON> 71,487
0
83,377
<OTHER-SE> 8,794,204
<TOTAL-LIABILITY-AND-EQUITY> 15,160,457
<SALES> 22,642,783
<TOTAL-REVENUES> 22,642,783
<CGS> 16,804,980
<TOTAL-COSTS> 16,804,980
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 270,000
<INTEREST-EXPENSE> 287,381
<INCOME-PRETAX> 516,656
<INCOME-TAX> (155,700)
<INCOME-CONTINUING> 672,356
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 672,356
<EPS-PRIMARY> .47
<EPS-DILUTED> .21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000021828
<NAME> COLONIAL COMMERCIAL CORP.
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 1,856,008 1,322,533
<SECURITIES> 0 0
<RECEIVABLES> 6,953,051 8,622,474
<ALLOWANCES> 137,650 317,250
<INVENTORY> 1,301,455 1,705,747
<CURRENT-ASSETS> 10,788,724 11,520,796
<PP&E> 165,300 251,902
<DEPRECIATION> 56,000 124,930
<TOTAL-ASSETS> 14,609,283 15,695,860
<CURRENT-LIABILITIES> 6,405,411 7,151,097
<BONDS> 916,444 447,363
<COMMON> 67,672 68,867
0 0
87,192 85,997
<OTHER-SE> 6,066,315 6,992,061
<TOTAL-LIABILITY-AND-EQUITY> 14,609,283 15,695,860
<SALES> 13,653,247 25,059,492
<TOTAL-REVENUES> 13,653,247 25,059,492
<CGS> 10,039,756 18,568,269
<TOTAL-COSTS> 10,039,756 18,568,269
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 137,650 232,600
<INTEREST-EXPENSE> 177,729 263,790
<INCOME-PRETAX> 979,532 734,048
<INCOME-TAX> 104,273 186,373
<INCOME-CONTINUING> 875,259 547,675
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 875,259 547,675
<EPS-PRIMARY> .65 .40
<EPS-DILUTED> .28 .17
</TABLE>
